New Income Tax Act 2025 and Rules 2026 for India (Effective 1 April 2026)

Hello everyone,

The Income Tax Act 2025 came into effect from 1 April 2026. This new law replaces the old Income Tax Act of 1961. Along with the new Act, the Income Tax Rules 2026 have also been released by the government.

These updates bring practical changes to salary processing, HRA exemptions, perquisite calculations, forms, and declarations. The new framework focuses on clearer language and updated rules for better compliance.

Note: The basic tax slabs and rates remain the same.

We have already implemented all these changes in Zoho Payroll. Zoho Payroll will automatically apply the new rules, calculations, forms, and section references starting from FY 2026-27 (Tax Year 2026-27). You do not need to do any manual configuration or updates.

We still recommend reviewing the key updates below. This will help you understand the changes and communicate them clearly to your employees or management when needed.

Note: While there are several updates overall, we are highlighting the following five changes in this post because they are the most practical and immediately relevant for payroll teams.

Higher HRA Exemption for More Cities

House Rent Allowance (HRA) helps employees with their rent expenses. Employees can claim a tax exemption on this amount.

Old Rule: Only four cities (Delhi, Mumbai, Kolkata, and Chennai) were treated as metro cities.

Employees in these cities could claim exemption up to 50 percent of their basic salary (plus dearness allowance, if any). In other cities, the limit was 40 percent.

New Rule (effective 1 April 2026): Bengaluru, Hyderabad, Pune, and Ahmedabad cities have been added to the metro list.

Note: This is only applicable for employees in the Old tax regime.

Employees living in these eight cities can now claim the higher exemption limit of 50 percent of basic salary (plus dearness allowance, if applicable). This will benefit many employees in these cities where rents are high.

The actual exemption allowed is still the lowest of these three amounts:

1. Actual HRA received from the employer
2. Rent actually paid minus 10 percent of basic salary
3. 50 percent or 40 percent of basic salary (depending on the city)
   
   

Company-Provided Car (Higher Taxable Value)

When a company provides a car to an employee for both official and personal use, a fixed monthly value is added to the employee’s taxable salary as a perquisite regardless of whether the company or the employee bears the running and maintenance expenses. This value depends on the car’s engine capacity and who bears the running & maintenance expenses (fuel, repairs, etc.). Only the amount of this taxable value changes depending on who pays for the expenses.

Here is the new valuation under the Income Tax Rules, 2026:

Engine Capacity	Employer Bears Running & Maintenance Expenses	Employee Bears Running & Maintenance Expenses	Additional if Driver is Provided by Company
Up to 1.6 litres (including Electric Vehicles)	₹5,000 per month	₹2,000 per month	+ ₹3,000 per month
Above 1.6 litres	₹7,000 per month	₹3,000 per month	+ ₹3,000 per month

Interest-Free Loans from Employer

Companies often provide small interest-free loans to employees for personal needs.

New Rule: No perquisite tax applies if the total interest-free loan amount does not exceed Rs 2 lakh in a year.

This limit is significantly higher than the earlier limit of Rs 20,000. Any loan amount above Rs 2 lakh may attract a small notional interest as a taxable benefit.

New Section Numbers in the Income Tax Act

The new Income Tax Act 2025 has restructured and renumbered most sections of the Income Tax Act. It now has only 536 sections, organized logically. Related rules have been grouped together.

A few examples:

1. Old Section 192 (the rule for TDS deduction on salary) is now Section 392.
2. Many scattered sections related to other types of TDS (Tax Deducted at Source on payments like rent, commission, etc.) have been brought together and consolidated into Section 393.
3. Provisions related to TCS (Tax Collected at Source) are now mostly under Section 394.
   
   

View All Changes

Zoho Payroll automatically handles the new section references and mappings.

Form Name Changes

To make tax procedures simpler and more organized, the government has introduced new form numbers under the new Act and Rules.

What has changed:

Form 16 (the familiar annual salary TDS certificate that employers issue to employees at the end of the year or when they leave the job) is now called Form 130.

The employee declaration form used for claiming HRA, LTA, home loan interest, and other exemptions (previously Form 12BB) is now Form 124.

View All Changes

Zoho Payroll will automatically use the new form numbers (Form 130 and Form 124) wherever required from Financial Year (FY) 2026-27 onwards.

Important Transition Note:

1.  Form 16 for FY 2025-26 (salary paid from April 2025 to March 2026) will still be issued under the old name and the old Income Tax Act, 1961.
2. The switch to Form 130 will apply only to the salary TDS certificate for FY 2026-27 (which will be issued in 2027).
   

---

For a complete picture of all changes under the new Act (including detailed comparisons, tables, and other updates like higher limits for children’s education allowance, hostel allowance, festival gifts, meal perquisites), you can read this comprehensive guide.

If you have any questions about how these changes appear in Zoho Payroll, or if you need help with a specific scenario, feel free to reply in this thread or contact support@zohopayroll.com. We are happy to assist.

