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The Income-tax Act, 2025 represents a structural rewrite of India’s direct tax law. One of the most significant changes is the complete restructuring of the TDS and TCS framework, indicating a strong policy shift toward consolidation, simplification, and transaction-level monitoring. Below are the key highlights:
The multiple provisions under the existing Section 194 series (194C, 194J, 194H, 194I, 194Q, etc.) are proposed to be consolidated under a single umbrella provision—Section 393. Objective of Unified TDS Framework – Section 393
Reduce fragmentation of provisions
Improve interpretational clarity
Enable streamlined compliance and reporting
Align better with technology-driven tax administration
The practical impact will largely depend on how rates, thresholds, and exclusions are preserved or modified in the final notified rules.
A dedicated interpretation provision introduces clearer statutory definitions for key terms such as “Contractor,” “Professional,” Other classification-sensitive categories. This may significantly reduce long-standing litigation around professional vs. contractual payments, the applicability of specific TDS rates, Nature-of-payment disputes
The new regime continues to be positioned as the default tax system. Proposed slab structure under FY 2026–27 | New Regime as Default :
| Income Range | Tax Rate |
|---|---|
| ₹0 – ₹4 lakh | Nil |
| ₹4 – ₹8 lakh | 5% |
| ₹8 – ₹12 lakh | 10% |
| ₹12 – ₹16 lakh | 15% |
| ₹16 – ₹20 lakh | 20% |
| ₹20 – ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Key proposed changes to significant TCS Rationalization in the section 394 include the following:
2% TCS on specified goods (Liquor, Timber, Minerals, etc.)
1% TCS on luxury goods & motor vehicles exceeding ₹10 lakhs
2% TCS on overseas tour packages
20% TCS under LRS (for non-medical/education remittances) exceeding INR 10 lakhs
The taxpayer has to enhance tracking of high-value and discretionary transactions through strengthened reporting mechanisms. Taxpayers and professionals required to implement the Enterprise Resource Planning system and payroll systems will require reconfiguration; contract classification must be reviewed; vendor onboarding processes may need updates; the cash flow impact due to TCS expansion must be assessed; and advisory opportunities for restructuring high-value transactions must be explored.
The allowances and perquisite values that had been static since the 1960s have been substantially revised upward, Old vs Draft 2026—Verified mentioned under following Table
| Item | BEFORE (Old Rules) | AFTER (Draft 2026 Rules) | |
|---|---|---|---|
| Children Education Allowance | ₹100/month/child | ₹3,000/month/child | |
| Hostel Allowance | ₹300/month/child | ₹9,000/month/child | |
| Free Meals | ₹50/meal | ₹200/meal | |
| Gifts (Non‑cash) | ₹5,000/year | ₹15,000/year | |
| Car (<1.6L engine) | ₹1,800 + ₹900 (driver) | ₹5,000 + ₹3,000 (driver) | |
| Car (>1.6L engine) | ₹2,400 + ₹900 (driver) | ₹7,000 + ₹3,000 (driver) | |
| Overseas Medical Treatment | Tax‑free only if income < ₹2L | Tax‑free if income < ₹8L |
News24 confirms sweeping rationalization of PAN reporting rules. ClearTax provides the detailed table
| Transaction Type | Old Limit | Draft 2026 Limit | |
|---|---|---|---|
| Motor Vehicle Purchase | PAN for all except 2‑wheelers | PAN for vehicles > ₹5 lakh (incl. 2‑wheelers) | |
| Hotel/Restaurant Cash Payment | > ₹50,000 | > ₹1,00,000 | |
| Life Insurance Premium | > ₹50,000/year | PAN required for account‑based relationship | |
| Immovable Property | > ₹10 lakh | > ₹20 lakh | |
| Cash Deposits/Withdrawals | ≥ ₹20 lakh | ≥ ₹10 lakh/year |
Higher limits reduce the compliance burden for mid‑range transactions, there is a clear shift toward monitoring large and structured financial behavior, and cash withdrawals become more tightly monitored.
ClearTax and News24 confirm additional compliance-oriented reforms.
| Item | BEFORE | AFTER (2026 Rules) | |
|---|---|---|---|
| Property SFT Reporting | ₹30 lakh | ₹45 lakh | |
| Books of Accounts (Professionals) | Manual allowed | Mandatory digital books | |
| CBDC (Digital Rupee) | Not recognised | Recognised as valid payment mode |
Mandatory digital books = serious push for end‑to‑end digital compliance, strengthens tax administration and reduces audit disputes. and CBDC integration modernizes the tax ecosystem.
Financial Express confirms that the old tax regime is absolutely NOT being phased out, and the draft rules show clear intent to keep both regimes operational. Key Insights .
Standard Deduction : ₹75,000 – Salaried individuals & pensioners (from salary/pension income)
Family Pension: Deduction of ₹25,000 or 1/3rd of family pension, whichever is lower (under “Income from Other Sources”)
Section 80CCD(2) – Employer Contribution to NPS
Employer’s contribution to NPS is allowed. Maximum deduction allowable under NPS :
14% of salary (Basic + DA) for Government employees
Up to 10% (earlier 10%, enhanced to 14% in new regime for private sector as per amendments) — subject to applicable limits
Employee’s own contribution NOT allowed under 80CCD(1) or 80CCD(1B).
Combined employer contribution to NPS + EPF + Superannuation exempt up to ₹7.5 lakh per year (excess taxable).
Contribution by Agniveer or Central Government to Seva Nidhi account is fully deductible.
