Income Tax Changes for FY 2026–27

Income tax changes for FY 2026–27 affect how you report income, select your tax regime and plan eligible deductions. The Income-tax Act, 2025 came into effect on 1st April, 2026.

• The new regime remains the default, with income up to Rs. 4 lakh taxed at nil under its slab structure.
• Eligible resident individuals can receive a rebate of up to Rs. 60,000 on qualifying normal income.
• The standard deduction remains Rs. 75,000 under the new regime for eligible salaried taxpayers.
• The old regime continues to permit qualifying investments and home loan deductions.
• The familiar Section 80C deduction has a corresponding provision under Section 123 of the new Act.
• Revised filing timelines provide additional time for certain non-audit business taxpayers.

The most important decision is still which regime produces lower tax for your circumstances. Review the applicable rules, deductions and reporting requirements before making financial commitments.

The main income tax change for FY 2026–27 is the introduction of the Income-tax Act, 2025, which replaced the Income-tax Act, 1961 from 1st April, 2026. The Union Budget 2026 retained the existing individual income-tax slab rates while introducing selected administrative and compliance changes.

This means taxpayers should not assume that every rule changed simply because the governing legislation changed.

The most important developments are:
 

Last updated: 19th October, 2026

The practical impact depends on whether you earn a salary, run a business, own property or receive income from investments.

The new income-tax regime uses seven slab bands for Tax Year 2026–27, with rates ranging from nil to 30%. These rates were retained in Budget 2026:
 

Each rate applies only to the income falling within the corresponding slab, not to your entire taxable income. For instance, an individual with taxable income of Rs. 15 lakh does not pay 15% on the full Rs. 15 lakh. Income is taxed progressively across the applicable bands. Health and Education Cess at 4% is added to the income tax and applicable surcharge.

The old tax regime retains its familiar slab structure and provides deductions and exemptions that are generally unavailable under the new regime.

For individuals below 60 years of age, the standard old-regime rates are:
 

Resident senior citizens have higher basic exemption thresholds under the old regime, subject to the applicable age conditions. For individuals below 60, the old regime typically becomes worth examining when eligible deductions and exemptions significantly reduce taxable income.

These can include qualifying provident fund contributions, insurance premiums, House Rent Allowance (HRA) exemptions and eligible home loan payments. However, having deductions does not automatically make the old regime more beneficial. Your final tax liability matters more than the amount claimed.

The new regime generally offers lower slab rates and fewer deductions, while the old regime allows qualifying deductions and exemptions.

The following comparison covers the most relevant differences for salaried taxpayers.
 

For eligible resident individuals, qualifying normal taxable income up to Rs. 12 lakh can attract a rebate that reduces income tax to zero under the new regime. Certain income taxed at special rates does not receive this rebate.

For eligible salaried taxpayers, the Rs. 75,000 standard deduction can extend the zero-tax outcome to qualifying gross salary of Rs. 12.75 lakh, subject to the applicable conditions.

You can use the Bajaj Finance Income Tax Calculator to compare estimated tax under both regimes using your income and deductions. Before selecting the old regime, check the prescribed option and filing deadlines. The rules differ for taxpayers with business or professional income.

The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1st April, 2026 and introduced a reorganised statutory framework with revised section numbering and tax-year terminology.

The change does not mean that deductions under the previous legislation were all withdrawn. Several familiar benefits continue through corresponding provisions in the new Act.

• Income earned between 1st April, 2025 and 31st March, 2026 is reported for Assessment Year 2026–27 under the 1961 Act.

• Income earned between 1st April, 2026 and 31st March, 2027 falls under Tax Year 2026–27 and the Income-tax Act, 2025.

  
  

This distinction is important when reading tax articles, checking statutory sections or preparing documents. The tax-year label is not interchangeable with AY 2026–27.

Eligible salaried taxpayers can claim a standard deduction of Rs. 75,000 under the new regime or Rs. 50,000 under the old regime, subject to the available salary income. Budget 2026 retained these amounts rather than introducing a fresh increase.

Consider Riya, a 29-year-old employee in Bengaluru earning an annual salary of Rs. 10 lakh.

This example assumes no other salary adjustments or income.  Under the new regime, Riya's Rs. 9.25 lakh of qualifying normal taxable income can fall within the rebate threshold, resulting in zero income tax if she satisfies all conditions.

Under the old regime, her liability depends on eligible deductions, exemptions and rebates. The standard deduction reduces taxable salary automatically when the relevant conditions are met. It is not an investment requiring a separate payment.

The old regime still allows several familiar tax benefits, although the corresponding provisions have been reorganised under the Income-tax Act, 2025.

These benefits can help taxpayers who already make qualifying investments, pay eligible insurance premiums or have eligible housing expenses.
 

The Rs. 1.5 lakh investment deduction limit is not available separately for each qualifying product. Eligible payments covered by the combined ceiling must be considered together.

Under the new regime, the familiar investment and health insurance deductions are generally unavailable. Specific deductions such as eligible employer NPS contributions can still be permitted.

