Finance Minister Nirmala Sitharaman presented the Union Budget 2026-27 on February 1, unveiling the government’s financial roadmap for the year ahead. One of the key highlights was the announcement that the Income Tax Act, 2025, will come into effect from April 1, 2026, replacing the six-decade-old tax framework. This new law aims to simplify direct taxes, remove ambiguities, and make compliance easier for taxpayers.

The new act, which was notified in July 2025, is revenue-neutral, meaning it does not change the existing tax rates. Instead, it focuses on simplifying tax rules and forms, making them more user-friendly for salaried individuals, professionals, and small taxpayers. According to Sitharaman, the forms will be designed so that citizens can file their returns without difficulties, reducing the chances of errors and legal disputes.

The Finance Minister emphasized that the new system aims to streamline direct taxes, eliminate outdated provisions, and make the law easier to follow. It also addresses long-standing ambiguities, helping taxpayers avoid litigation and unnecessary confusion.

While the new law does not change tax slabs or introduce fresh deductions, it builds on the reforms announced in Budget 2025, which had already made significant improvements for salaried individuals. Under the 2025 tax framework:

• Annual income up to ₹4 lakh is fully exempt from tax.

• For incomes between ₹4 lakh and ₹8 lakh, the tax rate is 5%.

• Incomes from ₹8 lakh to ₹12 lakh are taxed at 10%.

• Incomes between ₹12 lakh and ₹16 lakh face 15% tax.

• ₹16 lakh to ₹20 lakh is taxed at 20%.

• ₹20 lakh to ₹24 lakh at 25%.

• Any income above ₹24 lakh is taxed at the highest rate of 30%.

Additionally, the ₹75,000 standard deduction for salaried taxpayers increases the tax-free limit to ₹12.75 lakh, providing relief to the middle class. This structure encourages domestic consumption, savings, and investment while reducing the tax burden on salaried individuals.

• The Income Tax Act 2025 takes effect April 1, 2026.

• It simplifies tax rules, removes ambiguities, and modernizes compliance.

• Tax rates remain the same as the revised structure under Budget 2025.

• Forms will be easier to use, making filing returns smoother for taxpayers.

Last year, the Budget 2025 had already introduced significant relief for the salaried class, including raising the tax-free limit and simplifying slabs. These measures aimed to put more money in the hands of taxpayers, encourage savings, and boost investments, laying the foundation for a more transparent and modern tax system.

With the implementation of the Income Tax Act, 2025, and the simplified rules and forms, taxpayers now have more clarity and time to comply with tax requirements. The government hopes that the changes will reduce litigation, improve compliance, and make filing less stressful, especially for salaried individuals and middle-class families.

In short, while there are no new deductions or changes in tax rates, the new tax regime will make life easier for taxpayers and streamline India’s direct tax system for the first time in six decades.