Income Tax Act 2025: New Rules for Salaried Persons FY 2026-27

 

Income Tax Act 2025: New Rules for Salaried Persons FY 2026-27. The Income Tax Act, 2025 dramatically restructures India’s direct tax landscape. The law collapses the old 819 sections into 536 streamlined sections and slashes the number of statutory forms from 399 to 190. While it simplifies compliance and updates section code terminology, the underlying tax rates and slab amounts remain identical.

1. The Core Structural Shifts • Goodbye "Assessment Year": The confusing split between "Previous Year" and "Assessment Year" is replaced by a single, unified "Tax Year" (e.g., Tax Year 2026–27).

• The Default Regime: The New Tax Regime—governed under Section 202 (formerly Section 115BAC)—is the formal default framework. You must actively declare if you wish to opt out and choose the Old Tax Regime.

• Standard Deduction Mapping: The standard deduction for the New Regime is codified at ₹75,000 under Section 19 (formerly Section 16(ia)). [ 2. Form Modifications for Salaried Individuals: The compliance forms you interact with, or that your employer issues, have transitioned to completely new numbers under the

Old Form (1961 Act)	New Form (2025 Act)	Purpose & Modifications
Form 16	Form No. 130	The annual salary TDS certificate issued by your employer. All internal section codes in Part B (e.g., 80C, 80D, 10(13A)) have been completely renumbered to match the 2025 Act.
Form 12BB	Form No. 124	The declaration form a salaried employee submits to their employer to claim tax exemptions (like HRA or LTA). It is now mandatory to use this if claiming an HRA deduction of over ₹1 Lakh paid to family members.
Form 24Q	Form No. 138	The quarterly TDS return filed by your employer. The reporting format shifts entirely from section-based deductions to code-based references.
Form 10E	Form No. 39	The relief form required to claim tax relief when receiving salary arrears or advance salary under Section 157.
AIS (Annual Info Statement)	Form No. 168	The evolved comprehensive statement used to track your financial transactions and tax deductions.

• Filing ITR: The statutory provisions for filing original, belated, or revised returns are now consolidated under Section 263.

• Extended Updated Returns: Under Section 263(6), the timeframe allowed to file updated returns to correct past errors is extended up to 48 months from the end of the tax year.

• HRA Metro Changes: While structural, note that the 50% House Rent Allowance (HRA) exemption threshold has formally expanded to cover 8 major cities, adding Bangalore, Hyderabad, Pune, and Ahmedabad to the list.t From 1 April 2026, the Income Tax Act 2025 introduces a revised tax framework that changes how taxpayers manage and comply with their income tax obligations.

The Income-tax Act, 2025 reorganises several deduction provisions that earlier appeared under the Income-tax Act, 1961. In many cases, the 2025 law retains the substance of the old deductions but shifts, renumbers, or restructures them for better legislative clarity. Taxpayers should read the new provisions carefully because some deductions remain largely unchanged, while others now rely on schedules or corresponding sections for detailed conditions.

Deduction (1961)	Section (2025)	Nature of Deduction	Payment Limit	Eligibility	Note
80C	123	Life insurance premium, provident fund, specified investments, deferred annuity and other eligible investments	₹1,50,000	Individual and HUF	Only legislative restructuring. Eligible investments shifted to Schedule XV. (Read Schedule XV of Act 2025 for details)
80CCC	123	Pension funds	—	Individual
80CCD	124	NPS	₹50,000	Individual
80D	126	Health insurance premium (Health insurance up to ₹25,000 + Medical expenditure up to ₹50,000) + Preventive Health Check-up ₹5,000	₹50,000 (Aggregate)	Individual
80DD	127	Disabled dependent maintenance including medical treatment of a dependent disabled person	1. Disability ₹75,000 2. Severe Disability (80% or more) ₹1,25,000	Resident	No more flat deduction; eligible if claimed deduction u/s 154
80DDB	128	Medical treatment of diseases	Senior Citizens ₹1,00,000; Others ₹40,000	Resident Individual	Dependent definition u/s 127(9)
80E	129	Interest on education loan	Amount paid as interest	Individual
80EE	130	Interest on loan for residential house property	₹50,000	Individual
80EEA	131	Affordable housing	₹1,50,000	Individual
80G	133	Donations to specified funds and charitable institutions	—	All eligible assessees
80TTA	153	Interest on deposits (other than Senior Citizens)	₹10,000	Individual or HUF	Two earlier provisions brought under a single statutory section, with separate conditions
80TTB	153	Interest on deposits – Senior Citizens	₹50,000	Senior Citizens
80U	154	Person with disability	1. Disability ₹75,000 2. Severe Disability (80% or more) ₹1,25,000	Resident Individual	Flat deduction

Therefore, salaried employees need to understand the changes applicable to FY 2026-27, also called Tax Year 2026-27 under the new framework. The biggest practical change is not necessarily a completely different tax system, but rather the renumbering, restructuring and simplification of provisions and forms.

