I-Tax Act, 2025 - New tax rulebook from April 1: What really changes for salaried taxpayers

From April 1, 2026, India will move to a new direct tax framework as the Income Tax Act, 2025 comes into force, replacing the decades-old Income Tax Act, 1961. The government says the new law does not change tax rates but aims to simplify compliance, reduce disputes, and make the system easier to understand. However, the changes will still affect taxpayers in several practical ways, especially salaried individuals, people dealing in digital assets, and those claiming deductions such as house rent allowance (HRA).

> New Income Tax Act replaces old law

The biggest change from April 1 is structural. The new law reorganises the entire tax code into a simplified format with fewer explanations and clearer language. While most tax rates, deductions and limits remain the same, the government has rewritten the law to make it easier to read and interpret. The new Act runs into hundreds of sections but removes many redundant provisions to reduce confusion for taxpayers as well as tax officials.

> “Tax year” replaces financial year vs assessment year

One major change is the introduction of the concept of a tax year, which will mean the 12-month period starting April 1. This replaces the earlier system where taxpayers had to deal with both a financial year and a separate assessment year, which often created confusion while filing returns. The new system is expected to make return filing simpler.

> New HRA disclosure rule for salaried taxpayers

Salaried individuals claiming house rent allowance will have to provide more details from April 1. If annual rent exceeds ₹1 lakh, taxpayers must disclose the relationship with the landlord, especially when the house is rented from family members such as parents, spouse, or siblings. The rule is aimed at preventing misuse of HRA claims while still allowing genuine deductions.

> HRA exemption

From April 1, 2026, salaried taxpayers claiming House Rent Allowance (HRA) must disclose their relationship with the landlord if the annual rent exceeds ₹1 lakh, particularly when paying rent to family members such as parents, spouse, or siblings. This requirement comes under the Draft Income Tax Rules 2026, which introduce Form 124, replacing earlier forms like 12BB for HRA claims. The new form requires details such as the landlord’s name, PAN, and relationship with the taxpayer. Additionally, eight metro cities—Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Pune, Ahmedabad, and Bengaluru—will continue to qualify for 50% salary HRA exemption, while other cities remain at 40%.

> Wider definition of digital assets, including crypto

The new law expands the definition of Virtual Digital Assets, which now clearly includes cryptocurrencies, NFTs and other digital assets notified by the government. This means transactions in such assets will come under clearer reporting and tax rules, and taxpayers dealing in crypto or online trading platforms may face stricter scrutiny.

> More powers for tax officials in digital searches

As financial activity increasingly moves online, the law allows tax authorities wider access during search operations. In certain cases, taxpayers may be required to provide access to emails, cloud storage, social media accounts, or digital trading platforms if they are relevant to an investigation. The government says this is needed to track undisclosed income in the digital economy.

> Changes in dispute resolution and recovery process

The new Act keeps the dispute resolution panel system but requires clearer written orders explaining decisions. The aim is to reduce litigation and make tax recovery and appeals more transparent, especially in cases involving foreign companies, non-residents, or transfer pricing disputes.

> What remains unchanged

Importantly, tax slab rates, capital gains rules, residential status criteria and most deductions remain the same as announced in recent Budgets. The government has emphasised that the new law is more about simplification than increasing taxes.

For most taxpayers, April 1 will not change how much tax they pay, but it will change how tax rules are applied, reported and verified. The new law aims to make compliance simpler, but it also brings tighter reporting requirements — especially for HRA claims, digital assets and online financial activity.