The Income-tax Act, 2025 represents a significant consolidation and amendment of India’s direct tax laws, officially extending to the whole of India and scheduled to come into force on 1st April, 2026. As part of this overhaul, the Act and the accompanying Income-tax Rules, 2026 provide a structured ecosystem of reliefs, rebates, and deductions designed to mitigate the tax burden on various classes of taxpayers. Understanding these provisions is essential for effective tax planning under the new regime.

One of the primary relief mechanisms for individuals is the rebate of income-tax provided under Section 156. For resident individuals, a 100% deduction of income-tax payable is allowed if their total income does not exceed Rs. 5,00,000, subject to a maximum cap of Rs. 12,500. Furthermore, taxpayers opting for the New Tax Regime under Section 202(1) are entitled to enhanced rebates. Specifically, if the total income does not exceed twelve lakh rupees, the individual can claim a rebate of 100% of the tax payable or Rs. 60,000, whichever is lower. To prevent a sudden spike in tax liability for those slightly exceeding the twelve lakh threshold, the Act introduces a marginal relief mechanism. This relief ensures that the tax payable on income exceeding twelve lakh rupees does not exceed the amount by which the income actually surpasses that limit.

Taxpayers often face a higher tax bracket due to the receipt of lump-sum payments relating to multiple years. Section 157 addresses this by granting relief when salary or family pension is paid in arrears or in advance. This relief is also applicable to payments received in the nature of “profits in lieu of salary” under Section 18(1). To avail of this, the assessee must make an application to the Assessing Officer in the prescribed manner.

Rule 73 of the Income-tax Rules, 2026 outlines the specific steps for computing this relief. The calculation involves comparing the tax on the total income of the relevant year with the aggregate tax that would have been payable if the arrears were distributed across the years to which they relate. Specialised relief formulas are provided for gratuity received for past services. For instance, if gratuity is received for service spanning fifteen years or more, the relief is calculated by averaging the tax rates of the preceding three tax years. Similar relief structures exist for compensation received at the termination of employment and the commutation of pension. Taxpayers must furnish particulars in Form No. 39 to claim these benefits.

Section 158 introduces a specific relief for income accrued in retirement benefit accounts maintained in notified countries (currently the USA, UK, Canada and Australia). Individuals can opt to have this income taxed in the year it is actually withdrawn or redeemed in the foreign country, rather than on an accrual basis in India. Rule 74 specifies that this option, once exercised in Form No. 40, applies to all specified accounts and remains valid for subsequent tax years.

To support global mobility and trade, the Act provides comprehensive Double Taxation Relief. Under Section 159, the Central Government may enter into agreements (DTAAs) with foreign countries to grant relief on income that has been taxed in both jurisdictions. These agreements are designed to avoid double taxation and prevent tax evasion while ensuring that taxpayers can claim benefits that are more favourable than the general provisions of the Act. In cases where no such agreement exists, Section 160 provides unilateral relief to residents. Such taxpayers are entitled to a deduction from Indian income-tax equal to the tax paid in the foreign country on the doubly taxed income, calculated at the lower of the Indian or foreign rate of tax.

Relief is also provided through a series of deductions from the total income under Chapter VIII.

•      Standard Savings (Section 123): Individuals and HUFs can claim a deduction of up to Rs. 1,50,000 for payments specified in Schedule XV, which includes life insurance premia, provident fund contributions, and tuition fees.

•      Pension Schemes (Section 124): Deductions are available for contributions to notified pension schemes, with a general cap of 10% of salary for most employees and 14% for Central Government or specific employer contributions.

•      Agnipath Scheme (Section 125): Contributions to the Agniveer Corpus Fund by an individual or the Central Government are fully deductible from total income.

•      Health Insurance (Section 126): Taxpayers can claim a deduction for health insurance premia of up to Rs. 25,000 for themselves and their family, and an additional Rs. 25,000 for parents. If the insured individual is a senior citizen, the deduction limit is increased to Rs. 50,000.

•      Medical Treatment for Disability (Section 127): A resident individual or HUF supporting a dependant with a disability can claim a deduction of Rs. 75,000, which increases to Rs. 1,25,000 for severe disabilities.

•      Specific Diseases (Section 128): Deduction for expenses incurred on the medical treatment of prescribed diseases is capped at Rs. 40,000, or Rs. 1,00,000 for senior citizens.

•      Education and Housing Loans (Sections 129–131): Interest paid on loans for higher education is fully deductible with no upper monetary limit for an initial eight-year period (Section 129). For residential house property, Section 130 provides a deduction of up to Rs. 50,000 on interest for loans sanctioned between 2016 and 2017, while Section 131 provides a higher limit of Rs. 1,50,000 for loans sanctioned between 2019 and 2022.

•      Electric Vehicles (Section 132): To promote green energy, interest on loans for purchasing an electric vehicle sanctioned between 1st April 2019 and 31st March 2023 is deductible up to Rs. 1,50,000.

The Act and its Schedules list numerous sources of income that are either fully or partially exempt from tax, providing indirect relief.

