From Tax Rebates to Pay Hikes: Key Financial Changes Coming in 2026

The year 2026 is set to usher in a series of major financial reforms that will directly impact how Indians earn, save, invest, borrow and transfer wealth. From higher tax rebates and a new income tax law to salary revisions under the 8th Pay Commission and fresh RBI rules on loans and credit reporting, the changes span across income tax, banking, investments and inheritance laws.

Whether you are a salaried professional, a mutual fund investor or a loan borrower, these reforms are expected to influence financial planning decisions in the coming year.

Higher tax rebate to kick in with ITR 2026

One of the biggest changes for individual taxpayers will be visible while filing income tax returns in 2026. Under the new tax regime, individuals earning up to Rs.12 lakh annually will effectively pay zero income tax, thanks to an enhanced rebate of Rs.60,000 under Section 87A.

Salaried taxpayers will receive additional relief through a standard deduction of Rs.75,000, pushing the tax-free income threshold to Rs.12.75 lakh. The move is aimed at easing the tax burden on middle-class earners while simplifying compliance.

New Income Tax Act to replace the 1961 law

From April 1, 2026, India will implement a new Income Tax Act, replacing the decades-old Income Tax Act of 1961. The revamped legislation significantly reduces complexity, cutting the number of sections from 819 to 536 and chapters from 47 to 23.

Alongside this, the Central Board of Direct Taxes (CBDT) is expected to notify new income tax return forms by January 2026. The simplified forms will feature higher disclosure thresholds for assets and liabilities, clearer deduction reporting and broader eligibility for easy-to-file returns. The government hopes these measures will reduce litigation and improve voluntary compliance.

8th Pay Commission to revise government salaries

Central government employees and pensioners can expect a salary overhaul as the 8th Central Pay Commission comes into effect from January 1, 2026, marking the end of the 7th Pay Commission’s tenure.

As per established practice, the accumulated dearness allowance (DA) will be merged with basic pay once the new commission is implemented, and DA will reset to zero. Revised salaries will be calculated using a fitment factor applied to the updated basic pay. DA, which was last raised to 58 percent in July 2025, is due for another revision before the new pay structure takes effect.

Mutual fund costs to become more transparent

Mutual fund investors will benefit from changes announced by the Securities and Exchange Board of India (SEBI), aimed at improving transparency and reducing costs. From April 2026, total expense ratios (TER) will exclude statutory levies such as GST, stamp duty and securities transaction tax, with costs disclosed in separate components.

SEBI has also lowered expense ratio caps across fund categories, including a reduction for index funds and ETFs from 1 percent to 0.9 percent. The reforms are expected to make investing more cost-efficient and easier to understand.

New code for tax-free inheritance of securities

From January 2026, SEBI will introduce a new Transmission to Legal Heirs (TLH) reporting code to automatically classify the transfer of securities from nominees to legal heirs as tax-exempt inheritances.

The move will help prevent incorrect capital gains tax demands and align reporting with existing tax law provisions that exempt such transfers. The new code will be used by registrars, depositories and listed companies when reporting transactions to tax authorities.

Mandatory probate scrapped in major cities

Inheritance procedures are also set to become easier. From January 1, mandatory probate of wills has been scrapped in Mumbai, Chennai and Kolkata following amendments to the Indian Succession Act, 1925. The change aims to bring uniformity in succession laws and reduce delays and costs associated with asset transfers, making it simpler for legal heirs to claim property.

Loans against silver to be allowed

Borrowers will soon be able to pledge silver jewellery and coins to raise loans, in addition to gold. Under new RBI guidelines effective April 1, 2026, banks, NBFCs, cooperative banks and housing finance companies can offer loans backed by silver. The move is intended to bring standardisation and better regulation to precious-metal-backed lending.

Weekly credit reporting to credit bureaus

From July 1, 2026, lenders will be required to report borrower data to credit bureaus on a weekly basis instead of monthly. Institutions will submit updates on fixed dates each month along with a full account snapshot by the following month’s deadline. The RBI believes the change will improve credit accuracy, reduce reporting errors and benefit both borrowers and lenders.

No pre-payment charges on floating-rate loans

In another borrower-friendly move, the RBI has directed lenders to eliminate pre-payment penalties on floating-rate loans for individuals and micro and small enterprises. The rule will apply to loans sanctioned or renewed from January 1, 2026. Together, these reforms signal a major reset in India’s financial landscape, with 2026 shaping up to be a year of significant change for households and businesses alike.

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