ITR-1 & ITR-4 Budget Changes — A.Y. 2026-27

ITR-1 & ITR-4 Budget Changes — A.Y. 2026-27

Key Changes for Assessment Year 2026-27 →  Applicable to ITR-1 (Sahaj) and ITR-4 (Sugam)

The Union Budget for Assessment Year 2026–27 introduces several amendments aimed at rationalizing the tax structure, enhancing taxpayer benefits, and encouraging wider adoption of the New Tax Regime.
These changes are intended to simplify tax compliance, reduce tax burden, and improve the overall taxpayer experience.

Idea
New Tax Regime – Revised Tax Slabs
The revised tax slab structure under the New Tax Regime, applicable from A.Y. 2026–27, is as follows:

      

Idea
Rebate under Section 87A
The rebate under Section 87A has been enhanced for taxpayers opting for the New Tax Regime.
Applicability: The rebate shall be available to resident individuals whose total income does not exceed ₹12,00,000.
Eligible taxpayers shall have no tax liability after claiming the rebate. In the case of salaried taxpayers, after considering the standard deduction of ₹75,000, income up to ₹12.75 lakh may effectively become tax-free.
Marginal Relief: Marginal relief shall be available where the total income marginally exceeds ₹12,00,000. This ensures that the additional tax payable does not exceed the additional income earned over ₹12,00,000.
Computation Methodology
The marginal relief shall be computed as follows:
  1. Determine the total income.
  2. Compute tax liability as per the applicable slab rates.
  3. Calculate the amount by which total income exceeds ₹12,00,000.
  4. Compare the tax liability with the excess income over ₹12,00,000.
  5. The final tax payable shall be restricted to the lower amount.
Illustration


Idea
Standard Deduction
A standard deduction of ₹75,000 shall continue to be available to salaried taxpayers opting for the New Tax Regime.
Idea
Basic Exemption Limit
The basic exemption limit under the New Tax Regime has been increased to ₹4,00,000.
Idea
Capital Gains Taxation
The applicable capital gains tax provisions are as follows:
  1. Long-Term Capital Gains on equity instruments shall be taxable at 12.5% on gains exceeding ₹1.25 lakh.
  2. Short-Term Capital Gains on equity instruments shall be taxable at 20%.
  3. Long-Term Capital Gains on immovable property, where the date of sale is on or after 23 July 2024, shall be taxable at 12.5% without indexation benefit.
  4. Resident Individuals and Hindu Undivided Families (HUFs) transferring immovable property, where the date of sale is before 23 July 2024, may opt for taxation at 20% with indexation benefit, subject to the prescribed conditions and eligibility requirements under the Income-tax Act.
Idea
Client Master Address – Dual Address Support
Individual Clients
For individual clients, Residential Address and Office Address shall continue to be available.
The address marked as default by the user shall be treated as the Primary Address, while the other address shall be treated as the Secondary Address.
Non-Individual Clients
For non-individual clients, where only a single address is currently maintained, a provision shall be introduced to capture both Primary and Secondary Addresses.
Validation Rules
  1. Primary Address shall be mandatory.
  2. Secondary Address shall be optional.
  3. All validations applicable to the Primary Address shall also be applicable to the Secondary Address.
  4. For prior assessment years, the existing address shall be mapped as the Primary Address.
  5. The mapped address for prior assessment years shall not be transmitted in the return payload.

Key Functional Changes – A.Y. 2026–27

Idea
House Property Eligibility – ITR-1
With effect from A.Y. 2026–27, taxpayers having income from up to two house properties shall be eligible to file ITR-1, subject to fulfilment of all other prescribed conditions.

Idea
Co-owner House Property – Eligibility Revision
The presence of co-owner details shall not, by itself, result in disqualification from ITR-1 or ITR-4.
ITR-1 shall remain eligible where:
  1. The number of house properties does not exceed two;
  2. Co-owner details are available; and
  3. No other disqualifying condition exists.

