New Income Tax Rules: January 2026 has passed, and the old rules of the Income Tax Act, 1961, are now gradually being phased out. Just before Budget 2026, the government announced that all tax-related changes will now be implemented not in the old law, but in the new Income Tax Act, 2025. This will directly impact ordinary taxpayers, the salaried class, and investors.
Indeed, from April 1, 2026, the old Income Tax Act, 1961, will be completely abolished. A new and simplified law, the Income Tax Act, 2025, will replace it. The new law received Presidential assent in August 2025, but it has not yet become operational. Consequently, any tax reforms or changes made in Budget 2026 will be directly applicable to the 2025 law.
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Shift to a Schedule System
The most significant change in the new Income Tax Act, 2025, is its structure. Until now, tax exemptions and deductions were divided into different sections, such as 80C, 80D, HRA, and LTA. The 2025 Act has now consolidated these into a schedule system.
For example, tax-saving investments and deductions like NPS and mediclaim will now be listed in Schedule XV. This aims to simplify and simplify the law and facilitate future changes.
New Structure for HRA, LTA, and Allowances
Exemptions like House Rent Allowance (HRA) and Leave Travel Allowance (LTA) will still be available. The difference is that their rules will now be listed in Schedule III. This means that the basic benefits will remain the same, but the rules will be implemented through schedules and rules. Other allowances related to official duty and personal expenses will also fall under this schedule system. This will give the government more flexibility to change the rules if needed.
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Home Loan Interest and the New Tax Regime
The new law further clarifies the exemptions available on home loan interest. Deductions will remain, but the conditions will be clearer. The current new tax regime (Section 115BAC) will also continue under the new law. Its structure will remain largely the same, but it has been adapted to the new rules and schedules.
New Rebate Regime
The new law also changes the rebate regime. The new tax regime will allow rebates on incomes up to ₹12 lakh, compared to the old ₹5 lakh limit. This will directly benefit middle-class taxpayers.
Budget 2026’s Message
Budget 2026 will make it clear that the government intends to simplify, stabilize, and reduce conflicts in the long term. Removing the old 1961 Act and replacing it with the new 2025 Act is part of this strategy. The message for taxpayers is clear: the name and structure have changed, but most exemptions and benefits remain. The only difference is that income tax will now be applied under new rules and a new schedule.
