New I-T law, higher securities transaction tax on F&O trade to kick in from April 1

The Income-tax Act, 2025, will replace the existing Income-tax Act, 1961, aiming to simplify tax provisions and make them more structured and user-friendly. While the core tax policies remain largely unchanged, the new law introduces a more streamlined format to improve readability and compliance, reported PTI.

The Income Tax Department has clarified that during the transition phase, its e-filing portal will support both the old and new systems. Assessments, appeals, and proceedings related to previous years will continue under the old law until completion. Taxpayers filing returns for Assessment Year 2026–27 in July 2026 will still use forms prescribed under the earlier Act, reported PTI.

Single ‘Tax Year’ Concept Introduced

One of the key structural changes is the introduction of a unified “tax year” system, replacing the earlier distinction between “previous year” and “assessment year.” This reform is expected to reduce confusion and simplify compliance for taxpayers.

Additionally, the new framework allows taxpayers to claim TDS refunds even if income tax returns are filed after the deadline, without attracting penalties. Advance tax payments for the 2026–27 tax year, starting June 2026, will be governed by the new law, reported PTI.

Higher STT on F&O Trades to Curb Speculation

A significant market-related change is the increase in Securities Transaction Tax on futures and options (F&O) trades. STT on futures contracts will rise from 0.02 per cent to 0.05 per cent, while options trading will also see higher taxation, reported PTI.

The move is aimed at curbing excessive speculative trading in the derivatives segment and protecting small investors from large losses. Data indicates that while participation in equity derivatives surged in recent years, a large number of individual investors suffered substantial losses.

A study by Securities and Exchange Board of India found that individual investors incurred net losses exceeding Rs 1 lakh crore in FY25. The number of active individual traders in the F&O segment also declined in FY26, reflecting growing caution among investors, reported PTI.

Relief for Middle Class via Lower TCS Rates

In a move to ease the financial burden on individuals, the government has reduced TCS rates on overseas tour packages and remittances under the Liberalised Remittance Scheme (LRS). TCS on international tour packages has been slashed to 2 per cent from 20 per cent.

Similarly, remittances for medical and education purposes abroad will now attract a lower TCS rate of 2 per cent, down from 5 per cent. These changes are expected to benefit middle-class families managing expenses related to travel, healthcare, and education overseas, reported PTI.

Boost for Data Centres and IT Sector

The Budget also introduces a major incentive for the digital infrastructure sector. Foreign companies procuring data centre services in India will be eligible for a 20-year tax holiday until 2047. This is expected to attract global players while ensuring that their overseas income is not taxed in India, reported PTI.

Domestic data centre operators are likely to gain from increased demand, as the policy ensures equal tax treatment whether companies set up their own facilities or outsource services locally.

Additionally, the safe harbour threshold for IT and IT-enabled services has been significantly increased from Rs 300 crore to Rs 2,000 crore. This is expected to reduce litigation and provide greater tax certainty to companies operating in the sector.

Overall, the new tax framework and accompanying measures signal a shift towards simplification, investor protection, and sectoral growth, while offering targeted relief to taxpayers.

(With inputs from PTI)

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