From 'Single Tax Year' To Lower TCS To Tax Holiday For Data Centre Companies: Know What Changes Under New IT Law From Today

New Delhi: The new Income Tax Act, 2025, replacing the six-decade-old 1961 legislation, comes into effect from Wednesday (April 1, 2026), ushering in new reforms in terminology, compliance and taxation of the country.

Key Features Of New Income Tax Law

'Financial Year' And 'Assessment Year' To Single 'Tax Year'

The major reform under the new income tax law is the replacement of the 'Financial Year' (FY) and 'Assessment Year' (AY) with a single 'tax year', aimed at simplifying filing besides improving clarity for taxpayers. It also allows taxpayers to claim TDS (tax deducted at source) refund even when Income Tax Returns are filed after deadlines, without any penal charges.

Budget Announcement Of Higher STT On F&O Trade

Another key feature of the new income tax law, 2025 is the Budget announcement of higher Securities Transaction Tax (STT) on F&O (Futures and Options) trade. Under the new framework, the STT on futures contracts will rise to 0.05 per cent from 0.02 per cent, while STT on options premiums and exercise of options to 0.15 per cent from the present rate of 0.1 per cent and 0.125 per cent, respectively.

The higher STT is aimed at curbing speculative bets being placed on shares in the F&O segment of equity markets and is intended to protect small investors from heavy losses in speculative trades.

Changes To HRA

Another key feature of the new income tax law relates to the House Rent Allowance (HRA). Under the existing income tax law, taxpayers residing in metro cities such as Mumbai, Delhi, Kolkata, and Chennai can claim exemption of up to 50 per cent of their basic salary, while those in other cities are eligible for 40 per cent.

But, under the new framework, cities like Bengaluru, Hyderabad, Pune, and Ahmedabad have also been included in the higher 50 per cent exemption category, thereby expanding relief to a wider urban population.

Tax Holiday For Data Centre Companies

The new income tax law is likely to benefit domestic data centre companies offering a tax holiday of 20 years, as it will enable them to provide services to global clients without the risk of their foreign earnings being taxed in India.

The FY27 Budget announcement in the IT Law 2025 offers a tax holiday of 20 years up to 2047 to any foreign company procuring data centre services in India thereby allaying fears of their global income being taxed by Indian government.

Level Playing Field

The new income tax law ensures a level playing field irrespective of whether a global company sets up its own data centre in India or procures services from an Indian data centre with the same tax treatment. The effective corporate tax rate in India is 25.17 per cent.

The hike in the threshold for availing safe harbour for IT services has been enhanced substantially from Rs 300 crore to Rs 2,000 crore in the Union Budget 2026-27. This is expected to give certainty to the IT/ITes sector and reduce litigation.

TCS On Overseas Tour Packages

The implementation of lower TCS (Tax Collected at Source) on overseas tour packages and on remittances under the Liberalised Remittance Scheme (LRS) for medical and education purposes under the new income tax law is aimed at helping the middle class. Under the new framework, the TCS on overseas tour packages has been reduced to 2 per cent from 20 per cent, while on remittance for medical and education purpose, the rate would be 2 per cent, against 5 per cent currently.

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