New income tax law, higher STT on F&O, lower TCS to take effect from April 1

New Delhi: A host of key tax changes, including the rollout of the new income tax law, higher Securities Transaction Tax (STT) on futures and options (F&O) trading, and reduced tax collected at source (TCS) on overseas remittances, will come into force from April 1, marking the start of the 2026–27 financial year.

The new Income-tax Act, 2025 will replace the decades-old Income-tax Act, 1961, aiming to simplify tax laws and improve readability while retaining the existing tax structure.

New income tax law from April 1
The new law introduces a simplified “tax year” system, removing the distinction between assessment year and previous year. It also allows taxpayers to claim TDS refunds even if income tax returns are filed after the deadline, without penalty.

The Income Tax Department has clarified that during the transition period, its e-filing portal will support compliance under both the old and new laws. Returns for AY 2026–27, relating to income earned under the old regime, will continue to be filed using existing forms.

Advance tax payments for FY27, starting June 2026, will follow the provisions of the new Act.

Higher STT on F&O trading
A major change impacting stock market investors is the increase in Securities Transaction Tax on derivatives trading.

• STT on futures will rise to 0.05% from 0.02%
• STT on options premium will increase to 0.15% from 0.1%
• STT on exercise of options will go up to 0.15% from 0.125%

The move is aimed at curbing speculative trading in the F&O segment and protecting retail investors from heavy losses.

According to market data, the number of individual investors in equity derivatives fell from 1.06 crore in FY25 to around 75.43 lakh in FY26 (till December 30, 2025). A Sebi study also found that retail investors suffered net losses exceeding ₹1.05 lakh crore in FY25.

Lower TCS on overseas remittances
In a relief for the middle class, the government has reduced TCS rates on foreign spending:

• Overseas tour packages: 2% (down from 20%)
• Remittances for education and medical purposes under the Liberalised Remittance Scheme (LRS): 2% (down from 5%)

The move is expected to ease the financial burden on families sending money abroad for studies, healthcare and travel.

Boost for data centres and IT sector
The Budget proposals also include a major incentive for the data centre industry. Foreign companies procuring data centre services in India will get a 20-year tax holiday until 2047, reducing concerns over taxation of global income.

This is expected to benefit domestic data centre operators by attracting global clients and investments.

Additionally, the threshold for safe harbour rules for IT and IT-enabled services has been significantly increased from ₹300 crore to ₹2,000 crore. This is likely to reduce tax disputes and provide greater certainty to the sector.