27 Feb 2026Updated: May 2026
How to Prepare for New Tax Regulations in India 2026: What Every Taxpayer and Business Must Know
The Finance Act 2025 has brought the most significant restructuring of India's income tax framework in a decade, with most changes taking effect from Assessment Year 2026-27 (FY 2025-26). Whether you are a salaried individual, a business owner, or a self-employed professional, preparing for these new tax regulations is not optional — it is a compliance imperative. Here is the complete picture, statute by statute.
New Tax Regime Now the Default — Section 115BAC
The most consequential change from Finance Act 2025 is that the new tax regime under Section 115BAC is now the default for all individuals and HUFs. If you wish to continue with the old regime — which allows deductions under Sections 80C, 80D, HRA exemption, and home loan interest — you must actively opt out by filing Form 10-IEA before the due date of your Income Tax Return.
For salaried employees, this directly affects Section 192: your employer is required to deduct TDS at new regime rates unless you submit a written declaration opting for the old regime. Failing to communicate your preference means your employer defaults to the new regime, which may or may not be tax-optimal for your specific situation.
Revised Tax Slabs Under the New Regime — FY 2025-26
The Finance Act 2025 significantly restructured the new regime slabs. The applicable rates are:
- Up to ₹4,00,000 — Nil
- ₹4,00,001 to ₹8,00,000 — 5%
- ₹8,00,001 to ₹12,00,000 — 10%
- ₹12,00,001 to ₹16,00,000 — 15%
- ₹16,00,001 to ₹20,00,000 — 20%
- ₹20,00,001 to ₹24,00,000 — 25%
- Above ₹24,00,000 — 30%
The basic exemption limit under the new regime has been raised to ₹4 lakh. Combined with the enhanced rebate under Section 87A — raised to ₹60,000 — the effective tax liability for individuals earning up to ₹12 lakh becomes nil. For salaried taxpayers, the standard deduction of ₹75,000 under the new regime pushes this effective zero-tax threshold to ₹12.75 lakh.
Critical Caveat: Section 87A Rebate Does Not Apply to Special Rate Incomes
This is one of the most misunderstood aspects of the post-Budget landscape. The enhanced Section 87A rebate of ₹60,000 is available only against tax on income chargeable at normal slab rates. It is not available against tax on:
- Short-term capital gains on listed equity shares and equity mutual funds (Section 111A — taxed at 20%)
- Long-term capital gains on equity and equity-oriented funds exceeding ₹1.25 lakh (Section 112A — taxed at 12.5%)
- Long-term capital gains on property and other assets (Section 112)
If you have significant capital gains income, your tax liability must be computed separately for special-rate income, and the rebate does not offset those taxes. This is a routine source of errors in self-filed returns and has triggered scrutiny notices in multiple assessment years.
TCS on Foreign Remittances and LRS
Under the Liberalised Remittance Scheme (LRS), remittances exceeding ₹7 lakh per financial year for purposes other than education, medical treatment, or overseas tour packages attract Tax Collected at Source at 20%. As of the current position, international credit card spends by resident individuals while abroad remain outside the LRS framework — a position clarified by the Government after significant industry representations. This should be monitored at the start of each financial year as it may change.
Section 43B(h): MSME Payment Deductibility Rule
Businesses dealing with Micro and Small Enterprises registered under the MSMED Act, 2006 must pay their dues within 45 days of acceptance of goods or services (15 days if no written agreement exists). Under Section 43B(h), outstanding MSME payments beyond this period are not deductible in the year of accrual — deductibility shifts to the year of actual payment. This has a direct impact on profit computation and advance tax planning.
Key Due Dates for FY 2025-26
- Advance Tax Q1 (15%): 15 June 2025
- Advance Tax Q2 (45%): 15 September 2025
- Advance Tax Q3 (75%): 15 December 2025
- Advance Tax Q4 (100%): 15 March 2026
- ITR Filing (non-audit): 31 July 2026
- ITR Filing (audit cases): 31 October 2026
Practical Preparation Checklist
- Regime comparison: Run a tax computation under both regimes for your income profile. The new regime is typically preferable when aggregate exemptions and deductions are below approximately ₹3.75 lakh.
- Form 10-IEA: If the old regime is more beneficial, file Form 10-IEA on or before the ITR due date. Business income earners can exercise this option only once.
- TDS recalculation: Submit your regime declaration to your employer immediately. Verify Form 16 once issued to confirm TDS has been deducted correctly under Section 192.
- Advance tax: Recompute advance tax based on revised slabs. Under-payment attracts interest under Sections 234B and 234C.
- MSME creditor review: Audit your creditor ledger for MSME suppliers and clear dues within statutory timelines to protect deductibility.
For business owners seeking comprehensive income tax advisory and compliance management, visit www.smeadvisory.in.
Regi Tom Antony And Associates is a Chartered Accountant firm based in Kakkanad, Kochi, providing income tax planning, TDS compliance, advance tax computation, and business advisory services. For a personalised regime comparison or tax planning consultation, write to us at letstalk@rtaandassociates.com.