Understanding Changes in India's Income Tax Regimes for FY26-27

The new financial year, Fiscal Year 2026-27, will commence on April 1. This transition has raised questions about updates to the Income Tax Act and whether they will affect tax returns this year. According to reports, the revisions will not impact returns for FY26; rather, they will take effect when filing income tax returns (ITRs) in June 2027 for FY27.

As detailed in the Union Budget 2026, the due date for filing ITR-3 and ITR-4 for non-audit taxpayers will be extended to August 31. The deadlines for ITR-1 and ITR-2 will remain as July 31, while the due date for tax audits will continue to be October 31.

Finance Minister Nirmala Sitharaman announced that for FY26, taxpayers will not incur income tax on salaries up to ₹12 lakh, which effectively translates to ₹12.75 lakh when accounting for the standard deduction and rebate. The new tax regime allows a standard deduction of ₹75,000, coupled with a rebate under Section 87A of ₹60,000, thereby negating tax liability for many individuals with incomes up to ₹12.75 lakh.

It is important to note that the new tax regime is the default option; taxpayers must actively switch to the old tax regime if they prefer that format. Each regime serves different financial needs, and the decision on which to choose hinges on individual financial plans and investment strategies.

For those in higher tax brackets who qualify for fewer deductions, the new tax regime may provide a more beneficial scenario. There is also a reduced paperwork burden associated with this newer structure. Conversely, the old tax regime allows a standard deduction of ₹50,000 and offers numerous deductions that are not accessible in the new regime. It may therefore be more advantageous for individuals who have heavily invested in tax-saving instruments such as the Public Provident Fund (PPF), Equity-Linked Saving Schemes (ELSS), and Kisan Vikas Patra (KVP), or who receive House Rent Allowance (HRA).

Chirag Chauhan, a chartered accountant based in Mumbai, emphasised that taxpayers should consider opting for the old tax regime if their deductions exceed ₹4 lakh.

In summary, understanding these tax structures and the relevant changes is crucial for taxpayers as they prepare for future filings. The modifications set to come into effect on April 1 will primarily influence the filing process for the fiscal year 2026-27, with the first submissions due in June 2027. As always, individuals are encouraged to seek advice from certified financial professionals to navigate these options effectively.