Table of Contents: (1) Income Tax Act 2025 for Salaried Employees, (2) FY 2026‑27 Compliance, 4 New Section for TDS on Salary,y 5 Standard Deduction Under New Act,ct 6 Changes in Tax Sections,ons 7 Changes in Income Tax Forms, 8 Form 16 and Salary TDS, 9 Investment Declaration by Employees, 0. Old and New Act Transition 1.1 What Salaried Employees Should Do 12.

Conclusion

1. Income Tax Act 2025 for Salaried Persons: The Income Tax Act 2025 will come into effect starting 1 April 2026. Consequently, salary payments made from April 2026 onward fall under the Income-tax Act, 2025. Meanwhile, salary relating to FY 2025-26 and paid under the old framework continues to follow the Income-tax Act, 1961. Think of this change like moving into a renovated house. The rooms may look familiar, but their numbers, labels and arrangements can be different.
2. FY 2026-27 Becomes Tax Year 2026-27. The Income Tax Act, 2025 introduces simpler terminology for taxpayers. Accordingly, income earned between 1 April 2026 and 31 March 2027 will fall under Tax Year 2026-27. This terminology makes it easier for salaried individuals and other taxpayers to identify the applicable tax period when calculating and reporting their income. Therefore, employees should update their payroll records, tax declarations and personal tax calculations accordingly.
3. Major Change in Salary TDS:      One of the most important changes for employees concerns Tax Deducted at Source (TDS). For salary paid up to 31 March 2026, the old Section 192 applies. Employers must consequently reset salary-TDS calculations from April 2026.
4. New Section for TDS on Salary:      Section 392 of the Income-tax Act, 2025, sets out the rules governing TDS on salary income. The new provision consolidates and reorganises TDS rules into a simpler structure. The Income Tax Department confirms that old salary TDS provisions under Section 192 correspond to the new Section 392 framework. As a result, employees may notice new section references in payroll documents and tax calculations.
5. Standard Deduction Under New Act: The standard deduction continues, although its location within the legislation changes. Under Section 19, the standard deduction is ₹75,000 where tax is computed under Section 202(1) and ₹50,000 otherwise, subject to the applicable provisions. Thus, employees should not assume that a new section number automatically means the benefit has disappeared.
6. Changes in Tax Section:s The Key changes to Income Tax Sections and Forms as per the Income Tax Act 2025 for Salaried Persons for FY 2026-27 mainly involve restructuring and renumbering. For example, the old salary TDS provision, Section 192, is now represented through Section 392. Similarly, deductions from salary formerly covered under Section 16 are placed under Section 19 of the new Act.
7. Changes in Income Tax Forms have also been renumbered and restructured. The Income Tax Department has published a mapping guide to help taxpayers identify corresponding forms under the two Acts. The e-Filing portal also provides separate categories for forms under the 1961 and 2025Acts.

8. Form 16 and Salary TDS

Form 16 remains an important document for salaried employees because it records salary income and TDS information.

However, employees should carefully check which tax year and legislation their Form 16 relates to. For the transition period, old-Act salary payments and new-Act salary payments are handled separately.

9. Investment Declaration by Employees

Employees should also update their investment declarations. For Tax Year 2026-27, declarations should refer to provisions of the Income-tax Act, 2025.

For instance, the old Section 80C deduction framework is now referenced through Schedule XV read with Section 123 under the new Act.

10. Old and New Act Transition

The transition does not mean that old returns suddenly become invalid. Earlier assessment years continue to use the applicable old forms and provisions. In contrast, tax matters relating to Tax Year 2026-27 use the new framework. Therefore, employees should avoid mixing old and new section numbers while preparing their records.

11. What Salaried Employees Should Do

First, check your employer's payroll system. Next, review your tax-regime selection and investment declarations. Then, keep Form 16, salary slips, investment proofs and other supporting documents safe

Additionally, compare your TDS with AIS and Form 26AS before filing your return. Finally, use the latest forms and utilities available on the official e-Filing portal. The Department has already begun rolling out new Act forms and related facilities.

Conclusion

The Income Tax Act 2025 is an important change for salaried taxpayers in FY 2026-27. However, many familiar tax concepts continue, while section numbers, terminology and forms have been reorganised. Therefore, understanding the new references is the key to avoiding confusion and maintaining accurate tax records.

FAQs

1. When does the Income Tax Act 2025 apply to salaried employees?

It applies to relevant salary payments and tax matters from 1 April 2026, covering Tax Year 2026-27

2. Which new section governs TDS on salary under the Income Tax Act 2025?

Salary TDS is covered under Section 392 of the Income-tax Act, 2025.

3. Has the standard deduction been removed under the new Act?

No. The standard deduction continues under Section 19, with the applicable amount depending on the tax regime and statutory conditions.

4. Will old income tax forms still be used?

Yes. Forms applicable to earlier assessment years continue to be used for those years. New forms apply to the new Act as notified.

5. Should employees change their investment declarations for FY 2026-27?

Yes. Employees should make their Tax Year 2026-27 declarations with reference to the provisions of the Income-tax Act, 2025.