2026 tax reset: Major financial changes of 2025 set to reshape savings and planning for 2026

A series of significant financial reforms introduced in 2025 are expected to alter the way Indian households plan and manage their finances heading into 2026. Key measures include a reduction in mandatory annuitisation for the National Pension System (NPS), revised income tax rates, rationalisation of GST slabs, and the implementation of new labour codes. These changes are poised to influence personal savings, investments, and disposable income, leading many to reassess their money management strategies for the year ahead.

Changes in income tax rates

Lower income tax rates introduced in 2025 aim to boost take-home pay, offering relief to a broad section of taxpayers. The Union Budget 2025 rolled out a set of major tweaks to the new tax regime, now the default option for taxpayers, aimed at easing compliance and boosting disposable income.

The government raised the basic exemption limit from Rs 3 lakh to Rs 4 lakh, reducing the tax burden at the entry level. It also expanded the scope of the tax rebate under Section 87A, ensuring that resident individuals with a total income of up to Rs 12 lakh face zero tax liability.

Salaried employees and pensioners received additional relief through a higher standard deduction, which has been increased from Rs 50,000 to Rs 75,000. Taken together, these measures significantly widen the tax-free threshold. After accounting for the enhanced standard deduction and the full rebate, a salaried taxpayer can now earn up to Rs 12.75 lakh annually without paying any income tax under the new regime. The changes are expected to make the new tax structure more appealing while simplifying return filing for a large section of individual taxpayers.

The revised income tax slab rates for the new tax regime are as follows: 

Income Range (₹)     Tax Rate (%)

Up to Rs 4,00,000                        Nil Rs 4,00,001 to Rs 8,00,000          5% Rs 8,00,001 to Rs 12,00,000      10% Rs 12,00,001 to Rs 16,00,000    15% Rs 16,00,001 to Rs 20,00,000    20% Rs 20,00,001 to Rs 24,00,000    25% Above Rs 24,00,000                   30%

Income Tax Act 2025

From April 1, 2026, a new set of income tax rules will come into force nationwide as the government replaces the six-decade-old Income Tax Act of 1961 with the Income Tax Act, 2025. The overhaul is aimed at improving transparency and simplifying compliance, making tax provisions easier for ordinary taxpayers to understand and follow.

While the overall framework of the law will broadly remain unchanged, the government has clarified that the language, structure and procedures will be made clearer and more user-friendly. The intent is to reduce ambiguity, streamline processes and minimise disputes arising from complex interpretations of tax provisions.

The Central Board of Direct Taxes (CBDT) will also notify new Income Tax Return (ITR) forms under the Income Tax Act, 2025. These forms will be issued before the financial year 2027–28 and will incorporate any amendments introduced through the Union Budget 2026. Taxpayers will use these revised forms to file returns for income earned in FY 2026–27.

Confirming this timeline, Minister of State for Finance Pankaj Chaudhary told the Lok Sabha on December 8, 2025, that the first set of ITRs under the new law will be notified after accounting for Budget 2026 changes.

Income earned in the current financial year, FY 2025–26, will continue to be reported using Income Tax Return (ITR) forms issued under the Income Tax Act, 1961. These forms will be notified in due course, as per the existing law.

However, income earned in FY 2026–27 will be filed under the new Income Tax Act, 2025. The corresponding ITR forms under the new legislation will be notified before April 1, 2027, giving taxpayers clarity ahead of the filing cycle.

Notably, FY 2026–27 will mark the first tax year governed by the Income Tax Act, 2025. This inaugural tax year will run from April 1, 2026, to March 31, 2027, formally ushering in the new tax framework for individuals and businesses alike.

Labour codes

The rollout of new labour codes in 2025 marks a substantial regulatory shift for both employees and employers. The codes encompass areas such as wage structures, social security, and conditions of employment, potentially affecting take-home salaries, workplace benefits, and long-term security. The implementation of these codes is intended to harmonise labour practices and introduce greater uniformity across sectors.

According to CA Dr Suresh Surana: "The implementation of the Labour Codes is expected to significantly alter the manner in which employee compensation is structured, with consequential implications for gratuity entitlement, income-tax outgo, and the composition of salary components."

He added: "Under the Code on Social Security, 2020, gratuity would be governed by the principle of payment at the rate of 15 days’ wages for every completed year of service, payable upon resignation, retirement, or termination of continuous service of one year (Section 53 read with Section 2(zr)). However, the critical change arises from the expanded definition of “wages” under Section 2(y)."

"The Code mandates that basic pay, dearness allowance, and retaining allowance must constitute at least 50% of total remuneration, with a cap on exclusions. As gratuity is calculated on the basis of “wages,” a higher wage base will lead to increased gratuity liability for employers and higher gratuity payouts for employees. This marks a shift from earlier practices where a lower basic salary was used to manage long-term retirement costs," he further added. 

Together, these updates in the realms of taxation, pensions, and labour regulation underscore 2025 as a pivotal year for financial planning in India. Households and investors will likely need to adapt their approaches to budgeting, investment, and retirement decisions to align with the modified policy landscape as they move into 2026.

National Pension System

In 2025, the Pension Fund Regulatory and Development Authority (PFRDA) introduced sweeping changes to the National Pension System (NPS) withdrawal and exit rules to make the scheme more flexible and attractive, especially for non-government subscribers under the All Citizen Model and the Corporate Sector. The amendments apply uniformly across Common Schemes and the Multiple Scheme Framework and will be relevant for retirement planning from 2026 onwards.

One of the most significant changes is the removal of the lock-in period, allowing subscribers to exit at any time. The maximum entry and exit age has been raised to 85 years. Depending on the corpus size, subscribers can now withdraw up to 80% as a lump sum, with the balance used to purchase an annuity. Smaller corpuses enjoy higher lump-sum flexibility, even on premature exit.

The new rules also permit loans against NPS, with banks allowed to place a lien on up to 25% of the subscriber’s own contribution. Partial withdrawals are allowed for home purchase, medical treatment, or loan settlement, subject to specified conditions.

The reduction in mandatory annuitisation within the NPS offers greater flexibility for retirees, as a smaller proportion of pension savings will now need to be converted into regular annuity income. This shift will allow individuals to access more of their retirement funds upfront, providing an opportunity to tailor post-retirement income flows according to their respective personal needs.