Income tax rule changes from April 1; Key changes explained

On April 1, the Income Tax Act, 2025 will replace the Income Tax Act of 1961, simplifying terminologies while adapting to the digitisation and keeping note of consolidated provisions.

The Income Tax Act, 2025, will simplify the tax timeline by removing the distinction between the assessment year and the previous year, and will be replaced with a single 'tax year' structure.

It will allow taxpayers to claim tax deduction at source (TDS) refund even when income tax returns (ITRs) are filed post deadlines, without incurring penalty charges.

The Union Finance Ministry notified the draft Income Tax Rules, 2026 on March 24.

Here are some of the key changes in the rules from April 1:

Changes to PAN application

When applying for a new Permanent Account Number (PAN) card, or updating an existing one, the process will require additional documents. This change was announced by CSC e-Governance Services India Ltd.

Applying with only an Aadhaar card for a PAN card will not be applicable. It has been made compulsory for high-value transactions, immediately into effect from April 1.

Deadline to file Income Tax returns

The deadline has been extended, under the Union Budget 2026, for filing income tax returns (ITR-3 and ITR-4 for non-audit taxpayers) till August 31 from the end of the relevant tax year.

HRA exemption

One of the major modifications affects salaried employees claiming the House Rent Allowance (HRA) exemption.

The new rules state the list of cities that qualify for higher HRA exemption limits is bigger. Previously, only a select few metro cities were eligible earlier. Now, eight cities, including Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru qualify for the higher limit.

Disclosing relationship with landlord

Employees claiming HRA must provide details of their relationship with their landlords when the payment of rent is completed, especially where the landlord is a relative, and fill Form No 124.

Paying rent to a relative, such as parents, is still allowed under tax law. But under the new rules, tenants must also ensure correlative rental income is reported by the landlord on their tax returns.

Current tax slabs remain in place

Tax rates under both regimes remain the same as stated in the Union Budget 2026, with no changes made to the existing details.

Under the old tax regime:

Income up to Rs 2.5 lakh: 0%

Income up to Rs 5 lakh: 5%

Income up to Rs 10 lakh: 20%

Income above Rs 10 lakh: 30%

Under the new tax regime:

Income up to Rs 4 lakh: 0%

Income up to Rs 8 lakh: 5%

Income up to Rs 12 lakh: 10%

Income up to Rs 16 lakh: 15%

Income up to Rs 20 lakh: 20%

Income up to Rs 24 lakh: 25%

Income above Rs 24 lakh: 30%

The standard subtraction under the new tax regime stands at Rs 75,000 for salaried individuals.