Change 1 — Tax Slabs FY 2026-27: New Regime Confirmed, Old Regime Continues

Budget 2026 confirmed the continuation of the tax slab structure introduced in Budget 2025 without any revision. Both regimes remain available — the new regime as the default, the old regime as an opt-in for those with significant deductions. The Income Tax Department confirmed: no changes to income tax slab rates for FY 2026-27.

Health and Education Cess of 4% applies on the computed tax under both regimes. Surcharge applies for income above ₹50 lakh (10%), above ₹1 crore (15%), above ₹2 crore (25%), and above ₹5 crore (37% — capped at 25% for capital gains under the new regime).

For salaried employees, the new regime remains the default. Employers will deduct TDS based on the new regime unless the employee explicitly opts for the old regime in their investment declaration. Switching to the old regime at the time of ITR filing is permitted — but only if the return is filed on or before the due date (July 31, 2026 for salaried taxpayers). A belated return irrevocably locks you into the new regime for that year.

Change 2 — ₹12 Lakh Tax-Free: The Section 87A Rebate and the Marginal Relief Mechanism

The ₹12 lakh effectively tax-free threshold under the new regime is the headline income tax benefit for FY 2026-27 — and also the most widely misunderstood. Here is precisely how it works.

Under the new regime, if your total taxable income does not exceed ₹12 lakh, the Section 87A rebate of ₹60,000 brings your tax liability to zero. The gross tax on ₹12 lakh under the new slabs is:

• ₹0 on the first ₹4 lakh (nil slab)
• ₹20,000 on ₹4–8 lakh (5% × ₹4 lakh)
• ₹40,000 on ₹8–12 lakh (10% × ₹4 lakh)
• Total: ₹60,000 — exactly offset by the Section 87A rebate

For salaried employees, the ₹75,000 standard deduction applies before computing taxable income. This means a salaried employee with a gross income of ₹12,75,000 has a taxable income of ₹12,00,000 (after standard deduction of ₹75,000) — and therefore pays zero tax.

The Marginal Relief Mechanism — A Critical Nuance

What happens if your income is ₹12.10 lakh — just ₹10,000 above the rebate threshold? Without marginal relief, your tax on ₹12.10 lakh would be ₹61,500 — meaning earning an extra ₹10,000 costs you ₹61,500 in tax, which is absurd. The marginal relief provision prevents this cliff effect.

Under marginal relief, the Income Tax Department has confirmed: for a person with income of ₹12,10,000, the tax payable is limited to ₹10,000 (the excess of income over ₹12 lakh) — not ₹61,500. This ensures the tax paid never exceeds the income earned above the threshold. However, marginal relief is available only to resident individuals with income marginally above ₹12 lakh under the new regime.

Change 3 — Standard Deduction: ₹75,000 Under New Regime, ₹50,000 Under Old

Change 4 — Share Buyback Now Taxed as Capital Gains: Big Win for Retail Investors

This is arguably the most investor-friendly substantive change in Budget 2026. Prior to April 1, 2026, share buyback proceeds received by shareholders were taxed as deemed dividends at slab rates. For a taxpayer in the 30% slab with surcharge and cess, the effective tax rate on buyback proceeds reached 35.88% — higher than the long-term capital gains rate on listed shares.

From April 1, 2026: all share buyback proceeds are taxed as capital gains, not dividends. The treatment follows the standard holding period test:

• Held more than 12 months (LTCG): Taxed at 12.5% above ₹1.25 lakh annual LTCG exemption — a massive reduction from the earlier slab-rate treatment
• Held less than 12 months (STCG): Taxed at 20% — still lower than 35.88% for high-income taxpayers
• Individual promoters (non-corporate): Effective tax rate of approximately 30% — disincentivising promoter-driven buyback misuse
• Corporate promoters: Effective tax rate of approximately 22% — for the same reason

Finance Minister Sitharaman explained the rationale clearly: “Change in taxation of buyback was brought in to address the improper use of buyback route by promoters. In the interest of minority shareholders, I propose to tax buyback for all types of shareholders as Capital Gains. However, to disincentivize misuse of tax arbitrage, promoters will pay an additional buyback tax.”

Change 5 — SGB Secondary Market Holders Lose Capital Gains Exemption at Maturity

Change 6 — STT Hike on F&O: What It Means for Derivatives Traders

Budget 2026 hiked Securities Transaction Tax on derivatives in a move that directly raises the operating cost of every futures and options trader in India. The revised STT rates from April 1, 2026:

For an active futures trader with ₹1 crore in daily notional — a fairly typical position for a mid-level derivatives trader — the additional STT per day is approximately ₹300 (on the sell side alone, ₹0.03% × ₹1 crore). Over 250 trading days in a year, this adds up to ₹75,000 in additional annual STT cost. Traders with larger positions or higher frequency face proportionally larger increases.

