New Income Tax Act 2025 — what actually changed for salaried Indians

The Income Tax Act 1961 ran for 64 years. It accumulated provisions over time until it became a document that made even accountants charge you extra just for reading it. The New Income Tax Act 2025 replaced it on April 1, 2026.

The announcements around this were overblown. Finance podcasts talked like salaried Indians were about to see their lives transformed. The reality: most of the changes are structural. Same rules in cleaner language, reorganised sections. But a few things changed in ways that affect your actual tax bill, and one change quietly matters if you rent in Bengaluru, Pune, Hyderabad, or Ahmedabad.

Tax Year replaces Financial Year and Assessment Year

This is the one change that fixes a genuine 64-year-old confusion.

Under the old act, "Financial Year" was the year you earned income and "Assessment Year" was the year you filed the return. FY 2025-26 income got assessed in AY 2026-27. Two different year labels for the same earnings. Accountants knew this. Their clients regularly didn't, and the confusion around forms, notices, and deadlines caused real errors.

The new act introduces a single "Tax Year." Tax Year 2025-26 means income earned between April 1, 2025 and March 31, 2026. You file your return for Tax Year 2025-26 by July 31, 2026. No AY to track separately.

This is mostly cosmetic but will save a surprising number of people from filing under the wrong year.

₹12.75 lakh effective zero-tax under the new regime

Under the new regime (Budget 2025 slabs):

• ₹75,000 standard deduction brings a ₹12.75L gross salary down to ₹12L taxable
• Tax on ₹12L under the new slabs works out to ₹60,000
• Section 87A rebate under new regime is up to ₹60,000

Net tax: zero.

This isn't exclusive to the new act — the Budget 2025 announced these slabs effective April 1, 2025. What the new act does is codify it cleanly rather than scattering it across three provisions. But the practical impact is real: if you earn up to ₹12.75 lakh gross and haven't checked whether you owe tax this year, you almost certainly don't.

HRA 50% rate now covers 8 cities, not 4

The original act allowed 50% HRA exemption only in Delhi, Mumbai, Kolkata, and Chennai. Every other city got 40%.

The new act adds Bengaluru, Pune, Hyderabad, and Ahmedabad to the 50% list.

The HRA exemption is calculated as the minimum of: actual HRA received, 50%/40% of basic salary depending on city, or rent paid minus 10% of basic salary. If you're renting in Bengaluru at ₹25,000/month on a ₹50,000 basic, moving from 40% to 50% increases your annual exemption by ₹60,000 — saving roughly ₹6,000–9,000 in tax depending on your bracket.

Most people in these four cities haven't heard about this. Your payroll team may not have updated it either. Worth checking your payslip.

New regime is the default

The new act formalises what was already the case for salaried employees since FY 2023-24: new regime is the default. If you do nothing, you're on new regime.

To claim old regime deductions, you need to actively opt in. For salaried employees, that means submitting Form 12BB to your employer before the financial year starts — otherwise TDS gets deducted under new regime slabs.

If you've been in old regime because you have a home loan or are maximising 80C and HRA, you'll need to opt in again for Tax Year 2026-27. Don't assume HR carried it forward.

What didn't change

The noise made this sound like a complete overhaul. It wasn't.

Tax slabs under both regimes are unchanged from FY 2025-26. Capital gains rates are unchanged (LTCG on equity 12.5% above ₹1.25L, STCG 20%). Crypto/VDA taxation remains 30% flat. Section 80C limit stays at ₹1.5L. NPS additional deduction under 80CCD(1B) stays at ₹50,000. TDS rates are largely unchanged.

The old regime also remains available. Nobody is being forced onto new regime — you still choose.

The one thing to actually do this month

If you're in Bengaluru, Pune, Hyderabad, or Ahmedabad: check with your payroll team that they've updated your HRA city category to 50%. Most payroll software should have done this automatically from April 1, 2026, but it's worth confirming on your April payslip.

If you're earning under ₹12.75L: make sure you're on new regime. You likely owe zero tax and have no reason to deal with the deduction tracking old regime requires.

If you're earning above ₹15L: the comparison between old and new still depends on your individual deductions. The tax regime calculator can work out the exact number for your situation in about two minutes.

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Tax rules based on the Income Tax Act 2025 effective April 1, 2026. For personalised advice, consult a CA or SEBI-registered financial advisor.