The Income Tax Act, 2025 takes effect from 1 April 2026, replacing the Income-tax Act, 1961 that has governed Indian taxation for over sixty years. For salaried employees the arithmetic mostly survives intact. For payroll teams, almost every section reference in your templates, payslips and declaration forms is now wrong.
The headline: renumbering, not rewriting
The most disruptive change for day-to-day payroll work is not a rate change - it is that familiar section numbers have moved. The underlying entitlements are largely preserved.
Section 80C becomes Section 123. The Rs. 1,50,000 investment basket survives, now with Section 80CCC (pension policies) folded into it rather than sitting alongside.
Section 80CCD(2) becomes Section 124. Your employer's NPS contribution remains deductible under both regimes.
Section 80D becomes Section 126. Health insurance premiums, same caps.
Section 16(iii) becomes Section 19. Professional tax, still deductible from salary income, still old regime only.
Section 87A becomes Section 156. The rebate.
Section 115BAC becomes Section 202. The provision that sets out the regime structure.
Section 10 exemptions move to Schedule II. HRA, Leave Travel Allowance, children's education and hostel allowances and the rest now live in a schedule rather than scattered through one long section.
What has not changed
The slab rates for 2026-27 are unchanged from the position announced for the preceding year. Standard Deduction remains Rs. 50,000 under the old regime and Rs. 75,000 under the new. The 4% Health and Education Cess applies as before. Surcharge bands and marginal relief are carried across intact, with the new regime still capped at 25% against the old regime's 37%.
The new regime remains the default. An employee who makes no declaration is taxed under it.
What payroll teams need to update
Investment declaration forms. Every form that says "80C" needs to say "Section 123". Employees will still recognise the old number for a year or two, so the practical approach is to print both - "Section 123 (formerly 80C)" - rather than switching cold.
Payslip line items. Where your payslip names a section against a deduction, those labels need revising.
Proof submission checklists. Same problem, same fix.
Your tax computation sheets. If you maintain Excel-based computations, the formulas will still work - the arithmetic has not moved - but the labels and any cell comments referencing sections will mislead whoever inherits the file.
Communication to employees. This is the one most often skipped. An employee who reads "Section 123" on a declaration form and has never heard of it will assume an error and raise a ticket. A one-paragraph note in the annual declaration email prevents a lot of those.
The traps worth watching
Old references in ongoing correspondence. Appointment letters, CTC breakups and policy documents issued before April 2026 quote the old sections. They are not invalidated, but they no longer match the forms employees are filling in.
Third-party integrations. Any payroll system, HRMS or investment-proof portal that hardcodes section labels will need a vendor update. Worth asking for a timeline before the declaration window opens rather than during it.
Employees who file their own returns. The ITR utilities and the e-filing portal now offer a choice between the 1961 and 2025 Acts depending on the year being filed. Someone filing a revised return for an earlier year is still on the old numbering, which is a genuine source of confusion.
What this does not change
If you were expecting the new Act to simplify the substance of salary taxation, it largely does not. HRA still requires the three-way least-of test. The Section 123 basket still has the same crowded list of eligible investments competing for one Rs. 1,50,000 cap. Surcharge marginal relief is still a step-function calculation that trips up spreadsheets.
The Act is a consolidation and renumbering exercise. That is genuinely useful - the 1961 Act had accumulated decades of amendments, provisos and inserted sub-sections - but it is not a rate reform.
Working out where you stand
If you want to see the new section numbering applied to your own salary, our Tax Regime Calculator labels every deduction with both the 2025 Act section and its 1961 equivalent, and computes old against new regime for Tax Year 2026-27.
For anything beyond a straightforward salaried computation, take advice from a chartered accountant. Renumbering exercises tend to surface edge cases in the first year, and a general guide cannot anticipate how a specific provision applies to your circumstances.