Also Read | Bank Alert: 3-Day Shutdown Expected in Late January 2026

1. Zero Tax for Income up to ₹12.75 Lakh

Under the New Tax Regime, the tax-free threshold has seen a massive jump due to the enhanced rebate under Section 87A.

• Tax-Free Limit: The income limit for full tax rebate has been increased to ₹12 Lakh.

• Standard Deduction: For salaried employees, the standard deduction has been raised to ₹75,000 (up from ₹50,000).

• The Result: If your total salary is ₹12,75,000 or less, your net tax liability will be Zero.

Also Read | Bank Alert: 3-Day Shutdown Expected in Late January 2026

2. Relief for Senior Citizens: TDS Limit Doubled

To help retirees manage their cash flow better, the government has significantly increased the threshold for Tax Deducted at Source (TDS) on interest income.

• New Threshold: Banks will now only deduct TDS if a senior citizen’s total interest income (from FDs, RDs, etc.) exceeds ₹1,00,000 in a year (up from ₹50,000).

• For General Citizens: The threshold has also been marginally increased from ₹40,000 to ₹50,000.

Also Read | Bank Alert: 3-Day Shutdown Expected in Late January 2026

3. Investor Friendly: Higher Dividend TDS Limits

Small investors in the stock market or mutual funds will now receive more of their earnings upfront without tax cuts at the source.

• Dividend TDS: The limit for deducting tax on dividend income has been increased from ₹5,000 to ₹10,000.

• Impact: If your annual dividend from a single company or mutual fund house is under ₹10,000, you will receive the full amount without a 10% TDS deduction.

4. Clarity on ULIP Taxation

Unit Linked Insurance Plans (ULIPs) now have a clearer taxation roadmap.

• High-Premium ULIPs: For policies with an annual premium exceeding ₹2.5 Lakh, the maturity proceeds (profits) are no longer taxed as regular income.

• Capital Gains: Instead, they are now treated as Capital Gains, bringing them in line with the tax treatment of Mutual Funds.

Also Read | Bank Alert: 3-Day Shutdown Expected in Late January 2026

5. Extended Window to Correct Errors

The “Updated ITR” (ITR-U) facility has become more flexible, allowing taxpayers to fix past mistakes without the immediate fear of heavy litigation.

• Time Limit: Taxpayers now have a 4-year window (increased from 2 years) to file an updated return to correct omissions or errors.

• Benefit: This provides a longer “peace of mind” window to ensure compliance and avoid penalties from mismatch notices.

Revised New Tax Regime Slabs (FY 2025–26)

If your income exceeds the ₹12 Lakh rebate threshold, the following slabs apply:

Also Read | Bank Alert: 3-Day Shutdown Expected in Late January 2026

The post 5 Major Income Tax Changes Shaping Your 2026 Finances first appeared on Rightsofemployees.com.