Major Income Tax Changes From April 1: HRA, ITR, Meal Cards, Form 130 Explained

With the start of the new financial year on April 1, several important income tax changes will come into effect, impacting salaried individuals and employers alike. India's tax framework is set for a major overhaul, with the decades-old Income Tax Act, 1961, being replaced by the new Income Tax Act, 2025. The updated legislation is designed to simplify the tax system by removing outdated provisions, streamlining complex rules, and making compliance more straightforward for taxpayers.

One of the most notable structural changes is the replacement of the dual concepts of Financial Year (FY) and Assessment Year (AY) with a single term: "Tax Year." This shift aims to eliminate long-standing confusion, particularly for first-time taxpayers, by aligning income earning and tax assessment within one unified timeline.

Here are the major income tax updates effective from April 1, 2026: 

HRA Exemption

House Rent Allowance (HRA) continues to be one of the most significant tax-saving components for salaried individuals. However, from April 1, compliance requirements have tightened.

Employees claiming HRA exemption must ensure the following:

• Submission of valid rent receipts
• Disclosure of landlord's PAN if annual rent exceeds Rs 1 lakh
• Digital tracking and verification by employers

Additionally, there is growing use of data analytics by the Income Tax Department to detect mismatches between claimed HRA and landlord declarations. Cases of fake rent receipts or circular transactions will be under sharper scrutiny. The higher 50 percent HRA exemption category, which earlier applied only to Mumbai, Kolkata, Delhi, and Chennai, has now been extended to Bengaluru, Hyderabad, Pune, and Ahmedabad. All other cities will continue under the 40 percent HRA bracket.

Form 16 replaced by Form 130

From April 1, 2026, employers will no longer issue Form 16, which will be replaced by Form 130 under the new Income-tax Act, 2025. Form 130 serves the same purpose as Form 16, providing a Tax Deducted at Source (TDS) certificate for salaried employees and pensioners. The new form will have a more detailed structure, including employer and employee details, salary breakup, deductions, total taxable income, tax payable, and TDS or TCS details.

ITR Filing Deadlines

Effective April 1, 2026, for the Tax Year 2026-27, the standard ITR filing deadlines have been updated following the Union Budget 2026:

July 31, 2026: Individuals, HUFs, AOPs, and BOIs not requiring a tax audit (standard for ITR-1 and ITR-2).

August 31, 2026: Non-audit business cases, including professionals and self-employed taxpayers filing ITR-3 or ITR-4.

October 31, 2026: Corporate taxpayers and any businesses/individuals subject to a tax audit.

School and Hostel Allowance

Allowances related to children's education have seen a substantial upward revision under the old regime. The school allowance has been increased from Rs 100 per month per child to Rs 3,000, while the hostel allowance has been raised from Rs 300 per month to Rs 9,000. 

Meal Cards

Meal vouchers or cards, offered by employers through platforms like Sodexo or similar providers, have been a popular tax-efficient perk. The tax-exempt limit on employer-provided meal cards has now been increased fourfold - from Rs 50 per meal to Rs 200 per meal. This benefit, applicable under the old tax regime, now covers food and non-alcoholic beverages provided by employers, making it a more meaningful component of salary structuring.

Gift Vouchers

The annual tax-free threshold for corporate gift cards, vouchers, and coupons has been raised from Rs 5,000 to Rs 15,000 per employee. Importantly, this benefit will be available under both the old and new tax regimes, offering greater flexibility to taxpayers.

Securities Transaction Tax (STT) Increase on Derivatives

The government has hiked Securities Transaction Tax (STT) rates on equity derivatives, effective April 1, 2026. This affects traders in equity derivatives, increasing transaction costs slightly

- Futures: STT on sale rises to 0.05% (from 0.02%).
- Options (premium) :STT on sale increases to 0.15% (from 0.10%).
- Options (exercise): STT rises to 0.15% (from 0.125%).

These changes, announced in Budget 2026, aim to moderate excessive speculative trading in the F&O segment while generating additional revenue.

Sovereign Gold Bond Tax Rules

From April 1, the tax treatment of Sovereign Gold Bonds (SGBs) has been tightened. Capital gains tax exemption on redemption will now be available only to original subscribers who hold the bonds until maturity. Investors who purchase SGBs from the secondary market via stock exchanges will no longer enjoy this exemption and will be liable to pay capital gains tax upon redemption.

Dividend and Mutual Fund Income Rules

From April 1, no deduction will be allowed for interest expenses incurred on borrowed funds used to earn dividend income or income from mutual fund units. Earlier, a limited deduction (up to 20% of the gross income) was permitted. Now, the entire income will be taxed on a gross basis under the head 'Income from Other Sources' without any offset for interest costs. This removes the tax advantage of leveraging borrowings to invest in dividend-yielding shares or mutual funds.

Share Buyback Taxation

From April 1, proceeds received by shareholders from share buybacks will be taxed as capital gains in their hands, instead of being treated as deemed dividends. Tax will now apply only on the profit (sale consideration minus cost of acquisition), making it more beneficial for long-term investors compared to the earlier slab-rate taxation as dividend income.

 Single Declaration for Non-Deduction of TDS

Investors can now submit a single declaration (Form 15G or 15H) directly to depositories (NSDL or CDSL) to claim non-deduction or lower deduction of TDS on multiple income streams, including dividends, interest on securities/bonds, and mutual fund income. This applies to securities held in demat form and significantly reduces paperwork by eliminating the need for separate submissions to each company or fund house.

Simplified TDS Rules for Property Transactions with NRIs

From April 1, 2026, resident buyers purchasing immovable property from Non-Resident Indians (NRIs) can deduct and deposit TDS using their own PAN-based challan. The earlier requirement of obtaining a separate Tax Deduction Account Number (TAN) has been removed, making the process simpler and aligned with resident-to-resident property transactions.

Tax Exemption on Motor Accident Claims Tribunal (MACT) Interest

From April 1, interest awarded by the Motor Accident Claims Tribunal to an individual (or their legal heirs) on compensation amounts will be fully exempt from income tax. No TDS will be deducted on such interest, providing significant relief to accident victims and their families by ensuring they receive the full amount without any tax burden.