Thank you for using Zoho Payroll. We are committed to keeping your payroll fully compliant and hassle-free with the latest tax rules.

With a shared purpose,

The Zoho Payroll Team

• Topic Participants

• Bennet Noel L

  

• payroll

• Sundeep

• Recent Topics

• New UI for Writer - Disappointed

  I've been enjoying Zoho Writer as a new user for about 6 months, and I really like it. One of my favorite things about it is the menu bar, which you can hide or leave out while still seeing most of your page because it is off to the left. I think this

• Client Script Button in Related List become invalid

  Hi, I am the admin of our organization. And I setup a client script button in related list to raise payment refund request While this button become non selectable recently. I believe there is something wrong from zoho as this button had run for a year.

• SMTP outgoing problem

  Hello I have a website where the SMTP email is connected through Zoho Mail SMTP. Today I am no longer receiving emails from the website. Joomla shows that the email was sent successfully, but I do not receive it.

• Fiscal year setting

  Hi, I am looking into using Zoho Books. I cannot understand the organisation fiscal year setting. Our fiscal year runs from 1 April to 31 March. In the organisation profile, I need to set Fiscal Year to “April to March” and Start Date to “2” for the period

• Issue with payments on invoices

  Hello, I’m having the following issue. When I create an invoice and try to apply a partial payment in a single transaction, the system does not allow it — it only allows full payment. Is this the expected behavior, or am I missing some configuration?

• auto add as member the contact owner

  is there a way that i can make a zoho flow that will add the owner of the contact as a member of the chat after the round robin assignment?

• Welcome to Zoho CommunitySpaces

  Hello everyone, This is your space to ask questions, share ideas, and connect with others building and growing their own communities. For those new here, Zoho CommunitySpaces is a platform for building and managing online communities—from discussion spaces

• Announcing new features in Trident for Windows (v.1.20.4.0)

  Hello Community, Trident for Windows is here with some new features to elevate your work experience. Let's take a quick look at what's new. Export emails. You can now export emails in the .eml file format as compressed zipped files to create a secure

• Announcing new features in Trident for Windows (v1.14.5.0)

  Hello Community, Trident for Windows is here with new features to elevate your workplace productivity. Let's take a quick look at what's new. Add and edit contacts Previously, you could view all of your personal and organizational contacts in Trident.

• Announcing Trident desktop app for Zoho Mail & Zoho Workplace users

  Hello Community, I hope you are doing well and staying safe. As you know, our Mail & workplace teams have been constantly working on adding more value to our offerings to ensure you and your organization continue enjoying your Zoho experience. As part

• Quick way to add a field in Chat Window

  I want to add Company Field in chat window to lessen the irrelevant users in sending chat and set them in mind that we are dealing with companies. I request that it will be as easy as possible like just ticking it then typing the label then connecting

• Please Remove the Confirmation Popup

  Currently, every time a recruiter changes the status of a candidate in Zoho Recruit, a popup confirmation appears that requires clicking “OK, Got it” before proceeding. This creates unnecessary friction in the workflow, especially for users handling high

• Team Module Issues?

  We are testing Team Licenses for use by our Customer Service staff. I created a Teamspace called CSR and only assigned two users to this space: Administrator (me) and “Team License Test.” Team License Test is assigned to the Team User profile, with a

• Announcing new features in Trident for Windows (v.1.41.5.0)

  Hello Community! Trident for Windows just received an exciting update with new ways to collaborate and stay organized without leaving your workspace. Let’s take a look at what’s new! Integrate Zoho Meeting with Trident. You can now schedule, start, and

• Zoho ERP | Product updates | June 2026

  Hello users, We launched Zoho ERP on January 23, and since then, our goal has been to help businesses streamline and manage their operations with greater efficiency, flexibility, and control. Since the launch, we've continued to enhance the platform every

• Zia Agent activation in Zoho Desk forces new Organization creation instead of deploying to existing one

  While attempting to complete the deployment and activation sequence of a new Zia Agent within our existing Zoho Desk environment, the activation process failed on the user interface, throwing a generic error (see print). However, despite the activation

• Allow native Webhooks to authenticate via Connections

  Allow native Webhooks to authenticate via Connections (Basic Auth) instead of plaintext custom headers Summary Please allow native Webhooks (Workflow Rules > Instant Actions > Webhooks) to authenticate against the destination endpoint using the existing

• How do page versions work these days?

  I thought that Zoho Wiki had the capability to display previous versions of a page, and optionally reinstate them. But I can't find a current doc on this subject -- is there one? From what I remember, that capability was accessed via the Version number

• Warehouse -> Locations Transition Causing Errors

  After saying "okay" to the transition from 'warehouses' to 'locations', I've now got shipped Sales Orders that I cannot invoice. How does one proceed?

• Problem with the blueprint flow.

