Significant Changes for Salaried Individuals

As India steps into the new financial year (FY 2026-27) starting April 1, 2026, salaried employees will encounter notable changes in Tax Deducted at Source (TDS) rules and an enhancement in various tax-free benefits. These updates are a direct consequence of the new Income-tax Act, 2025, and accompanying Income-tax Rules, 2026.

Key TDS and Tax Calculation Adjustments

• Employer TDS Recalculation: From April 1, 2026, employers are mandated to reset and recalculate TDS for the new financial year. This will be based on the employee's projected income, chosen tax regime (old or new), and applicable deductions. This recalibration could lead to adjustments in monthly take-home salaries.
• Form 130 Replaces Form 16: A major procedural change for salaried taxpayers is the replacement of the traditional Form 16 (TDS certificate issued by employers) with a new system-generated Form 130. This new form aims to standardize and digitize reporting, improving accuracy. Salaried individuals will receive Form 130 instead of Form 16 from FY 2026-27 onwards.
• Choice of Tax Regime: The new tax regime continues to be the default option. However, employees still retain the flexibility to opt for the old tax regime if it proves more beneficial for them, especially if they claim various deductions and exemptions.

Enhanced Tax-Free Benefits

The government has introduced higher standard deductions and increased several tax-free benefits to ease the burden on salaried individuals:

• Children Education Allowance: The monthly tax-free limit for Children Education Allowance has been substantially increased from ₹100 to ₹3,000 per month per child.
• Hostel Allowance: Similarly, the tax-free Hostel Expenditure Allowance has seen a significant jump from ₹300 to ₹9,000 per month per child.
• HRA Exemption Expansion: The 50% House Rent Allowance (HRA) exemption, previously limited to specific metro cities, has been extended to include Bengaluru, Pune, Hyderabad, and Ahmedabad. This means taxpayers in eight cities (Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Pune, Hyderabad, and Ahmedabad) can now claim up to 50% HRA exemption.
• Meal Allowance: The tax-exempt limit for employer-provided meal cards/vouchers has been raised from ₹50 to ₹200 per meal.