New Income Tax Act 2025: What Changed for Salaried Indians from April 2026?
Your colleague forwarded a WhatsApp message last week. “Section 80C is abolished in the new income tax law. Forward to all salaried people.” You felt a small panic. You’ve been putting ₹1.5 lakh into ELSS and PPF every year. Is that all gone now?
No. It isn’t. Section 80C is not abolished. It is renamed. The deduction — all ₹1,50,000 of it — continues exactly as before.
What happened from April 1, 2026, is something genuinely important, but also genuinely less dramatic than the forwards suggest. India replaced its 64-year-old Income Tax Act 1961 with the new Income Tax Act 2025. The new Act is not a new tax law — it’s a cleaner, reorganised version of the same law. Think of it as a major restructuring of the filing cabinet, not a change in the rules inside it.
Here’s everything that actually changed for salaried Indians.
What this article covers
First, What Even Is the New Income Tax Act 2025?
The Income Tax Act 1961 was 819 sections long. Over six decades, it was amended so many times it had become a tangled mess of cross-references, provisos, and contradictions. Even tax professionals struggled to find the right provision.
The new Income Tax Act 2025 was passed by Parliament on August 12, 2025. It came into force on April 1, 2026, replacing the 1961 Act for all income earned from that date onwards.
The new Act has 536 sections across 23 chapters. The intent was simple: take the same rules and present them in plain language, in a logical order. No new tax. No abolished deduction. Just a much cleaner document.
One important thing before we go further: for your ITR filing in July 2026 (which covers FY 2025-26), you still use the old section numbers — 80C, 80D, Section 192, etc. The new section numbers apply from the July 2027 filing onwards for Tax Year 2026-27. Your Form 16 for FY 2025-26 will still show old references. This is normal.
The “Tax Year” Change: Finally, Something That Makes Sense
This is the change that will confuse the most people in day-to-day conversation — but it’s also the one that makes the most sense once you understand it.
Under the old system, salaried Indians had to deal with two overlapping terms:
- Previous Year (PY): The year in which you earned your income (e.g., April 2025 to March 2026 = Previous Year 2025-26)
- Assessment Year (AY): The following year in which you filed your return and paid tax on that income (e.g., April 2026 to March 2027 = Assessment Year 2026-27)
This is why when you log into the e-filing portal and select “AY 2026-27,” you’re actually filing for income you earned in 2025-26. Many first-time filers have submitted returns for the wrong year because of this exact confusion.
The new Act scraps both terms. From April 1, 2026, there is only one term: Tax Year.
Income earned from April 2026 to March 2027 = Tax Year 2026-27. You file the return for Tax Year 2026-27. Simple as that.
The filing deadline does not change. For salaried individuals, it remains July 31 each year. The computation does not change. Only the label changes.
Section Numbers That Changed — The Complete Map for Salaried Indians
This is what trips people up the most. All the familiar section numbers — 80C, 80D, Section 192 — have been renumbered. But every single benefit continues without any reduction.
Here is the section mapping that every salaried person needs to bookmark:
| What It Covers | Old Section (Act 1961) | New Section (Act 2025) |
| Investments (PPF, ELSS, LIC etc.) | Section 80C | Section 123 |
| Health insurance premium | Section 80D | Section 126 |
| NPS contribution (employer) | Section 80CCD | Section 124 |
| Home loan interest (self-occupied) | Section 24(b) | Section 104 |
| Education loan interest | Section 80E | Section 129 |
| Donations / 80G | Section 80G | Section 133 |
| Electric vehicle loan interest | Section 80EEB | Section 132 |
| TDS on salary | Section 192 | Section 392 |
| Other TDS (non-salary) | Sections 194C, 194J etc. | Section 393 |
| Tax Collection at Source (TCS) | Section 206C | Section 394 |
Sources: Business Today, March 2026; CAClubIndia, April 2026
Remember: None of these deduction limits changed. ₹1.5 lakh under 80C is still ₹1.5 lakh under Section 123. ₹25,000 under 80D for health insurance is still ₹25,000 under Section 126. Only the address in the statute changed.
To compare old and new sections side by side, the Income Tax Department has released a free section comparison utility on the e-filing portal. Worth bookmarking.
The HRA Change That Actually Puts Money Back in Your Pocket
This is the one genuinely new, tangible benefit for millions of salaried Indians — and it’s been a long time coming.