•      Agricultural Income: Income derived from land used for agricultural purposes in India remains exempt.

•      Share of Profit from Firms: A partner’s share in the total income of a firm is not included in their individual total income, provided the firm is assessed separately.

•      Travel Concessions: The value of Leave Travel Concession (LTC) received by an individual for themselves and their family is exempt, subject to conditions such as the number of journeys in a four-year block.

•      Gratuity and Pension: Gratuity received by widows or dependants on the death of an employee is exempt. Similarly, pensions received by individuals awarded gallantry honours like the Param Vir Chakra are not taxable.

•      Scholarships: Payments received to meet the cost of education are fully exempt.

•      Allowances for Government Servants: Allowances or perquisites paid by the Government to Indian citizens for services rendered outside India are exempt from tax.

The Income-tax Act, 2025 continues to support economic growth through targeted reliefs for businesses.

•      Start-ups (Section 140): Eligible start-ups can claim a 100% deduction of profits for three consecutive tax years within their first ten years of incorporation, provided their turnover does not exceed Rs. 100 crore in the relevant tax year and they hold a certificate from the Inter-Ministerial Board of Certification.

•      Special Economic Zones (Section 144): Newly established units in SEZs are entitled to deductions on export profits for a specified period.

•      Offshore Banking and IFSC (Section 147): A 100% deduction of income is allowed for Offshore Banking Units in SEZs and units located in an International Financial Services Centre (IFSC) for twenty consecutive tax years, following the extension announced in the Finance Act, 2026.

•      Inter-corporate Dividends (Section 148): Domestic companies receiving dividends from other domestic companies, foreign companies, or business trusts can deduct an amount equal to the dividend distributed by them, preventing double taxation of corporate earnings.

Specific provisions exist to provide relief from Capital Gains tax through reinvestment.

•      Residential Property (Section 82): If an individual or HUF sells a residential house and invests the long-term capital gains in purchasing or constructing a new residential house in India, the gain is exempt up to the cost of the new asset. This is subject to a Rs. 10 crore cap on the amount of exemption. Where the capital gains do not exceed Rs. 2 crore, the taxpayer may opt to invest in two residential houses, a benefit that can be exercised only once.

•      Agricultural Land (Section 83): Gains from the transfer of land used for agricultural purposes are not charged if the proceeds are used to purchase other agricultural land within two years.

•      Compulsory Acquisition (Section 84): Relief is available when capital gains arise from the compulsory acquisition of land or buildings belonging to an industrial undertaking, provided the amount is reinvested in shifting or setting up a new undertaking.

•      Investment in Bonds (Section 85): Long-term capital gains from land or buildings are exempt if invested in specified bonds issued by the NHAI or Rural Electrification Corporation Limited within six months, up to a limit of Rs. 50 lakh.

To support taxpayers with disabilities, Section 154 provides a flat deduction from total income. A person with a disability is entitled to a deduction of Rs. 75,000, while those with a severe disability can claim Rs. 1,25,000. This deduction requires a valid certificate from a prescribed medical authority, such as a Neurologist or a Civil Surgeon.

For businesses engaged in international transactions, the Safe Harbour Rules (Rules 87–91) provide a simplified method for determining the arm’s length price, thereby reducing litigation and providing certainty. Eligible transactions include software development services, knowledge process outsourcing, and manufacture of auto components. Furthermore, Section 168 allows the Board to enter into Advance Pricing Agreements (APAs) with taxpayers to pre-determine the transfer price for a period of up to five years, providing significant relief from complex audit procedures.

Companies paying Minimum Alternate Tax under Section 206 are entitled to tax credits. This credit represents the excess of MAT paid over the regular tax payable and can be carried forward and set off for up to fifteen tax years. Rule 118 provides further relief in cases where book profits are increased due to past income adjustments.

The Act emphasises efficiency and transparency through the Taxpayer’s Charter, which the Board is mandated to adopt and administer. Furthermore, the introduction of Faceless Jurisdiction under Section 245 aims to eliminate the physical interface between tax authorities and taxpayers, ensuring an impartial and specialised assessment process. For those facing genuine hardship, Section 239 empowers the Board to relax requirements for claiming deductions if the default was due to circumstances beyond the taxpayer’s control.

The Income-tax Act, 2025 and the Income-tax Rules, 2026 offer a multifaceted relief structure that caters to diverse economic needs. From the substantial tax rebates for low and middle-income earners to the sophisticated double taxation and reinvestment reliefs, the new framework seeks to balance revenue collection with taxpayer welfare. By staying informed about these provisions and utilising the prescribed forms and procedures, taxpayers can significantly optimise their tax liabilities while remaining compliant with the law.

The information provided in this article is intended for general informational purposes only and does not constitute professional legal, tax, or financial advice. While Team TaxFlash endeavours to ensure the accuracy and completeness of the information presented, tax laws and regulations are subject to change, and the application of such laws may vary based on individual circumstances.

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This article is based on laws and notifications in force as of the date of publication. Subsequent amendments, circulars, or judicial rulings may alter the position described.

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