Income Tax Act 2025 to Come into Effect from April 1; Simplified Forms, Lower TCS and Tax Holidays Announced

New Delhi, Feb 2026 : Finance Minister Nirmala Sitharaman announced on Sunday that the new Income Tax Act 2025 will come into force from April 1, 2026, as part of the Union Budget 2026-27. She emphasized that the I-T forms have been redesigned for simplicity, allowing ordinary citizens to comply easily, promoting ease of living.

The Finance Minister highlighted several key measures aimed at easing compliance and reducing the burden on taxpayers. These include exemptions on insurance interest awards, issuance of nil deduction certificates for small taxpayers, and an extension of the ITR filing deadline for non-audit cases to August 31, 2026. Individuals filing ITR 1 and ITR 2 will continue to submit returns until July 31.

Sitharaman noted that the comprehensive review of the Income Tax Act 1961, which she had announced in July 2024, was completed in record time, paving the way for the new legislation. “The forms have been redesigned so that ordinary citizens can comply without difficulty, for ease of living,” she said during her budget speech.

The Budget also proposes lower tax collection at source (TCS) rates to reduce cash-flow pressure on individuals making overseas payments. The TCS rate on overseas tour program packages will drop from 5–20% to 2%, with no minimum threshold. Similarly, TCS for education and medical purposes will also be reduced from 5% to 2%.

To avoid ambiguity in taxation, Sitharaman clarified that supply of manpower services will now specifically fall under the ambit of payment contractors for TDS purposes, with the withholding rate set at either 1% or 2%.

Additionally, the Finance Minister announced a tax holiday for foreign cloud companies operating data centers in India, which will remain in effect until 2047. This step is expected to attract global investment and promote the growth of digital infrastructure in India.

These measures collectively aim to simplify tax compliance, provide relief to taxpayers, and encourage investment in strategic sectors, while aligning India’s taxation framework with contemporary economic needs.