Under the old rules, only four cities qualified for the higher 50% HRA exemption: Delhi, Mumbai, Chennai, and Kolkata. Every other city — including Bengaluru, Pune, Hyderabad, and Ahmedabad — was capped at 40% of basic salary.
From April 1, 2026, four cities have been added to the 50% club under the new Income Tax Rules 2026:
- Bengaluru
- Pune
- Hyderabad
- Ahmedabad
The full 50% list now covers 8 cities. All other cities — Jaipur, Kochi, Chandigarh, Surat, Indore — remain at 40%.
What Does This Mean in Rupees?
Let’s take Priya, a software engineer in Bengaluru on the old tax regime:
- Basic salary: ₹80,000/month (₹9,60,000/year)
- HRA received: ₹32,000/month (₹3,84,000/year)
- Rent paid: ₹28,000/month (₹3,36,000/year)
The HRA exemption is the lowest of three conditions:
- HRA actually received: ₹3,84,000
- Rent paid minus 10% of salary: ₹3,36,000 − ₹96,000 = ₹2,40,000
- Old rule (40% of salary): ₹3,84,000 | New rule (50% of salary): ₹4,80,000
The binding condition is Condition 2 (₹2,40,000) — so in Priya’s case, the exemption doesn’t change because the rent-minus-10%-salary limit is the bottleneck, not the city percentage.
But for someone paying higher rent — say ₹45,000/month — the 50% condition becomes relevant, and the switch from 40% to 50% could save ₹28,800 or more in tax annually at the 30% slab.
Important: This HRA change applies only under the old tax regime. If you’ve opted for the new tax regime, HRA exemption is not available regardless of which city you live in.
Children’s Education Allowance: From ₹100/Month to ₹3,000/Month
This is a change that hasn’t made enough noise, and it should.
Under the old Income Tax Rules 1962, the children’s education allowance exemption was ₹100 per month per child (maximum 2 children). Yes, ₹100. That’s a number that hasn’t been updated since the 1960s.
Under the Income Tax Rules 2026, effective April 1, 2026:
| Allowance | Old Limit (per child/month) | New Limit (per child/month) |
| Children’s Education | ₹100 | ₹3,000 |
| Hostel Expenditure | ₹300 | ₹9,000 |
For a family with 2 children, the combined annual exemption under both heads is now:
- Education allowance: 2 × ₹3,000 × 12 = ₹72,000/year
- Hostel allowance: 2 × ₹9,000 × 12 = ₹2,16,000/year
For a parent in the 30% tax bracket, that’s a combined tax saving of roughly ₹22,000 on education alone — from an allowance that was saving just ₹720 annually until last month.
Again — this is only under the old tax regime. To claim this, your HR department also needs to include these specific heads in your salary structure. If they’re not on your payslip, talk to HR before the next payroll cycle.
TDS on Your Salary: New Section, Same Logic
If you get confused reading your salary slip, this section matters for you.
Your employer deducts TDS (Tax Deducted at Source) from your salary every month under the Income Tax Act. Until March 2026, this was governed by Section 192 of the old Act. From April 2026, the same function is now handled by Section 392 of the new Act.
What this means practically:
- Your employer must reset TDS computation from April 1, 2026 for Tax Year 2026-27
- Your investment declaration for Tax Year 2026-27 should reference the new Act’s provisions — your HR or payroll team will handle this
- Your March 2026 salary (paid on March 31) was governed by old Act Section 192. Your April 2026 salary (paid April 30) falls under new Act Section 392
- Q4 TDS returns (Jan–Mar 2026) still use old form numbers — Form 24Q. This is normal, even if filed in May/June 2026
For you as an employee, the change is largely invisible — your payroll team handles the new section references. What you might notice is that your April 2026 payslip may show new section references. Don’t panic. The deduction amount is calculated the same way.
