India’s 2026 Tax Overhaul: What Businesses and Individuals Must Know

India’s taxation system is experiencing a historic structural shift. Effective April 1, 2026, the Income-tax Act, 2025, completely replaces the Income-tax Act, 1961. Simultaneously, the rollout of GST 2.0 fundamentally alters tax slabs and business compliance. For professionals keeping track of these fast-moving changes, referencing reliable platforms for the latest GST updates (https://taxgst.in) is essential.

Direct Tax Changes: The Income-tax Act 2025

The central objective of the new direct tax framework is simplification. The total number of sections has been reduced from 819 to 536, easing the compliance burden for both individuals and corporations.

• Unified Terminology: The traditional distinction between “Assessment Year” and “Financial Year” is eliminated. All reporting is now based on a single, unified “Tax Year”.
• Zero Tax on INR 12 Lakh: Under the default new tax regime, individuals earning up to INR 12 lakh pay no income tax due to a Section 87A rebate of up to INR 60,000. When combining this with the INR 75,000 standard deduction, a salaried professional’s effective tax-free threshold is INR 12.75 lakh.
• HRA Exemption Expansion: Taxpayers residing in Bengaluru, Pune, Hyderabad, and Ahmedabad are now eligible for the 50% House Rent Allowance (HRA) exemption, aligning them with traditional metro cities.
• Capital Gains on Buybacks: Proceeds from share buybacks are now taxed strictly as capital gains instead of deemed dividends, changing the investment strategy for corporate shareholders.
• Interest Deduction Removed: Taxpayers can no longer claim deductions for interest expenses against dividend income or income from mutual funds.

Indirect Tax: GST 2.0 Implementation

The 56th GST Council meeting initiated massive compliance and rate restructuring that became fully operational in 2026, targeting streamlined operations and faster dispute resolution.

• Simplified Rate Slabs: The multi-rate system is largely consolidated into two primary tiers: 5% and 18%. The 12% and 28% slabs are entirely abolished.
• Demerit Goods Rate: A strict 40% rate applies to luxury and sin goods, including tobacco, aerated beverages, and high-end vehicles.
• Zero Mismatch Policy: The Invoice Management System (IMS) now enforces a hard block on your GSTR-3B return filing if discrepancies exist against your supplier’s GSTR-1 reporting.
• Lowered E-invoicing Threshold: E-invoicing is mandatory from April 1, 2026, for any business recording an Aggregate Annual Turnover (AATO) exceeding INR 5 crore in FY 2025-26.

Compliance Note:

Businesses must immediately update their accounting software to handle the new GST rates and ensure strict vendor compliance to avoid blocked Input Tax Credits (ITC) under the new Zero Mismatch Policy.