New income-tax act takes effect today

What Happened

From April 1, 2026, the Income Tax Act, 2025 replaces the 1961 Act, bringing the most comprehensive overhaul of India's direct tax law in six decades.
Share buyback taxation undergoes a fundamental change: amounts received from buybacks are now taxed as capital gains (22% for corporate promoters, 30% for non-corporate entities) instead of being treated as deemed dividends taxed in the company's hands — shifting the tax burden to the shareholder.
TCS (Tax Collected at Source) rates are rationalised significantly: overseas travel packages now attract a flat 2% TCS (down from 20% above ₹7 lakh), and foreign remittances for education and medical treatment are reduced to 2%, making international travel and education remittances more affordable.
Virtual Digital Assets (VDAs) — cryptocurrencies, NFTs — are now explicitly codified under a dedicated Schedule VDA with a flat 30% tax on all transfers; 1% TDS applies on transactions above ₹10,000/year for most taxpayers (₹50,000 for specified persons).
Minimum Alternate Tax (MAT) is reduced from 15% to 14% for companies; MAT credit accumulation is stopped — no new MAT credit can be carried forward for years beginning after March 31, 2026.
The concept of "Assessment Year" (AY) is abolished; replaced by "Tax Year" — eliminating the longstanding confusion from the one-year offset between the year of earning income and the AY in which it was assessed.

Static Topic Bridges

Under the Income Tax Act, 1961, share buybacks by unlisted companies were taxed under Section 115QA at a rate of 20% (plus surcharge and cess) paid by the company on the distributed income — the shareholder received the buyback proceeds tax-free. Listed companies had been brought under a similar regime via Budget 2024. This created a distortion where promoters preferred buybacks over dividends. Under the IT Act, 2025, buyback proceeds received by shareholders are taxed as capital gains: long-term capital gains (LTCG) at 12.5% (for listed shares held 12+ months) or short-term capital gains (STCG) at applicable slab rates; for corporate promoters, the rate is 22%; for non-corporates, 30%.

Old regime: Section 115QA — company paid 20% buyback distribution tax; shareholder got proceeds tax-free
New regime (April 1, 2026): buyback taxed as capital gains in the hands of the shareholder
Corporate promoters: 22% on buyback gains; non-corporate: 30%
Rationale: align buyback taxation with dividend taxation; remove arbitrage for promoters

Connection to this news: This change will significantly affect listed company promoters who used buybacks as a tax-efficient method of distributing retained earnings — the shift to capital gains taxation neutralises the tax advantage that buybacks had over dividends.

TCS (Tax Collected at Source) and Rationalisation of Overseas Remittances

Tax Collected at Source (TCS) under the Liberalised Remittance Scheme (LRS) was introduced in Budget 2020 (Finance Act, 2020) to track and tax outward foreign remittances. The LRS allows resident Indians to remit up to $250,000 per year for specified purposes. Budget 2023 raised TCS to 20% on overseas travel packages and on LRS remittances above ₹7 lakh (excluding education and medical). The high rate was widely criticised for increasing the upfront cost of international travel and education — and it also constituted "advance tax collection" that had to be claimed back as refund. The IT Act, 2025 and Budget 2026 rationalise TCS to a flat 2% across most LRS categories, with no threshold-based slabs.

LRS limit: $250,000 per financial year per resident individual (RBI circular)
Old TCS on overseas tour packages: 5% up to ₹7 lakh; 20% above ₹7 lakh
New TCS (April 1, 2026): flat 2% on overseas travel packages; 2% on education and medical remittances
TCS is creditable against final tax liability (or refundable) — reducing effective cash outflow if overall tax is low

Connection to this news: The TCS rationalisation directly benefits students going abroad for education, patients seeking overseas medical treatment, and leisure travellers — it removes a disproportionate advance tax burden on the middle class while maintaining the tracking function of TCS.

Virtual Digital Assets (VDA) — Codification Under the New Act

Section 2(47A) of the IT Act, 1961 (introduced in Finance Act, 2022) first defined Virtual Digital Assets and imposed a 30% flat tax on their transfer, along with a 1% TDS. The IT Act, 2025 now consolidates and expands this framework in a dedicated Schedule VDA. Cryptocurrencies (Bitcoin, Ethereum, etc.), Non-Fungible Tokens (NFTs), and any other digital asset notified by the government are classified as VDAs. Only the cost of acquisition is deductible — no set-off of losses from one VDA against gains from another is permitted. The 1% TDS threshold is ₹10,000/year for regular taxpayers and ₹50,000/year for specified persons (those filing presumptive tax returns under Sections 44AD/44AE/44ADA).

VDA tax rate: 30% flat on transfer gains (irrespective of holding period or income slab)
TDS on VDA transactions: 1% above ₹10,000/year (general); ₹50,000/year (specified persons)
Deductions allowed: only cost of acquisition; no deduction for infrastructure cost, electricity, etc.
Loss from VDA cannot be set off against any other income or carried forward

Connection to this news: The explicit Schedule VDA in the new Act signals the government's intent to permanently mainstream cryptocurrency taxation into the direct tax framework, moving beyond the ad hoc provisions inserted in 2022 into a structured, codified chapter.

Minimum Alternate Tax (MAT) — Reduction and Credit Closure

Minimum Alternate Tax (MAT) was introduced in the Income Tax Act, 1961 (Section 115JB) to ensure that companies with large book profits (as per their P&L statements) but low taxable income (due to exemptions and deductions) paid a minimum level of tax. MAT was calculated at 15% (plus surcharge/cess) of book profits. Companies that paid MAT above their regular tax could carry forward the excess as "MAT credit" for up to 15 years. Budget 2019 introduced an optional 22% concessional tax for domestic companies (Section 115BAA) that opted out of exemptions — such companies were exempt from MAT. The IT Act, 2025 reduces MAT to 14% but closes the door on new MAT credit — companies cannot accumulate fresh MAT credit from April 1, 2026 onwards.

MAT rate: 15% (old) → 14% (new, from April 1, 2026) of book profits
MAT credit: no new credit allowed post March 31, 2026; existing credits remain usable within prescribed period
Concessional tax (Section 115BAA equivalent): 22% + surcharge + cess; no MAT liability for such companies
MAT applicability: All domestic companies not opting for the concessional regime

Connection to this news: The MAT reduction to 14% and credit closure signals a phased elimination of MAT as India moves toward a simpler direct tax structure — companies that have already accumulated large MAT credits will need to plan their tax strategy carefully as new credit generation ends.

Key Facts & Data

Income Tax Act, 2025: effective April 1, 2026 (Tax Year 2026-27)
Share buyback: now taxed as capital gains (22% for corporates, 30% for non-corporates)
TCS on overseas travel packages: 20% → 2% flat (effective April 1, 2026)
TCS on education/medical remittances: also rationalised to 2%
VDA (crypto/NFT) tax: 30% flat; 1% TDS above ₹10,000/year
MAT rate: 15% → 14%; new MAT credit accumulation stops after March 31, 2026
"Assessment Year" concept abolished; replaced by "Tax Year"
New Act: 536 sections, 23 chapters (vs. 819 sections, 47 chapters in 1961 Act)
Form 16 → Form 130; Form 26AS → Form 168; Forms 15G/15H → Form 121