Choose a tax-saving investment for its financial suitability, not solely to obtain a deduction.

Eligible home loan borrowers choosing the old regime can claim qualifying principal repayments and interest deductions under the corresponding provisions of the Income-tax Act, 2025.

The treatment depends on the purpose of borrowing, the property, the selected regime and the applicable conditions.
 

Under the new regime, the familiar deduction for qualifying self-occupied home loan interest is unavailable. The treatment of interest on let-out property is different and subject to the applicable restrictions.

Example: What can a home loan borrower claim?
 

Consider Arjun, a 35-year-old salaried employee in Pune who owns a self-occupied property. During Tax Year 2026–27, he pays Rs. 80,000 towards qualifying home loan principal and Rs. 1.60 lakh towards eligible interest.

If he chooses the old regime and meets the conditions, the principal can be considered within the applicable Rs. 1.5 lakh investment deduction ceiling. The Rs. 1.60 lakh interest amount can qualify separately under the house-property provisions. His potential deductions from these two components total Rs. 2.40 lakh, assuming sufficient unused investment deduction capacity and full eligibility.

This is not a Rs. 2.40 lakh reduction in income tax. It is a potential reduction in taxable income, with the actual tax saving determined by Arjun's total income and applicable rates. He should review the interest certificate and relevant repayment records before making any deduction claim.

The tax payable by salaried employees depends on gross salary, permitted deductions, selected regime and the applicable rebate.

A worked example shows how this affects an individual with an existing home loan: 

Consider Rohit, a 33-year-old salaried employee in Mumbai earning Rs. 16 lakh annually. He has eligible investment, health insurance and self-occupied home loan interest deductions.

This example assumes Rohit is a resident individual below 60, earns only ordinary taxable salary, satisfies all the stated deduction conditions and has no surcharge or special-rate income.

Under these assumptions, the new regime results in Rs. 58,500 less tax than the old regime. Rohit has substantial eligible deductions, but the new regime still produces the lower liability. This shows why choosing a regime should involve comparing final tax rather than counting deductions.

Budget 2026 introduced selected changes to tax-return filing timelines and compliance procedures that affect business and professional taxpayers.

One important change is the extension of the ordinary return-filing deadline for specified non-audit business cases from 31st July to 31st August.
 

These are statutory category-based deadlines, not a guarantee that the dates will never be extended by a later notification.

Self-employed taxpayers should also review their tax-regime selection requirements, business receipts, expenses, advance-tax obligations and applicable reporting provisions.

The option to move between regimes is more restricted for taxpayers with business or professional income than for eligible individuals without such income.

Budget 2026 also announced selected changes beyond individual slab rates, including tax administration, updated-return provisions and taxation of certain financial transactions.

The main developments relevant to individual taxpayers include:
 

• Updated returns: Changes were introduced to the scope of updated returns, subject to prescribed conditions and additional tax requirements.
• Share buybacks: The taxation of qualifying buyback proceeds was changed to a capital-gains framework, with separate treatment for specified promoters.
• Securities Transaction Tax: Budget 2026 announced higher rates for specified futures and options transactions.
• Compliance: The newer statutory framework includes reorganised return-filing, tax-deduction and reporting provisions.

These changes do not affect every taxpayer. For instance, a salaried employee without securities transactions may have no direct exposure to the futures and options tax changes.

The practical approach is to identify the provisions relevant to your income sources rather than treating every Budget announcement as a change to your personal tax liability.

Start by estimating your annual income and comparing the tax payable under both regimes. Then check which deductions and exemptions actually apply.

A useful sequence is:
 

1. Estimate salary, business income, interest, rent and any other taxable receipts.
2. Check whether you qualify for the new-regime rebate and standard deduction.
3. Identify eligible investments, insurance payments and home loan expenses.
4. Compare your final tax liability under both regimes.
5. Select the appropriate regime within the prescribed conditions and deadlines.
6. Review tax deducted at source (TDS) and advance-tax obligations where relevant.
7. Keep supporting records for deductions and return filing.

For a salaried employee, reviewing monthly salary slips can help identify whether TDS aligns with expected annual tax and

for a self-employed taxpayer, maintaining income and expense records makes it easier to estimate advance tax and comply with applicable reporting requirements.

Tax planning should also preserve financial flexibility. An investment made purely for a deduction may be unsuitable if it locks away money needed for essential expenses.

Homebuyers should assess borrowing affordability separately from potential income-tax savings. The Income-tax Act, 2025 continues to provide qualifying housing-related deductions under the applicable provisions, but the tax benefit depends on the selected regime and statutory conditions.

Before applying for a home loan, check your monthly income, existing commitments, savings and likely repayment requirements. You can review the home loan eligibility requirements and compare home loan interest rates before deciding how much to borrow.

If you are ready to explore property finance, you can check eligibility for a Bajaj Finance Home Loan, subject to the applicable assessment and lending criteria.