Tax Relief, but Tighter Compliance

From FY 2026–27, taxpayers may benefit from higher rebates and revised exemptions, but they will also need to be more careful with documentation.

From 1 April 2026 (FY 2026–27), India’s direct tax system will move into a new phase with the enforcement of the Income-tax Act, 2025 and the Income-tax Rules, 2026. From a chartered accountant’s perspective, the intent behind these changes is clear: to make tax laws easier to understand, reduce procedural complexity, and improve compliance. For the common taxpayer — especially salaried individuals — the new framework is expected to bring greater clarity, a more streamlined filing process, and a rationalisation of tax benefits that could have a direct impact on take-home income and tax planning.

One of the most important structural changes is the introduction of a single “tax year”, which replaces the earlier distinction between the financial year (FY) and the assessment year (AY). From a practical standpoint, this is expected to remove confusion, reduce interpretational issues, and make compliance smoother, particularly in return filing and assessment-related procedures.

Allowance Relief

Another notable change under the old tax regime is the significant upward revision in several allowance limits. The Children Education Allowance has been increased to Rs 3,000 per month per child, subject to a maximum of two children, compared with the earlier Rs 100. Likewise, the Hostel Expenditure Allowance now stands at Rs 9,000 per month per child, up from Rs 300. The tax-exempt limit for employer-provided meal vouchers has also been raised to Rs 200 per meal, while the exemption for non-cash gifts has been enhanced to Rs 15,000 per annum.

Further, the threshold for taxing interest-free or concessional loans provided by employers has been raised substantially from Rs 20,000 to Rs 200,000, easing the tax burden on employees who avail of such benefits. The transport allowance for employees in the transport sector has also been increased to Rs 25,000 per month. In addition, higher conveyance allowance limits have been prescribed for differently-abled employees, with separate slabs for metro and non-metro areas.

In the case of House Rent Allowance (HRA), a particularly important change is the extension of the 50% salary-based exemption to more urban centres, including Bengaluru, Pune, Hyderabad and Ahmedabad. This is a welcome move for salaried employees in these cities, where rental costs are relatively high. At the same time, the benefit now comes with tighter reporting norms, such as mandatory disclosure of the landlord’s PAN and a declaration of the relationship between the employee and the landlord. These additional requirements are clearly aimed at strengthening audit trails and curbing the scope for misuse.

Rebate Benefit

It is important to note that the income tax slab rates remain unchanged, with the new tax regime continuing as the default option. However, the increase in the rebate under Section 87A to Rs 60,000 effectively makes income up to Rs 12 lakh tax-free under the new regime. For salaried taxpayers, this limit rises to Rs 12.75 lakh after factoring in the standard deduction of Rs 75,000 available under the new regime. Under the old regime, the standard deduction remains at Rs 50,000.

Compliance Changes

From a compliance standpoint, the new tax framework also brings in a few important procedural changes. Form 16 and Form 16A have now been replaced by Form 130 and Form 131, respectively, in line with the revised reporting structure. At the same time, the discontinuation of Aadhaar-only PAN applications, along with the introduction of Form 93, points to a shift towards more structured and category-specific documentation requirements.

The new framework also carries several other amendments, including changes in provisions relating to Tax Collected at Source (TCS), Securities Transaction Tax (STT), and the taxation of certain transactions such as share buybacks. Broadly, these measures appear aimed at widening the tax base while also improving transparency, reporting, and overall accountability in the system.

Overall, the tax reforms coming into effect from April 2026 reflect an attempt to strike a balance between simplification and tighter compliance. On the one hand, the rationalisation of allowances and the higher rebate offer clear relief to taxpayers. On the other, stricter documentation and reporting requirements make it equally clear that the government is seeking to strengthen transparency and the overall integrity of the tax system. From a chartered accountant’s perspective, the new framework should bring greater clarity in interpretation, while also calling for more careful compliance and more informed tax planning and advisory support.

(The writer is a Chartered Accountant based in Thane. Views personal.)