Income Tax Rules change from April 2026: Know Key changes

Income Tax Rules change: India’s income tax landscape is set for a structural overhaul. Starting April 1, 2026, the Income tax Act, 2025 will replace the decades-old 1961 Act, bringing a new numbering system for the most common tax documents.

While the renaming is “administrative,” the updated rules for allowances could actually lead to a higher take-home pay for many employees who choose the right tax regime.

The New “Names” for Familiar Forms:

The Draft Income-tax Rules, 2026 propose renumbering nearly all statutory forms to align with the new Act.

Old Form Name, New Form Number (From April 2026) and Description:

Form 16 – Form 130 – Annual Salary TDS Certificate

Form 26AS – Form 168 – Annual Tax Credit Statement (Tax Passbook)

Form 16A – Form 131 – TDS Certificate for Non-Salary (Fixed Deposits, etc.)

Form 24Q – Form 138 – Employer’s Quarterly TDS Return

Form 3CD – Form 26 – Audit Report (Amalgamated with 3CA/3CB)

Impact on Take-Home Pay:

The renaming itself won’t change your salary, but the Draft Rules 2026 accompanying this change include long-awaited updates to tax-exempt allowances. If your company updates its HR policies to match these, your taxable income could drop, increasing your take-home pay.

Children’s Education Allowance: Proposed to jump from a tiny Rs 100/month to Rs 3,000 per month (per child, max two).

Hostel Expenditure Allowance: Proposed to increase from Rs 300/month to Rs 9,000 per month.

HRA Benefits Expanded: Bengaluru, Pune, Ahmedabad, and Hyderabad are proposed to be added to the 50% HRA exemption list (joining Delhi, Mumbai, Kolkata, and Chennai).

Meal Vouchers: The tax-free limit for office meals is proposed to increase from Rs 50 to Rs 200 per meal.

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Most of these allowance hikes apply to the Old Tax Regime. If you are in the New Tax Regime, your take-home pay might actually decrease slightly because the taxable value of employer-provided cars (perquisites) is proposed to triple (e.g., from Rs 2,700 to Rs 8,000 per month for small cars).

Key Concept Change: “Tax Year”

The government is moving away from the confusing “Assessment Year (AY)” and “Previous Year (FY)” terminology. From April 2026, it will simply be called the “Tax Year.” For example, what would have been FY 2026–27 will now just be Tax Year 2026–27.

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