Money & Tax · Part 3 · Tax · 12 min read · August 2026
The Assessment Year is gone. What Tax Year 2026-27 changes on your payslip.
On 1 April 2026 the Income-tax Act, 1961 was repealed and the Income-tax Act, 2025 took its place. The rates did not move. Almost everything used to describe them did. And because the salary you are earning right now sits under the new law while the return most people filed this July sat under the old one, the two are running side by side — which is exactly where mistakes are being made this year.
- One term replaced two. Previous Year and Assessment Year are gone. There is now a single Tax Year, and the salary you are earning between April 2026 and March 2027 belongs to Tax Year 2026-27 — not Assessment Year 2027-28.
- Your documents were renumbered. The annual salary TDS certificate is Form 130, not Form 16. The declaration you give your employer is Form 124, not Form 12BB. The content is broadly unchanged; the labels are not.
- Four cities joined the 50% HRA list — Bengaluru, Hyderabad, Pune and Ahmedabad. For a large number of renters that change is worth exactly nothing, and the reason is in the arithmetic below.
Why there were ever two years
The old law made you carry two dates for one salary. The Previous Year was when you earned; the Assessment Year was the following year, when the earning was assessed. Salary drawn in the year ending March 2026 was Previous Year 2025-26 and Assessment Year 2026-27, and the second of those two labels was the one printed across the top of your return.
It was a reliable source of confusion, and not only for first-time filers. Half of the questions a salaried person asks about their own tax start from having picked up the wrong one of those two years.
From 1 April 2026 there is one term. The Tax Year runs 1 April to 31 March. Income earned in that window is income of that Tax Year, full stop. Salary earned now is Tax Year 2026-27, and that is what will appear on your certificate.
The overlap nobody warns you about
Here is the thing worth being careful about for the rest of this year, because it is where people are going wrong.
The new Act does not reach backwards. Income earned up to 31 March 2026 stays under the 1961 Act. So the return filed this year, for the year ended March 2026, was an old-Act return using the old terminology, the old form numbers and the old rules. The first return under the new Act will be filed in 2027, for Tax Year 2026-27.
Which means that through this year, both laws are alive. Your employer is issuing an old-style certificate for last year and running new-style deductions for this year, at the same time. When something you read about the new Act seems not to match a document in your hand, this overlap is usually the reason, and the test is simple: which period did the money relate to? Not which date it was paid on paper, and not which date you filed.
Your Form 16 has a new number
Under the Income-tax Rules, 2026, the whole TDS certificate family was renumbered in one go. For a salaried employee, three of them matter.
| What it was | What it is now | When you see it |
|---|---|---|
| Form 16 — annual salary TDS certificate | Form 130 | For Tax Year 2026-27 salary, due to you by 15 June 2027 |
| Form 16A — non-salary TDS certificate | Form 131 | For payments from 1 April 2026 — bank interest, for instance |
| Form 12BB — your declaration to your employer | Form 124 | The investment and exemption declaration you submit at work |
Behind those, the quarterly return your employer files moved from Form 24Q to Form 138, and the TDS provisions themselves were reorganised — the familiar section numbers give way to a consolidated structure with numeric payment codes. None of that is your problem directly. It is, however, why your payroll team asked everyone to re-declare this year rather than rolling last year's declaration forward, and why some employers were slower than usual getting the April deduction right.
One practical consequence: a certificate for Tax Year 2026-27 salary that still says "Form 16" on it is technically not the right document, and an employee relying on it can end up with a mismatch against what the department actually holds. Next June, look at the number on the top of the page before you use it to file. The old Form 16 remains perfectly valid for the year that ended in March 2026 — that one is not affected.
Form 124 asks a question Form 12BB did not
The declaration form is where the new rules touch renters most directly. Form 124 carries a requirement that Form 12BB did not: you must disclose your relationship with your landlord.
The target is obvious to anyone who has seen the pattern. Rent paid to a parent, a spouse or a sibling is not disallowed and never has been — it is a perfectly legitimate arrangement. What it now is, is visible, on the face of the declaration, to your employer and to the department.
