Recap of the income tax rules effective 1 April 2023 — new regime default, Section 87A rebate, debt MF taxation and how they apply in FY 2026-27.
The income tax landscape changed materially from 1 April 2023, when the Finance Act 2023 made the new tax regime the default and rewrote rebate, surcharge and standard deduction rules. Three years later, in FY 2026-27, those 2023 rules are still the structural backbone, even as Finance Act 2026 has refined slabs and surcharge further. This guide refreshes the 1 April 2023 changes and shows how they apply today.
New Tax Regime as the Default
Effective 1 April 2023, the new tax regime under Section 115BAC became the default for individuals, HUFs, AOPs, BOIs and artificial juridical persons. Taxpayers can still opt for the old regime, but it must be an active choice — communicated to the employer for TDS purposes and confirmed in the income tax return. By FY 2026-27, this default treatment is mature and reflected in pre-filled ITRs.
Key Rule Changes from 1 April 2023
- Standard deduction of ₹50,000 extended to the new regime (subsequently raised to ₹75,000)
- Rebate under Section 87A enhanced to ₹25,000 for income up to ₹7 lakh under the new regime
- Surcharge capped at 25 percent for high-income earners under the new regime
- Revised slab structure under Section 115BAC
- Leave encashment exemption limit for non-government employees raised to ₹25 lakh
- Taxation of life insurance proceeds where annual premium exceeds ₹5 lakh
Capital Gains and Other Changes
The 2023 amendments also changed taxation of market-linked debentures, debt mutual funds purchased on or after 1 April 2023, and gifts received by not-ordinarily-residents. Debt mutual funds without indexation became taxable at slab rates for purchases from that date. Finance Act 2026 has further harmonised long-term and short-term capital gains rules, but the 1 April 2023 cut-off remains relevant for holdings acquired in that window.
What Continues Today and What Has Changed Again
In FY 2026-27, the structural defaults from 1 April 2023 — new regime, ₹7 lakh rebate threshold, capped surcharge — continue. However, Finance Act 2026 has expanded the standard deduction to ₹75,000, refined slab boundaries, and updated TDS thresholds across Sections 194A, 194I and 194-IB. Always verify the prevailing thresholds on the CBDT website before acting on legacy 2023 references.
Practical Steps for Taxpayers in 2026
- Confirm regime choice each year with employer through Form 12BB
- Review investments — particularly debt MFs and high-premium life insurance — against the 2023 cut-off
- Use the new regime as the starting point and switch only if old-regime savings are clearly higher
- Maintain proofs for HRA, home loan interest and Chapter VI-A claims if using the old regime
- Reconcile AIS, TIS and Form 26AS before filing ITR for AY 2027-28
Surcharge Rationalisation Under the New Regime
From 1 April 2023, the highest surcharge rate of 37 percent under the old regime was reduced to 25 percent under the new regime for income above ₹5 crore. This brought the effective top marginal tax rate from approximately 42.7 percent down to approximately 39 percent for high-income individuals choosing the new regime. Finance Act 2026 has retained this advantage, making the new regime particularly attractive for HNIs with limited eligible deductions.
Life Insurance and ULIP Changes
From 1 April 2023, maturity proceeds of non-ULIP life insurance policies (other than ULIPs already covered earlier and term policies on death) are taxable where the aggregate annual premium across all such policies exceeds ₹5 lakh, except in case of death. This rule was aimed at curbing the use of high-premium life insurance as a tax-arbitrage vehicle. Investors must track aggregate premium across policies issued on or after 1 April 2023 and plan future investments accordingly.
Practical Planning for FY 2026-27 Investors
If you invested in debt mutual funds in February or March 2023 to lock in indexation benefit, those units continue to enjoy the older tax framework subject to prevailing Finance Act provisions. Units bought after 1 April 2023 will be taxed at slab rates on redemption, irrespective of holding period. For long-term wealth planning in 2026, consider tax-efficient alternatives like target-maturity funds with the right holding strategy, equity-oriented hybrid funds, sovereign gold bonds and direct equity within the new regime. Always run a side-by-side scenario before committing capital.
Conclusion
The 1 April 2023 income tax rules reset India's personal tax architecture around the new regime as the default. In FY 2026-27, those rules are still the foundation, layered with Finance Act 2026 enhancements. Understand which legacy provisions apply to your investments and incomes, choose your regime consciously, and document your choice clearly to keep filings clean.
