The landscape of Indian taxation is undergoing a significant transition. Starting April 1, 2026, the new Income Tax Act of 2025 comes into force, introducing several structural changes that will impact salaried individuals and taxpayers across the country. These updates aim to modernize the system while adjusting long-standing limits to reflect current economic realities.
1. Transition from Form 16 to Form 130
The traditional Form 16, which has been the primary document for salaried employees to file their returns, is being replaced by Form 130. This new form is designed to be more comprehensive and consists of three distinct parts. Part A contains basic identification details of the employer and employee, while Part B focuses on salary and tax deducted at source. Part C provides a detailed calculation of taxable income, including deductions and tax payments.
Additionally, a new Form 123 has been introduced to track specific company perks and benefits. This form is digitally linked with Form 130 to ensure that benefits like housing, vehicles, and gift vouchers are accurately reported. For those who change jobs, it is now mandatory to inform the new employer about the tax regime chosen with the previous organization to maintain consistency in tax calculations.
2. Significant Hike in Exemptions and Allowances
After several decades, the government has increased the exemption limits for various employee allowances. These changes are primarily beneficial for those opting for the old tax regime, as the new regime generally does not allow these deductions.
The children’s education allowance has been raised from ₹100 per month to ₹3,000 per month for up to two children. Similarly, the hostel expenditure allowance has increased from ₹300 per month to ₹9,000 per month.
For house rent allowance, the list of cities qualifying for a 50 percent salary exemption has been expanded. In addition to Mumbai, Delhi, Kolkata, and Chennai, cities like Ahmedabad, Bengaluru, Pune and Hyderabad are now included in this category. Residents of other major hubs like Noida and Gurgaon will continue to be eligible for a 40 percent exemption. Furthermore, the tax-free limit for meal vouchers provided by employers has been increased to ₹200 per meal.
3. Revised PAN Requirements for Financial Transactions
To reduce the compliance burden for smaller transactions, the thresholds for mandatory PAN disclosure have been increased in several areas.
For banking activities, a PAN is now required for cash deposits or withdrawals that aggregate to ₹10 lakh or more in a single financial year, moving away from the previous daily limit of ₹50,000. When purchasing a motor vehicle, including two-wheelers, PAN is only mandatory if the value exceeds ₹5 lakh. For payments made to hotels, restaurants or event management companies, the limit has been doubled from ₹50,000 to ₹1 lakh. Transactions involving immovable property now require a PAN only if the value exceeds ₹20 lakh, compared to the earlier limit of ₹10 lakh.
4. Simplified TDS Filing through Unified Systems
The process for deducting and reporting tax at source has been streamlined to make it more user-friendly. A new unified chalan-cum-statement, known as Form 141, will replace multiple separate forms previously used for TDS on rent, property transfers, and professional fees.
One of the most helpful changes for individuals and senior citizens is the introduction of Form 121. This single form replaces the old Form 15G and Form 15H used to prevent TDS on interest income. The tax system will now automatically determine the applicable rules based on the individual's age. Overall, the total number of tax-related forms has been significantly reduced to simplify the filing process for everyone.
5. Clearer Rules for Electric Vehicles and Perquisites
The new act provides specific guidelines for the valuation of perks related to electric vehicles (EVs). For tax purposes, an employer-provided EV is now treated similarly to a 1.6-liter petrol car. If the employer manages the running and maintenance costs, the taxable value is set at ₹5,000 per month. If the employee bears these costs, the value is reduced to ₹2,000 per month.
Reporting requirements have also become more precise. Under the new Form 124, employees must provide more detailed evidence when claiming HRA benefits. If the annual rent paid exceeds ₹1 lakh, providing the landlord’s PAN remains a mandatory requirement. Additionally, the reporting limit for insurance premiums has been adjusted, meaning more policy details will now appear in your annual information statement for better transparency.
Is the Old Regime Making a Comeback?
As these new rules take effect, a common question arises: will those sticking with the Old Tax Regime actually come out ahead? According to financial experts, the answer largely depends on your specific income bracket and how you structure your investments and expenses.
For salaried professionals earning between ₹15 lakh and ₹20 lakh, the Old Tax Regime remains a powerhouse of savings. If you are currently managing a home loan, receiving a substantial House Rent Allowance, and maximizing deductions under sections like 80C and 80CCD(1B), the newly increased limits for education and hostel allowances make the Old Regime even more attractive.
In the higher income bracket of ₹25 lakh to ₹50 lakh, the choice becomes more nuanced. While the New Tax Regime offers lower slab rates, the Old Regime can still be the superior choice if you utilize a wide range of exemptions. It effectively rewards those who are proactive about life insurance, provident funds, and high-value rent payments in major cities.
For individuals earning above ₹50 lakh, the lower rates of the New Tax Regime are often the default benefit. However, experts point out that even in this category, if an individual is heavily invested in tax-saving instruments and takes full advantage of the updated HRA and perk valuations, the Old Regime can still provide a lower tax outgo. Conversely, for those with an annual income below ₹15 lakh who prefer a simplified process, the New Regime continues to be the more straightforward path.
Disclaimer: This article is for informational purposes only and does not constitute professional financial or legal advice. Please consult with a certified financial advisor or tax consultant before making any decisions regarding your tax planning or regime selection.
By Mit
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