Income Tax Reform 2026: How New Rules Will Simplify Filing and Compliance
India’s tax system is set for a historic change. The Income Tax Reform 2026 will be implemented from 1 April 2026, replacing the decades-old Income Tax Act of 1961. Preparations began last year in 2025, and now the countdown has begun for taxpayers, professionals, and businesses alike.
The new reform aims to simplify compliance, reduce legal complexity, and bring transparency to the taxation system. This landmark step will officially repeal the 60-year-old Income Tax Act 1961, marking a new era in India’s tax history.
Finance Minister Introduces New Income Tax Rules
Finance Minister Nirmala Sitharaman introduced the Income Tax Reform 2026 rules, which include revised ITR forms for taxpayers. The draft rules and forms are in the public domain for feedback until 22 February 2026, allowing chartered accountants, taxpayers, and other stakeholders to suggest changes before finalisation.
This public consultation ensures that the reform incorporates practical insights and real-world usability, making filing simpler for all categories of taxpayers.
ITR Forms: What Changes Under Income Tax Reform 2026
ITR 1 – Sahaj Remains Simple
For resident individuals with income from simple sources, the ITR 1 – Sahaj form remains largely unchanged. This includes salary, one house property, and interest income. The simplicity ensures minimal disruption for ordinary taxpayers.
ITR 2 – Default for Complex Cases
ITR 2 will now be the default option for individuals and HUFs with complex incomes, including capital gains, multiple house properties, or foreign assets and income. Under the new rules, some taxpayers who previously used ITR 1 may now need to file ITR 2.
ITR 3 – Business or Profession
Taxpayers earning from business or profession will continue to use ITR 3, ensuring compliance with the new framework.
ITR 4 – Sugam Sees Big Changes
The ITR 4 Sugam category carries the most significant updates, aligning with the government’s push for digital compliance and structured reporting.
ITR 5 and 6 – Mostly Unchanged
ITR 5 and ITR 6 remain largely the same. Digital signature filing remains mandatory for companies, ensuring authenticity and security.
ITR 7 – Greater Transparency for Trusts and Institutions
Trusts, charitable organisations, and political parties will now need to provide detailed funding and audit reports, reinforcing accountability and transparency in compliance.
Why Was the 1961 Income Tax Act Replaced?
The Income Tax Reform 2026 is primarily driven by the need for greater transparency, digital filing, and structured data collection. The 1961 Act, while functional, lacked provisions for modern compliance tools and fails to integrate efficiently with current digital infrastructure.
By streamlining reporting, enhancing transparency, and modernising forms, the reform will help taxpayers file accurately, quickly, and securely.
Public Feedback Window Open Until 22 February 2026
The government has opened a public consultation period until 22 February 2026. All suggestions from taxpayers, chartered accountants, and other stakeholders will be reviewed before the final rollout. After this date, the Income Tax Reform 2026 rules will be implemented as finalized, without further changes.
This consultation ensures that the reform is practical and inclusive, considering the needs of all taxpayers.
What This Means for Taxpayers
Once implemented, the Income Tax Reform 2026 will simplify ITR filing, reduce compliance and legal complexity, and strengthen transparency and accountability. It will encourage wider digital adoption while making reporting more structured and uniform, ensuring that taxpayers can file accurately and efficiently under the new system.
With the Income Tax Reform 2026, digital filing, transparency, and structured reporting become the new normal. How will this impact your finances? Share your thoughts below!
Disclaimer: This article is published for informational purposes only. Readers are advised to verify details from official sources before making any decisions. The website is not responsible for any loss or damage arising from the use of this information.
