New I-T law kicks in from April 1

The new income tax law and other budgetary provisions, including higher Securities Transaction Tax (STT) on F&O trade and lower TCS on overseas tour packages and LRS remittances for medical and education purposes, will come into effect from April 1.

Also, the Budget announcement of a 20-year tax holiday up to 2047 to any foreign company that procures data centre services in India, and new safe harbour provisions with a higher threshold for software companies will come into effect from Wednesday, with the beginning of the 2026-27 fiscal.

The Income-tax Act, 2025, will replace the Income-tax Act, 1961, with effect from April 1, 2026. The new Act aims to present the same tax policy in a more logical, accessible, and reader-friendly format.

The Income Tax department has said that its e-filing portal will facilitate compliance under both the old and new Income Tax Acts in the transition period, and all assessments, appeals, and other proceedings relating to earlier years will continue to be conducted under the old Act until their final resolution.

Taxpayers filing returns for AY 2026-27 (pertaining to the period governed by the old Act) in July 2026 will do so using the forms prescribed under the old Act.

Advance tax payments for Tax Year 2026-27, commencing from June 2026, will be made in accordance with the new Act.

The Income Tax Act, 2025, simplifies the tax timeline by doing away with the distinction between the assessment year and the previous year, replacing it with a single "tax year" framework. It also allows taxpayers to claim TDS refund even when ITRs are filed after deadlines, without any penal charges.

Another major change in income tax that would come into effect from April 1 is the Budget announcement of higher STT on F&O trade. STT on futures contracts will rise to 0.05% from 0.02%, while STT on options premiums and exercise of options will be hiked to 0.15 per cent from the present rate of 0.1% and 0.125%, respectively.

The higher STT is aimed at curbing speculative bets being placed on shares in the F&O segment of equity markets and is intended to protect small investors from heavy losses in speculative trades.

The number of unique individual investors trading in the equity derivatives (F&O) segment was 1.06 crore in FY25, which dropped to about 75.43 lakh in FY26 (up to December 30, 2025).