New income tax law and many budgetary provisions will be implemented from April, know what will be the changes

New Delhi. With the beginning of the new financial year 2026-27 from April 1, the income tax structure of the country is also going to enter a period of major changes.

The new Income Tax Act, 2025 will come into force from Wednesday, replacing the nearly six-decade-old 1961 law. Under this new law, many important changes have been made in the tax system, procedures and rules.

The biggest change is the introduction of a single ‘tax year’ replacing the financial year and assessment year, which seeks to simplify the tax filing process.

According to the Income Tax Department, the new income tax laws and other budgetary provisions will come into effect from April 1. These budgetary provisions include higher Securities Transaction Tax (STT) on futures and options (F&O) trading and lower TCS on foreign tourism packages and LRS remittances for medical and education purposes.

Apart from this, the budget announcements related to 20 years of tax exemption till 2047 to foreign companies taking data center services in India and increasing the limit of ‘safe harbor’ provisions for software companies will also become effective from Wednesday with the beginning of the financial year 2026-27.

The objective of the new law is to present the same tax policy in a more logical, accessible and reader-friendly format. Its e-filing platform will facilitate compliance under both the old and new income tax laws during the transition period.

Also, all assessments, appeals and other proceedings related to previous years will continue under the old law till final disposal. Taxpayers filing returns in July for assessment year 2026-27 (which pertains to the period of the old law) will use only the forms prescribed under the old law.

Advance tax payment for tax year 2026-27 will start from June. In the Income Tax Act, 2025, a single ‘tax year’ system has been implemented by eliminating the difference between assessment year and previous year.

Along with this, even if income tax return is filed after the deadline, refund of TDS (Tax Deducted at Source) has been allowed without any penalty fee. Another major change coming into effect from April 1 is the increase in STT on futures and options (F&O) deals.

STT on futures contracts will increase from 0.02 per cent to 0.05 per cent. STT on option premium and option exercise will increase to 0.15 per cent from 0.1 per cent and 0.125 per cent respectively. This increase in STT is aimed at limiting speculation in the F&O segment of the equity market and protecting small investors from huge losses.

According to the data, the number of individual investors trading in the equity derivatives (F&O) segment was 1.06 crore in 2024-25, which declined to about 75.43 lakh in 2025-26 (by December 30, 2025).

Individual investors faced a net loss of over Rs 1.05 lakh crore in 2024-25, according to SEBI study ‘Growth in equity derivatives segment versus cash market’. Along with this, the ‘Safe Harbor’ limit for IT services has been increased from Rs 300 crore to Rs 2,000 crore.

This will provide more certainty to the IT/ITES sector and is expected to reduce litigation. ‘Safe Harbor’ for IT services is a tax regime designed to reduce “transfer pricing” disputes.

The reduction in TCS (tax collected at source) on foreign travel packages and remittances for medical and education under the Liberalized Remittance Scheme (LRS) is aimed at providing relief to the middle class. TCS on foreign travel packages has been reduced from 20 percent to two percent.

TCS on remittances for medical and education will be reduced from five percent to two percent. Apart from this, the 20-year tax exemption announced in the Union Budget is also likely to provide major benefits to domestic data center companies, as it will enable them to avoid the risk of being taxed in India on their foreign income while providing services to global customers.

There is a provision in the budget for the financial year 2026-27 that any foreign company taking data center services in India will get a tax exemption of 20 years till 2047, which will remove the apprehensions of their global income being taxed by the Indian tax authorities.

Whether a global company sets up its data center in India or avails services from an Indian data centre, the tax regime will remain the same in both the cases, thereby ensuring a level playing field for competition. The effective corporate tax rate in India is 25.17 percent.