Idea
Exempt Income Schedule
The Exempt Income Schedule has been enhanced to include additional exemption categories notified for A.Y. 2026–27.
Taxpayers shall be required to select the applicable exemption section while reporting exempt income.
The schedule now includes exemptions relating to the Agniveer Corpus Fund, specified funds, Business Trust distributions, National Pension System withdrawals, and other notified categories.

List of Available Exempt Income Sections:
  1. 10(1) : 10(1)-Agricultural income(Less than or equal to 5000);
  2. 10(30): 10(30)-subsidy received from or through the Tea Board;
  3. 10(31) : 10(31)-Rubber/Coffee/Tea development accounts/funds;
  4. 10(10BB) : 10(10BB)-payments made under the Bhopal Gas Leak Disaster;
  5. 10(10BC) : 10(10BC)-Any amount from the Central/State Govt./local authority by way of compensation on account of any disaster ;
  6. 10(17A): 10(17A)-Award instituted by Government;
  7. 10(12AB) :10(12AB)-any sum received as lump sum amount as per clause (vi) of paragraph 2 of the notification number FX-1/3/2024-PR;
  8. 10(15): 10(15)-Interest on specified securities/investments;
  9. 10(23FBB): 10(23FBB)-income referred to in section 115UB, accruing or arising to, or received by, a unit holder of an investment fund;
  10. 10(23FD): 10(23FD)Unit holder income from Business Trust (certain parts);
  11. 10(35): 10(35)-Income from specified Mutual Funds;
  12. 10(35A) : 10(35A)-distributed income referred to in section 115TA received from a securitisation trust;
  13. 10(12C) : 10(12C)-Agniveer Corpus Fund income;
  14. 10(18): 10(18)-Pension received by winner of 'Param Vir Chakra' or 'Maha Vir Chakra' or 'Vir Chakra' or such other gallantry award;
  15. 10(19): 10(19)-Armed Forces Family pension in case of death during operational duty;
  16. 10(23AA): 10(23AA)-Sum received by any person on behalf of any Fund established by the armed forces;
  17. DMD : Defense Medical Disability Pension;
  18. 10(32): 10(32)-Minor child's income—small exemption;
  19. 10(43): 10(43)-Reverse mortgage—payments to senior citizens;
  20. 10(19A): 10(19A)-Annual value of one palace in occupation of ex-ruler;
  21. 10(26): 10(26)- Any income as referred to in section 10(26);
  22. 10(26AAA): 10(26AAA)-Any income as referred to in section 10(26AAA);
  23. 10(10D): 10(10D)-Any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy except sum as mentioned in sub-clause to (d) of Sec.10(10D);
  24. 10(11): 10(11)-Statutory Provident Fund received;
  25. 10(11A): 10(11A)-Sum received from an account opened under the Sukanya Samriddhi Yojana;
  26. 10(12): 10(12)-Recognized Provident Fund received;
  27. 10(12A): 10(12A)-Any payment from the National Pension System Trust to an assessee;
  28. 10(12AA): 10(12AA)-any payment from the National Pension System Trust;
  29. 10(12B): 10(12B)-Any payment from the National Pension System Trust to an Central Govt. Employee;
  30. 10(12BA): 10(12BA)-partial withdrawal made from the National Pension System;
  31. 10(13): 10(13)-Approved superannuation fund received;
  32. 10(25): 10(25)-Sum received by trustees on behalf of approved superannuation, gratuity, or pension funds;
  33. 10(44): 10(44)-Income received by any person for, or on behalf of, the New Pension System Trust;
  34. 10(2): 10(2)-Member's share from HUF;
  35. 10(16): 10(16)-Scholarships for education

The amendments introduced under the Union Budget for A.Y. 2026–27 represent a significant step towards simplification of the direct tax framework.
The enhanced rebate provisions, revised tax slabs, expanded ITR-1 eligibility, dual address support, and updated exempt income reporting are expected to improve taxpayer convenience and promote wider adoption of the New Tax Regime.

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