Major Income Tax Changes From April 1: HRA, ITR, Meal Cards, Form 130 Explained

One of the most notable structural changes is the replacement of the dual concepts of Financial Year (FY) and Assessment Year (AY) with a single unified term, “Tax Year.” This shift aims to eliminate long-standing confusion, particularly for first-time taxpayers, by aligning income earning and tax assessment within one timeline.

House Rent Allowance (HRA) continues to remain one of the most significant tax-saving components for salaried individuals; however, compliance requirements have tightened from April 1. Employees claiming HRA exemption must ensure submission of valid rent receipts, disclosure of the landlord’s PAN if annual rent exceeds Rs 1 lakh, and adherence to digital tracking and verification by employers. The Income Tax Department is increasing the use of data analytics to detect mismatches between claimed HRA and landlord declarations, placing cases of fake rent receipts or circular transactions under sharper scrutiny. The higher 50 percent HRA exemption category, earlier applicable only to Mumbai, Kolkata, Delhi, and Chennai, has now been extended to Bengaluru, Hyderabad, Pune, and Ahmedabad, while all other cities continue under the 40 percent bracket.

In a major administrative shift, Form 16 has been replaced by Form 130 from April 1, 2026. Employers will now issue Form 130 as a Tax Deducted at Source (TDS) certificate for salaried employees and pensioners. The new form includes a more detailed structure covering employer and employee details, salary breakup, deductions, total taxable income, tax payable, and TDS or TCS details.

Revised Income Tax Return (ITR) filing deadlines for the Tax Year 2026–27, as announced in the Union Budget 2026, have also been implemented. Individuals, HUFs, AOPs, and BOIs not requiring a tax audit must file by July 31, 2026. Non-audit business cases, including professionals and self-employed taxpayers filing ITR-3 or ITR-4, must comply by August 31, 2026, while corporate taxpayers and those subject to a tax audit face a deadline of October 31, 2026.

Allowances related to children’s education have been substantially revised under the old regime. The school allowance has increased from Rs 100 per month per child to Rs 3,000, while the hostel allowance has been raised from Rs 300 per month to Rs 9,000. Meal vouchers or cards offered through platforms such as Sodexo have also seen a significant enhancement, with the tax-exempt limit increased from Rs 50 per meal to Rs 200 per meal. This benefit now applies to food and non-alcoholic beverages provided by employers, strengthening its role in salary structuring.

The annual tax-free threshold for corporate gift cards, vouchers, and coupons has been raised from Rs 5,000 to Rs 15,000 per employee. This benefit will be available under both the old and new tax regimes, providing greater flexibility to taxpayers.

The government has also increased the Securities Transaction Tax (STT) on equity derivatives, effective April 1, 2026. The STT on futures sales has risen to 0.05 percent from 0.02 percent. For options, the STT on premium sales has increased to 0.15 percent from 0.10 percent, while the STT on exercise has risen to 0.15 percent from 0.125 percent. These changes aim to moderate excessive speculative trading in the futures and options segment while generating additional revenue.

Significant changes have been introduced in the taxation of Sovereign Gold Bonds (SGBs). Capital gains tax exemption on redemption will now apply only to original subscribers who hold the bonds until maturity. Investors purchasing SGBs from the secondary market through stock exchanges will be liable to pay capital gains tax upon redemption.

Dividend and mutual fund income rules have also been tightened. From April 1, no deduction will be allowed for interest expenses incurred on borrowed funds used to earn such income. Previously, a limited deduction of up to 20 percent of gross income was permitted. Now, the entire income will be taxed on a gross basis under the head “Income from Other Sources,” removing the tax advantage of leveraged investments.

A key reform has been introduced in share buyback taxation. Proceeds received by shareholders will now be taxed as capital gains instead of deemed dividends. Tax will apply only on the profit, calculated as sale consideration minus cost of acquisition, making the structure more beneficial for long-term investors compared to earlier slab-rate taxation.

To reduce compliance burden, investors can now submit a single declaration using Form 15G or 15H directly to depositories such as NSDL or CDSL. This allows for non-deduction or lower deduction of TDS across multiple income streams, including dividends, interest on securities or bonds, and mutual fund income, eliminating the need for separate submissions.

Simplified TDS rules have been introduced for property transactions involving Non-Resident Indians (NRIs). Resident buyers can now deduct and deposit TDS using their own PAN-based challan without obtaining a separate Tax Deduction Account Number (TAN), aligning the process with resident-to-resident transactions.

In a relief measure, interest awarded by the Motor Accident Claims Tribunal on compensation amounts will be fully exempt from income tax. No TDS will be deducted on such interest, ensuring that accident victims and their families receive the full compensation without tax deductions.

These sweeping changes signal a decisive shift toward a simplified, transparent, and compliance-driven tax regime, reshaping how individuals, investors, and businesses engage with India’s taxation system from April 1, 2026.