What Has Not Changed — And This Is Most of It
Given all the noise, this section deserves equal space. Here is what has stayed completely the same under the new Income Tax Act 2025:
| What People Feared Changed | What Actually Happened |
| Section 80C abolished | Still ₹1.5 lakh — renamed Section 123 |
| New tax regime slabs changed | Identical. ₹12L zero tax under new regime continues |
| Old tax regime removed | Both regimes continue. Old regime is still an option |
| Standard deduction reduced | ₹75,000 under new regime — unchanged |
| ITR filing deadline moved | July 31 for salaried — unchanged |
| 80D health insurance deduction gone | Continues as Section 126 — same limits |
| HRA formula changed | Same formula. Only 4 cities upgraded to 50% |
| Old disputes reopened | No. All pending cases continue under old Act 1961 |
The new Act also does not affect your EPF or EPFO contributions, your NPS deductions, or your ELSS or PPF tax savings. Everything works exactly as it did. The section numbers are the only thing that changed for most salaried people.
New Tax Act 2025 and the Regime Question: Does Anything Change?
Here’s the one thing the new Act reinforces: the new tax regime remains the default. If you don’t actively declare a preference, your employer deducts TDS under the new regime.
If you want to opt for the old regime — to claim HRA, Section 80C, home loan interest, children’s education allowance — you must actively opt in, either through your employer at the start of the year or at ITR filing.
The expanded HRA cities and the increased children’s allowances (which apply only under the old regime) have actually made the old regime worth looking at again for many salaried people. Before you decide, use the old vs new regime comparison we’ve already covered in detail.
What You Should Do Right Now
- Check your April 2026 salary slip. Your payroll team may have updated section references. If you see Section 392 instead of Section 192, that’s correct.
- Tell your HR your regime choice for Tax Year 2026-27. If you want the old regime, declare it now — before your employer locks in TDS under the new regime.
- If you live in Bengaluru, Pune, Hyderabad or Ahmedabad, check your HRA calculation. You now qualify for the 50% exemption (if under old regime). Ask HR to update this in your payroll.
- If you have children, ask HR to include education and hostel allowance in your salary structure. The limit has jumped from ₹100 to ₹3,000/month per child. Without the salary head, you can’t claim it.
- For your July 2026 ITR filing (FY 2025-26): use old section numbers. Your Form 16 will show them. Don’t panic if the portal looks the same as last year — it will.
- Ignore the WhatsApp forwards. Section 80C is not gone. The 80C deduction at ₹1.5 lakh continues — just filed under Section 123 from next year’s return.
- Bookmark the Income Tax Department’s section comparison tool. Available on the e-filing portal at incometaxindia.gov.in — it maps old sections to new ones side-by-side.
Related Reading on The Salary Investor
- Old vs New Tax Regime India 2025-26: Which One Actually Saves You More?
- HRA Exemption: The Complete Guide for Salaried Indians
- Section 80C Tax Saving Guide — How to Use the Full ₹1.5 Lakh
- How to File Your ITR Yourself as a Salaried Employee
- How to Read Your Salary Slip — CTC, TDS, and What Every Component Means
Disclaimer: All information in this article is based on publicly available data from the Income Tax Department of India, ClearTax, Business Today, KPMG India, and TaxGuru as of April–May 2026. Section number mappings and allowance limits are accurate as of the date of writing. Tax laws can change; always verify current provisions at incometaxindia.gov.in or through a qualified tax professional. This article is for general educational purposes only and does not constitute tax or financial advice. Please consult a SEBI-registered advisor or a practising Chartered Accountant for advice specific to your situation.
Sources:New TDS Rules for Salary from April 2026 (Upstox, March 30, 2026) · Income Tax Act 2025 — Key Changes (ClearTax, April 14, 2026) · Income Tax Changes from April 2026 — Top 15 Rules (ClearTax, April 1, 2026) · Section 80C Becomes Section 123 from April 2026 (Business Today, March 24, 2026) · Income Tax Overhaul: Key Changes to Watch from April 1 (KPMG India, March 30, 2026) · New Income Tax Rules 2026 Notified (TaxGuru, March 24, 2026) · HRA Metro City List 2026 — 8 Cities at 50% (Finance Tools Pro, April 16, 2026) · Income Tax Act 2025 FAQs — Income Tax Department (incometaxindia.gov.in, April 2026)
He figured out most of what he knows about personal finance not from courses or advisors, but from years of reading, making mistakes, and fixing them. The Salary Investor is his attempt to save other salaried Indians the same time and money.
He is not a CA or a SEBI-registered advisor. He writes as a fellow salaried person who has been in the trenches — navigating EPF, ITR, 80C, salary slips, and market volatility.