That changes the standard of proof you should be holding, not the legality. If rent is genuinely being paid to a family member, then a real rent agreement, receipts, and payment through a bank rather than in cash are the difference between a claim that survives a question and one that does not. And the other half of the arrangement matters too: the rent you claim is rental income in the recipient's hands, and it should be appearing in their return. A claim made on one side and never declared on the other has always been the weak point, and it is now considerably easier to see.
Alongside it, the older requirement continues — where annual rent crosses ₹1,00,000, roughly ₹8,333 a month, the landlord's PAN has to be furnished to your employer. If the landlord has no PAN, that has to be dealt with by declaration rather than ignored. Missing PAN does not by itself destroy the exemption, but it shifts the burden onto you and can leave your employer deducting tax on the HRA component anyway.
Four cities joined the 50% list
This is the change that generated the headlines, and it is genuinely good news for some people.
For more than two decades only four cities counted for the higher limb of the HRA calculation: Delhi, Mumbai, Kolkata and Chennai. Everywhere else, including Bengaluru and Pune, was capped at 40% — a classification that stopped matching reality a long time ago. From Tax Year 2026-27, Bengaluru, Hyderabad, Pune and Ahmedabad join the list, taking it to eight.
Note the year carefully. For the return covering the year ended 31 March 2026, the old four-city rule still applied and those four cities were still at 40%. The upgrade starts with salary earned from 1 April 2026 onwards.
Why it may be worth nothing to you
Now the part that the headlines skipped, and the reason this section exists.
HRA exemption is not a percentage of anything. It is the lowest of three separate figures, and the city percentage is only one of them:
- the HRA you actually received;
- the rent you paid, minus 10% of salary;
- 50% of salary in the eight listed cities, or 40% elsewhere.
Salary here means basic pay, plus dearness allowance where it forms part of retirement benefits, plus commission calculated as a fixed percentage of turnover. It does not mean your CTC.
Lifting the third figure from 40% to 50% helps only if the third figure was the one binding your claim. Where the second one is already the lowest — which is very common for people paying modest rent relative to a decent basic — nothing happens at all.
The pattern is worth internalising. The higher your rent relative to your basic, the more likely limb two is binding and the less the city change does for you. The lower your rent relative to your basic, the more likely limb three was holding you down and the more the change is worth. You can run your own three lines in the HRA calculator in about twenty seconds.
What to check this month
We are five months into Tax Year 2026-27, which is late enough to matter and early enough to fix. Four things are worth ten minutes.
- Which regime you are on. Look at your payslip's tax deduction line and confirm it matches what you intended. This is the single decision that outweighs every other item on this page, and both sides of it are computed slab by slab in the income tax calculator.
- Whether your declaration actually went in. Forms changed this year and re-declaration was required. A declaration your employer never received means tax is being deducted without your exemptions, and the money comes back only as a refund, a year later.
- If you live in one of the four new cities and are on the old regime — check that payroll is applying 50% and not 40% from April onwards. Payroll systems had to be updated for this, and not every one of them was updated on time.
- Your rent paperwork. Agreement, receipts, bank transfers, landlord's PAN where rent crosses ₹1 lakh, and the relationship stated honestly if the landlord is family. Assembling that in August is a chore. Assembling it in March, under a payroll deadline, is how people end up abandoning a legitimate claim.
The one-line summary
The law was rewritten, not repriced. What changed for a salaried employee this year is the vocabulary, the form numbers, one new disclosure about who your landlord is, and a city list that helps only those for whom the city limb was binding. What did not change is the arithmetic of your tax — which is why the regime you picked in April still matters more than everything else on this page put together.
The tool for this
Put your own salary and deductions in and see both regimes computed slab by slab, with the rebate and marginal relief shown separately.
Written at the MoneyClarityTech desk — by a working retail-credit professional in Indian banking who reads loan files, credit reports and bank statements every working day. Patterns from hundreds of real cases; every identifying detail removed. More about MoneyClarityTech →