30% of additional employee cost (available to eligible businesses opting for new regime, subject to conditions).
Interest on loan for let-out property allowed (as deduction while computing income from house property).
Self-occupied property interest deduction under Section 24(b) NOT allowed.
No set-off of house property loss against other income.
The following remain exempt (subject to limits):
Gratuity (₹20 lakh for non-govt; fully exempt for govt employees)
Leave encashment on retirement (as per limits)
Voluntary Retirement (VRS) – up to ₹5 lakh
Retrenchment compensation
Death-cum-retirement benefits
Commuted pension (1/3rd or ½ depending on gratuity receipt)
Employer contribution within ₹7.5 lakh limit exempt.
EPF interest exempt up to prescribed limits.
PPF interest & maturity – exempt.
NPS lump sum withdrawal (60%) exempt.
Partial Tier I withdrawal – exempt.
Section 10(15)(i): Post Office Savings interest exempt up to:
₹3,500 (individual)
₹7,000 (joint)
Section 10(10D): Life insurance maturity proceeds (subject to premium conditions).
Sukanya Samriddhi – interest & maturity exempt.
Only allowances related to official duties remain exempt, such as:
Travel on transfer
Conveyance for official duties
Daily allowance on tour
Allowances to meet official expenditure
Transport allowance for specially-abled employees. Most salary structuring allowances (HRA, LTA etc.) NOT allowed.
Approximately 70+ deductions removed. Key disallowances:
Section 80C Investments : LIC Premium, PPF, ELSS, EPF (employee contribution), Tuition fees & Principal repayment of home loan
Home Loan (Major Restriction): No deduction for Interest on self-occupied property (Section 24(b)), Additional interest (80EE / 80EEA), and Principal repayment (80C). No house property loss set-off.
Section 80D : Medical insurance premium – NOT allowed.
Section 80E: Education loan interest – NOT allowed.
Section 80G : Donations including PM Relief Fund, National Defence Fund etc. – NOT allowed.
Salary-Related Exemptions Not Allowed like HRA, LTA, Professional tax deduction, Entertainment allowance (Govt employees), Minor child allowance, Children education allowance, and Most Section 10(14) special allowances
Savings Account Interest : 80TTA / 80TTB – NOT allowed.
80IA, 80IB, 80IAC etc.
Additional depreciation (32(1)(iia))
35 series research deductions
10AA (SEZ deduction)
Unabsorbed depreciation adjustment (subject to conditions)
| Category | Old Regime | New Regime |
|---|---|---|
| Standard Deduction | INR 50,000 | INR 75,000 |
| 80C | Allowed | Not Allowed |
| 80D | Allowed | Not Allowed |
| HRA | Allowed | Not Allowed |
| Home Loan (Self-Occupied) | Allowed | Not Allowed |
| Employer NPS (80CCD2) | Allowed | Allowed |
| Official Allowances | ||
| Gratuity |
The New Regime is beneficial when:
Deductions < ₹3–4 lakh
No housing loan
No heavy insurance/ELSS investments
Simplified compliance preferred
Old Regime may be better when:
Housing loan interest (₹2L+)
High HRA exemption
80C + 80D fully utilised
Large donation deductions
A Thematic Explanation of Section 2(49) : Section 2(49) of the Income‑tax Act, 2025 (corresponding to erstwhile Section 2(24)) provides an inclusive definition of “income.” An inclusive definition means the term is broad, non‑exhaustive, and extends beyond strictly earned receipts to cover any monetary or non‑monetary gains that increase a taxpayer’s wealth—unless expressly excluded. To understand the scope, the inclusions may be viewed thematically:
The most fundamental component of income continues to be receipts arising from routine commercial or investment activity. These include Profits and gains from business or profession, Dividends, Capital gains chargeable under section 67 and Profits of insurance businesses and co‑operative banking entities. These categories represent traditional, periodic, or transactional economic gains forming the backbone of taxable income.
Under the employment framework, income includes not only cash salary but also indirect and ancillary benefits Perquisites and profits in lieu of salary, Special allowances granted wholly or exclusively for performance of duties, Personal or cost‑of‑living allowances and Employees’ contributions received by the employer towards PF, ESI and other welfare funds. The intention is to ensure that total economic benefit arising from employment—whether in cash or kind—is taxable unless a specific exemption is provided.
The Act treats voluntary contributions as income when received by Registered non-profit organisations, Specified institutions and funds, Universities, educational institutions and hospitals listed in the Schedules. Electoral trusts : The purpose is to bring donor-driven receipts within the income tax framework while allowing exemptions only where the statute specifically provides them (e.g., under Chapter on tax exemptions for charitable institutions).
Modern tax rules capture benefits capable of replacing or supplementing monetary income, such as Benefits or perquisites to directors or persons of significant interest, Benefits received via representative assessees, Non-monetary benefits taxable under business-income provisions and Fair market value of inventory in specified business reorganisations, conversions or distributions.
These provisions serve an anti-avoidance function, ensuring that non-cash benefits—often used in tax planning—are not left out of the tax net.
Income also includes winnings from Lotteries, Races (including horse races), Gambling and betting, Card games and games of chance and Other similar casual receipts. These categories tax windfall gains, recognised on a gross basis without deductions.
The Act incorporates various deeming provisions, meaning certain receipts are treated as income even if they may not be income in the ordinary sense. Examples include Statutory business receipts, Transfer pricing adjustments, Value substitutions (FMV-based taxation) and Additions under specific anti-abuse sections. Here, legal fiction prevails over commercial principles, and such income is taxable purely because Parliament has said so.
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