Income Tax Act 2025: What Changes for Your Salary (FY 2026-27)
From 1 April 2026, the salary slip you've decoded for years runs on a new rulebook. The Income Tax Act, 2025 has replaced the 1961 Act, and your payroll team has already reset every TDS calculation for Tax Year 2026-27. Here is the part nobody is saying clearly: if you earn ₹15 lakh-plus and stick to the new regime, your tax bill does not change. The section numbers, the form names, and the vocabulary do. Confuse the two and you'll either panic over a notice that's routine or miss a paperwork step that costs you a refund.
Summary: old label → new label
| What you knew | Under the 1961 Act | Under the Income Tax Act 2025 |
|---|---|---|
| Salary tax deduction section | Section 192 | Section 392 |
| 80C basket (₹1.5 lakh) | Section 80C | Section 123 (with Schedule XV) |
| Health insurance deduction | Section 80D | Section 126 |
| Annual salary certificate | Form 16 | Form 130 |
| Employer's quarterly TDS return | Form 24Q | Form 138 |
| Filing terminology | Previous Year + Assessment Year | a single "Tax Year" |
| Standard deduction | ₹75,000 | ₹75,000 (unchanged) |
What actually changed — and what didn't
The money stays put
The new regime slabs for Tax Year 2026-27 are identical to FY 2025-26: nil up to ₹4 lakh, then 5/10/15/20/25/30% up to and beyond ₹24 lakh, with the ₹75,000 standard deduction intact. The ₹1.5 lakh cap on the old 80C basket survives as Section 123. The 14% employer-NPS deduction (the old 80CCD(2), the one genuine lever left in the new regime) is untouched. Same arithmetic, same take-home.
"Tax Year" replaces the AY/PY tangle
The biggest conceptual shift is vocabulary. The old split between "Previous Year" (when you earned) and "Assessment Year" (when you filed) is gone. Income earned in April 2026–March 2027 is simply Tax Year 2026-27, assessed the following year. Less confusing once it lands — but every declaration, notice, and form you see from now on uses this single term.
Your last Form 16, your first Form 130
The Form 16 your employer hands you this June is for FY 2025-26 — and it's the last one you'll ever get under that name. From Tax Year 2026-27, the annual salary TDS certificate is Form 130, with a more detailed Part C breaking out gross salary, perquisites, allowances, exemptions and deductions line by line. The quarterly return your employer files moves from Form 24Q to Form 138 under Section 392.
Quarterly TDS can swing your monthly deduction
Under Section 392, employers must reset TDS projections from 1 April 2026 and recompute each quarter against your declared investments and chosen regime. Practical effect: if you under-declare in Q1 (Apr–Jun) and true up later, your monthly TDS can jump sharply in Q3–Q4. On a ₹28 lakh package, deferring a ₹1.5 lakh Section 123 declaration from April to January doesn't change your annual tax — but it can swell your January–March TDS by ₹15,000-plus a month while the employer claws back the under-deduction. Front-load your declaration so the deduction stays even across the year and your cash flow doesn't lurch into Q4.
If you're still on the old regime
The old regime survives under the new Act, and so does every deduction you used — they've simply moved address. Your 80C investments are claimed under Section 123, health premiums under Section 126, home-loan interest under the new Chapter VIII house-property provisions instead of Section 24. The limits (₹1.5 lakh, ₹25,000/₹50,000 for health, ₹2 lakh interest) are unchanged. The one thing to watch: when you compare regimes this year, make sure your tax tool is mapping the new section labels correctly — a mislabelled deduction can quietly understate the old regime's benefit and push you into the wrong choice.
HRA, perquisites: same rules, new home
House Rent Allowance still exempts 50% of basic in the eight metro cities (Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad) and 40% elsewhere — now housed in the Act's Chapter VIII deduction framework rather than the old Section 10(13A). Rent above ₹1 lakh a year still needs the landlord's PAN. Rent-free accommodation is now valued at a lower 10% of salary (down from 15%) in large cities, a small win if your employer provides housing.
Real example: Salaried, ₹28L CTC, Bengaluru, new regime
| Item | FY 2025-26 (old Act) | FY 2026-27 (new Act) |
|---|---|---|
| Standard deduction | ₹75,000 | ₹75,000 |
| Taxable salary | ₹27,25,000 | ₹27,25,000 |
| Annual tax (incl. 4% cess) | ₹4,13,400 | ₹4,13,400 |
| 80C / Section 123 claim | ₹1,50,000 | ₹1,50,000 |
| Salary certificate | Form 16 | Form 130 |
Nothing in the rupee columns moves. What changes is the paperwork: Priya's investment declaration now cites Section 123 instead of 80C, her June certificate is the last Form 16, and her ITR next year references Tax Year 2026-27. If she reads a payroll email about "Section 392 TDS" and assumes it's a new tax, she'll waste a week worrying over nothing.
What to do this week
- Save this June's Form 16 carefully — it's your final one and the base document for your FY 2025-26 return (deadline 31 July 2026).
- Refresh your Tax Year 2026-27 investment declaration now, using the new section labels, so quarterly TDS stays level instead of spiking later.
- Re-run your old-vs-new regime math once — slabs didn't change, but confirm the new regime still wins for you before locking it for the year.
- Build a one-line cheat-sheet (80C → 123, 80D → 126, Form 16 → 130) and ignore any "new tax" scare that's really just a renumbering.
Don't let the relabel cost you money
The Income Tax Act 2025 is the biggest structural change to Indian tax in six decades — but for a salaried professional it's a rename, not a rate hike. The risk isn't paying more; it's mismanaging declarations or misreading a notice during the switchover. Get the labels straight and the rest is business as usual.
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