  Scenario: 3 departments in a single environment: A-B-C agents from department 1 D-E-F agents from department 2 G-H agents from department 3 Since we've been using Zohodesk (2023), agents can assign tickets to the correct department using the blueprint

• Introducing the new Zoho Announcements Hub

  Hello, Enterprise Support Community! We are excited to announce a new way to keep up to date with recent product releases and announcements for the Zoho apps you use on a regular basis. Introducing our new centralized location to bring together all Zoho

• Ability to run report over 180 days

  Is there a reason Zoho limits the ability to run reports for records older than 180 days? In my view, the only reason I can think of is that it forces us to pay for Advanced Analytics (which I do).

• Cloning a View

  When I clone a View, it doesn't make a copy; it only creates a new copy with the same default fields as if I were creating a new view. What is the purpose of cloning if it doesn't bring in the same fields? Thanks Rudy

• New tickets with empty image contents

  Dear Support. From the end of last week onwards customers send messages for new tickets through microsoft graph (by email to support at procert.ch using the procert portal). We have an issue with the emails because well packed images are no longer visible.

• Images not showing up in Desk tickets

  Customers are trying to send us screenshots to diagnose their issues. But Desk seems to be stopping the images/breaking the link when the ticket comes in. (We can see them in an email box getting cc'd on all tickets...so it's not our mail system). Help!

• Introducing Databridge for Zoho Creator

  Hello, Enterprise Support Community! We'd like to highlight a recent utility that was released for Zoho Creator, that will allow you to connect external, private datasources with your Creator apps, Databridge. Databridge is an application that will need

• Zoho HTML editor is removing MSO (Outlook) specific code.

  The ability to add in custom HTML is great. We are using MJML to generate our wonderfully cross platform and responsive email code that works on Act-On, Salesforce, Hubspot, Active Campaign, and lead liaison. The way it supports MSO (Outlook) is it included

• Retail Payment Receipt

  Hi, So "payment receipts" have a "Retail" template for thermal printers, but the template is configured at A4 paper size!!! How is this retail guys? On the other hand, Invoices have 3 Retail templates which have 3 and 4 inch paper size, perfectly fitting

• Custom Portal URL causing SAMEORIGIN error with embedded Page snippet

  In my app, I have a page that embeds another page. The URL that I have for the embedded page starts with https://creatorapp.zoho.com but the custom domain I have set up is https://kors.kerndell.com. Because the user logged into the app at https://kors.kerndell.com,

• Pasting images is a mess

  I’m trying to paste images into my tickets, in the comments field. But when I paste images, they end up in the wrong order or behind the text.

• Sort by Project Name?

  How the heck do you sort by project name in the task list views??? Seems like this should be a no-brainer?

• Zoho Contracts Just Got Better! CRM 2.0, Regional Settings & 6 New Reports

  Zoho Contracts is evolving to bring you a more efficient and customizable contract management experience. In this update, we are introducing powerful enhancements to our Zoho CRM integration, regional settings, and reports. Let us explore what’s new:

• Zoho Finance Limitations 2.0 #5: Can't select "Account Id" if creating Custom Links in Related Panel (but it's available for Custom Buttons)

  When creating a custom link within the Zoho Finance module there is no option to select the "Account Id". If creating a Custom Button, it's available. Any plans to make this available within a reasonable timeframe? ======== Perspective: using Zoho finance

• Zoho Cliq not working on airplanes

  Hi, My team and I have been having this constant issue of cliq not working when connected to an airplane's wifi. Is there a reason for this? We have tried on different Airlines and it doesn't work on any of them. We need assistance here since we are constantly

• Can Zoho CRM Emails be used in Zoho Analytics in any capacity?

  We're wanting to display details about Lead Activity in regular reports through Zoho Analytics but we're having difficulty integrating Emails at all. We'd like to be able to note when an email is received and when it is sent somewhere other than just

• [Free Webinar] New portal page customization in Zoho Creator - Creator Tech Connect

  Hello everyone, We’re excited to invite you to another edition of the Creator Tech Connect webinar. About Creator Tech Connect The Creator Tech Connect series is a free monthly webinar featuring in-depth technical sessions designed for developers, administrators,

• #11 Stop Absorbing Cost That Client Should Pay

  One of the easiest ways of losing profit in a business isn't losing a customer. It's forgetting to include the expenses that are incurred for half of your customers. A taxi ride to a client location A software subscription purchased for a project. Domain

• Related products & AI product recommendations through commerce API.

  Hello Zoho team I’m looking to add related products and AI product recommendations to my Zoho Commerce webshop with custom storefront. Is this supported through the API? And if not, is this on your roadmap? Thanks in advance David

• Can you sell Subscriptions using Zoho Commerce?

  In addition to physical products and the apparently coming soon 'Digital Products', it is possible to sell Subscriptions using Zoho Commerce?

• Zoho Commerce B2B

  Hello, I have signed up for a Zoho Commerce B2B product demo but it's not clear to me how the B2B experience would look for my customers, in a couple of ways. 1) Some of my customers are on terms and some pay upfront with credit card. How do I hide/show

• Next Page