The new Income-tax Act is here: what actually changes for salaried people
The Income-tax Act, 2025 replaced the 64-year-old Income-tax Act, 1961 on 1 April 2026. If you are salaried, the headline is reassuring: your tax slabs, standard deduction, rebate and deduction limits are unchanged for tax year 2026-27. But a few things do change, and one of them - the HRA city list - can move your tax by tens of thousands of rupees.
By FinancePaisa Editorial Team · Research & editorialPublished · 5 min read
On this page (9 sections)
What happened
Parliament passed the Income-tax Bill, 2025 in August 2025, and Budget 2026-27 confirmed that the new Act applies from 1 April 2026. The goal is simplification rather than new taxes: the law has been cut from 819 sections in 47 chapters to 536 sections in 23 chapters, with tables and formulas replacing long provisos. The Income-tax Rules, 2026 replace the old rules in the same way.
The "tax year" replaces two confusing terms
Under the 1961 Act, income earned in FY 2025-26 was assessed in "assessment year 2026-27", so the same numbers described two different years. The new Act drops both terms. The tax year is simply the April-March year in which you earn the income. Salary you earn from April 2026 to March 2027 belongs to tax year 2026-27, and you file its return by 31 July 2027.
What did not change
| Item | New regime | Old regime |
|---|---|---|
| Standard deduction | Rs 75,000 | Rs 50,000 |
| Tax-free up to (taxable income, with rebate) | Rs 12 lakh | Rs 5 lakh |
| Top slab | 30% above Rs 24 lakh | 30% above Rs 10 lakh |
| 80C limit | Not available | Rs 1.5 lakh |
| Self-occupied home-loan interest | Not available | Up to Rs 2 lakh |
| Default regime | Yes | Opt in each year |
Standard deduction
- New regime
- Rs 75,000
- Old regime
- Rs 50,000
Tax-free up to (taxable income, with rebate)
- New regime
- Rs 12 lakh
- Old regime
- Rs 5 lakh
Top slab
- New regime
- 30% above Rs 24 lakh
- Old regime
- 30% above Rs 10 lakh
80C limit
- New regime
- Not available
- Old regime
- Rs 1.5 lakh
Self-occupied home-loan interest
- New regime
- Not available
- Old regime
- Up to Rs 2 lakh
Default regime
- New regime
- Yes
- Old regime
- Opt in each year
Section numbers changed, the deductions did not
Every familiar name - 80C, 80D, HRA under 10(13A), home-loan interest under 24(b), the 87A rebate - now sits under a different section number. Nothing about the underlying benefit changed. In practice you will meet the new numbers in three places: your Form 16 for tax year 2026-27, investment declaration forms from your employer, and next year's ITR forms. CBDT has published an official utility that maps every 1961 section to its 2025 equivalent (linked below), and the Income Tax Department has published a separate guide mapping the old forms to the new ones.
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The change that can move your tax: HRA in four more cities
The HRA exemption is the lowest of three amounts, and one of them is a percentage of your basic salary: 50% in a metro, 40% elsewhere. Under the Income-tax Rules, 2026, the metro list grows from four cities to eight from tax year 2026-27, adding Bengaluru, Hyderabad, Pune and Ahmedabad.
Take someone in Bengaluru on a Rs 24 lakh salary with basic pay of Rs 9.6 lakh, HRA of Rs 4.8 lakh and rent of Rs 48,000 a month. Their exempt HRA rises from ₹3,84,000 to ₹4,80,000. With full 80C, Rs 50,000 of health insurance and Rs 50,000 in NPS:
| Situation | Old regime tax | New regime tax | Cheaper |
|---|---|---|---|
| FY 2025-26 rules (40% HRA) | ₹3,40,392 | ₹2,92,500 | New regime by ₹47,892 |
| Tax year 2026-27 (50% HRA) | ₹3,10,440 | ₹2,92,500 | New regime by ₹17,940 |
| Same, plus Rs 2 lakh home-loan interest - FY 2025-26 | ₹2,77,992 | ₹2,92,500 | Old regime by ₹14,508 |
| Same, plus Rs 2 lakh home-loan interest - tax year 2026-27 | ₹2,48,040 | ₹2,92,500 | Old regime by ₹44,460 |
FY 2025-26 rules (40% HRA)
- Old regime tax
- ₹3,40,392
- New regime tax
- ₹2,92,500
- Cheaper
- New regime by ₹47,892
Tax year 2026-27 (50% HRA)
- Old regime tax
- ₹3,10,440
- New regime tax
- ₹2,92,500
- Cheaper
- New regime by ₹17,940
Same, plus Rs 2 lakh home-loan interest - FY 2025-26
- Old regime tax
- ₹2,77,992
- New regime tax
- ₹2,92,500
- Cheaper
- Old regime by ₹14,508
Same, plus Rs 2 lakh home-loan interest - tax year 2026-27
- Old regime tax
- ₹2,48,040
- New regime tax
- ₹2,92,500
- Cheaper
- Old regime by ₹44,460
What the HRA change means for your regime choice
The new regime is still the better deal for most people. But if you rent in one of the four newly added cities and pay high rent relative to your basic salary, the old regime is worth re-checking this year. In our example it cuts old-regime tax by ₹29,952. The change only helps when the 40% limit was the lowest of the three HRA amounts; if your rent is modest, the "rent minus 10% of basic" limit still decides your exemption and nothing changes.
What to do now
- If you have not filed for FY 2025-26, file a belated return before 31 December 2026. That return still uses the 1961 Act and its section numbers.
- If you rent in Bengaluru, Hyderabad, Pune or Ahmedabad, recompute your exempt HRA for tax year 2026-27 with the 50% limit and re-run the old vs new comparison.
- Tell your employer which regime you want for this year so TDS is right; you can still change it when you file.
- Keep rent receipts, the rent agreement and your landlord's PAN (for rent above Rs 1 lakh a year) as before.
- Expect your next Form 16 to use new section numbers. The amounts will look familiar.
Frequently asked questions
Sources & references
- Provisions of the Income-tax Act, 1961 vis-a-vis Income-tax Act, 2025 — CBDT
- Form mapping guide: Income-tax Act, 1961 to Income-tax Act, 2025 — Income Tax Department
- Income-tax Returns - due dates and belated returns — Income Tax Department
- Union Budget 2026-27 — Ministry of Finance
- HRA 50% exemption now covers 8 cities from FY 2026-27 (Income-tax Rules, 2026) — Tax Update India
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