Three planning considerations for F&O traders:

1. STT is a business expense: For traders who declare F&O trading as a business (ITR-3), STT paid is deductible as a business expense against business income. This partially offsets the hike on an after-tax basis.
2. Impact on scalping strategies: Very high-frequency scalping strategies that operated on thin margins become less viable as transaction costs rise. Expect a gradual shift toward lower-frequency, higher-conviction strategies among retail F&O participants.
3. Review your effective yield: If you have been using F&O strategies to generate income with a net yield target, recalculate your break-even based on the new STT rates before committing to the same position sizes in FY 2026-27.

Change 7 — ITR Filing Deadlines Revised: Business Filers Get a Full Extra Month

Change 8 — Revised Return Window Extended to 12 Months: More Time to Correct Errors

Previously, taxpayers had 9 months from the end of the previous financial year to file a revised return. For FY 2025-26, the deadline for a revised return was therefore December 31, 2026 (9 months after March 31, 2026). From Tax Year 2026-27 onwards, this window has been extended to 12 months from the end of the Tax Year — meaning December 31 of the year following the Tax Year.

Practically: a revised return for Tax Year 2026-27 (income earned April 2026 – March 2027) can be filed up to December 31, 2027. This gives taxpayers three full calendar months more to discover and correct errors after the ITR has been filed.

However — and this is important — a late fee applies if the revised return is filed after 9 months from the end of the Tax Year:

• ₹1,000 — if total income is below ₹5 lakh
• ₹5,000 — if total income is ₹5 lakh or above

In effect, the October–December window in the following year (months 10–12) is available for revision but with a fee. The preferred approach remains: discover and correct errors within 9 months (before October 1 of the year following the Tax Year) to avoid any late fee.

Change 9 — TCS Rationalisation: Relief for Travellers, Students, and LRS Senders

Change 10 — Income Tax Act 2025 Is Live: What Taxpayers (Not Just Deductors) Must Know

While the TDS implications of the new Act are primarily relevant to employers and payers, the Income Tax Act, 2025 also affects individual taxpayers and investors directly through changes to how returns are filed, how deductions are referenced, and how the tax year itself is defined.

Tax Year Concept — Your Return is Now “Tax Year 2026-27”

Income earned between April 1, 2026 and March 31, 2027 belongs to Tax Year 2026-27. The return for this income will be filed in Tax Year 2027-28 (i.e., between July and December 2027). The old “Previous Year 2026-27 / Assessment Year 2027-28” dual-year reference is abolished. This simplification eliminates one of the most common sources of confusion for individual filers who could never reliably answer “which AY should I select?”

Deduction References Update

The deductions you know by their old section numbers now carry new references under the Income Tax Act, 2025. The amounts and eligibility criteria remain identical — only the section numbering changes:

For individual taxpayers filing ITR-1 or ITR-2, the practical impact is minimal — the ITR form will be updated to reference the new section numbers, but the drop-downs and fields will carry the same names and amounts. For investment declarations submitted to employers, the forms must reference new section numbers from Tax Year 2026-27 onwards.

Change 11 — Capital Gains: What Stayed Stable and What Specifically Changed

The capital gains taxation framework introduced in Budget 2024 (effective July 23, 2024) remains largely intact for FY 2026-27. Here is the current position under the Income Tax Act, 2025 for Tax Year 2026-27:

The ₹1.25 lakh annual exemption for LTCG on listed equities and equity mutual funds continues without change. For investors regularly realising long-term equity gains, the tax harvesting strategy of realising ₹1.25 lakh in LTCG each year before March 31 to reset the cost basis remains fully valid for Tax Year 2026-27.

For detailed guidance on how capital gains interact with your ITR filing and which ITR form is required, see our complete ITR filing guide. And for TDS on capital gains transactions — particularly applicable for mutual fund redemptions and property sales — our TDS updates April 2026 guide covers the new section references under the Income Tax Act, 2025.

Change 12 — Presumptive Taxation: Updated Limits for Small Businesses and Professionals

Real Scenarios: How the April 2026 Changes Affect Specific Taxpayers

Scenario 1 — The Software Engineer Whose Buyback Just Got 65% Cheaper

Arun, a software engineer in Hyderabad earning ₹28 lakh annually, participated in a buyback by his employer’s listed parent company in May 2026. He tendered 500 shares with a cost of ₹800 each (total cost: ₹4 lakh) at the buyback price of ₹1,400 each (total proceeds: ₹7 lakh). Gain: ₹3 lakh. He had held these shares for 4 years.

Under old regime (FY 2025-26): The ₹7 lakh would have been deemed dividend income taxed at his slab rate of 30% = ₹2.1 lakh tax on ₹7 lakh. He effectively paid 30% on the gross proceeds, not just the gain.

Under new regime (FY 2026-27): The ₹3 lakh gain is LTCG on listed shares. LTCG exemption: ₹1.25 lakh. Taxable gain: ₹1.75 lakh. LTCG tax at 12.5%: ₹21,875 + 4% cess = ₹22,750. Saving: approximately ₹2.1 lakh − ₹22,750 = ₹2.07 lakh reduction in tax on the same transaction. The buyback route, previously penalised by dividend treatment, is now meaningfully more rewarding for retail shareholders.

Scenario 2 — The SGB Secondary Market Buyer Who Planned for Zero Tax

Priya, a retired schoolteacher in Pune, bought ₹5 lakh worth of Sovereign Gold Bonds from the NSE in 2019 at a discount to NAV. She planned to hold them until maturity in 2027, expecting full capital gains exemption. In April 2026, she learns that Budget 2026 has removed the maturity exemption for secondary market SGB buyers.

At maturity in 2027, her SGBs are redeemed at the prevailing gold price — let us assume ₹9 lakh total redemption value. Gain: ₹4 lakh. Holding period: 8 years (well above 36 months). LTCG with indexation applies. With indexed cost (assuming modest 5% annual inflation adjustment over 8 years), indexed cost ≈ ₹7.4 lakh. Taxable LTCG: ₹1.6 lakh. Tax at 20%: ₹32,000. While this is meaningful, it is far less than the 30% slab-rate treatment she feared. Priya adjusts her post-retirement tax planning accordingly — the net return is lower than expected but still positive.

Scenario 3 — The F&O Trader Recalculating Break-Even

Vikram is an active futures trader in Mumbai, trading index futures with an average daily notional of ₹80 lakh. His STT cost previously: 0.02% × ₹80 lakh = ₹1,600 per day (sell side). New STT: 0.05% × ₹80 lakh = ₹4,000 per day. Additional daily cost: ₹2,400. Over 250 trading days: ₹6 lakh additional annual STT.

Vikram declares F&O trading as a business. He can deduct the ₹6 lakh additional STT as a business expense against his trading income. At his effective tax rate of 26% (after 30% tax − business deductions), the actual after-tax cost of the STT increase is ₹6 lakh × (1 − 0.26) = ₹4.44 lakh net additional cost per year. He reviews his trading strategy: positions that generated thin margins of ₹5,000–₹10,000 per lot are no longer viable after the increased transaction cost. He shifts to higher-conviction, lower-frequency trades with minimum ₹20,000 target per position.

Tax Planning Checklist for FY 2026-27 (Tax Year 2026-27)

For comprehensive guidance on ITR filing for FY 2025-26 (Tax Year 2025-26 under the old Act), see our ITR filing guide. For the TDS changes that affect employers and businesses, see our companion post on TDS and Income Tax Updates April 2026. For GST updates effective April 2026, read our GST Updates April 2026 guide. For expert tax advice tailored to your specific income profile, contact our advisory team.

Income Tax April 2026: Complete Visual Summary

Frequently Asked Questions

Conclusion: FY 2026-27 Tax Planning Is About Precision, Not Just Regime Choice

Budget 2026 did not deliver the dramatic slab overhaul that some taxpayers hoped for. What it delivered instead was something arguably more valuable: a set of targeted, high-impact changes that reward those who pay attention to the details while penalising those who assume that this year is the same as last year.

The buyback capital gains change is one of the most genuinely investor-friendly tax reforms in recent Budget memory — it corrects a long-standing inequity where the same capital return mechanism was penalised at slab rates for retail investors. The SGB secondary market change, conversely, is the kind of detail that catches investors who had a specific tax strategy built on an assumption that no longer holds. The STT hike on F&O is a cost of doing business that every derivatives trader must now integrate into their strategy evaluation.

The overarching theme of these income tax changes from April 2026 is that the new tax ecosystem rewards active, informed taxpayers who review their position at the start of each financial year — compare regimes, review their investment portfolio’s tax treatment, understand the interaction between capital gains and the Section 87A rebate, and file on time to preserve their options. Passive taxpayers who assume default settings are optimal will increasingly find that deliberate choices — made before July 31, 2026 — are the difference between optimal and acceptable tax outcomes.