What Changes for SMEs in the April 2026 Financial Rules

April 1, 2026 brought more regulatory changes in a single day than most years bring in total. For SME owners and founders, keeping track of every change while running your business is nearly impossible.

This guide distills the 8 major changes into what you actually need to do. No legal jargon, just action items.

If you want a routine for the whole year rather than a one-time checklist, our guide on starting your financial year right covers bookkeeping, deadline management and compliance tracking habits.

Change 1: New Income Tax Act 2025

The Income Tax Act 1961 has been replaced after 65 years. The new Act has fewer sections (536 vs 819), simplified language, and new section numbers for every provision.

What you need to do:

• Confirm your CA is using new section numbers
• Update accounting software for TDS entries
• Verify your regime choice (new regime is now default)

Change 2: ITR Due Date Extensions

The filing deadlines have been permanently revised:

What you need to do:

• Update your compliance calendar with the August 31 deadline
• Do not treat the extra month as an excuse to delay preparation. Start early.
• Remember: tax audit reports should be completed well before the filing deadline

Change 3: HRA Exemption for 8 Cities

The list of metro cities eligible for enhanced HRA exemption (50% of basic salary instead of 40%) has been expanded from 4 to 8 cities:

Old list (4 cities): Delhi, Mumbai, Kolkata, Chennai

New list (8 cities): Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Pune, Hyderabad, Ahmedabad

What you need to do:

• If your business is in one of the 4 new cities and you pay HRA to employees, recalculate HRA exemption at 50% instead of 40%
• Update payroll software to reflect the new metro list
• If you claim HRA as a proprietor, recalculate your own exemption

Change 4: SGB Taxation Changes

Sovereign Gold Bonds (SGBs) have new tax treatment:

• Capital gains on SGB redemption at maturity continue to be exempt
• SGB sold on the exchange before maturity: gains are now taxable as capital gains
• Interest on SGBs (2.5% per annum) remains taxable at slab rate

What you need to do:

• If you hold SGBs, plan your exit strategy considering the new taxation
• If selling before maturity, factor in capital gains tax in your return
• Report SGB interest income in ITR

Change 5: STT Rate Increase

Securities Transaction Tax (STT) on equity delivery has been increased. The new rate affects every stock market investor.

What you need to do:

• No action needed on your part. STT is automatically deducted by your broker.
• The increased STT will be reflected in your contract notes
• Remember that STT paid is not deductible as a business expense (unless you are in the business of trading)

Change 6: TCS Reduction on Foreign Education

Tax Rate Chart

TCS Rates on Foreign Remittances (LRS) : April 2026

Tax Collected at Source applicable on outward remittances under the Liberalized Remittance Scheme

Education via Loan

Education remittances funded by an education loan

0.5%

Other Education (above Rs. 7 lakh)

Education remittances not funded by a loan, above Rs. 7 lakh

5%

Non-Education LRS (above Rs. 7 lakh)

All other LRS remittances above Rs. 7 lakh : unchanged

20%

Source: Finance Act 2025 : LRS TCS provisions; Income Tax Act 2025

Tax Collected at Source (TCS) on foreign remittances under the Liberalized Remittance Scheme (LRS) has been rationalized:

• Remittances for education funded by education loans: 0.5% TCS (reduced from higher rates)
• Other education remittances above Rs 7 lakh: 5% TCS
• Non-education LRS remittances above Rs 7 lakh: 20% TCS (unchanged)

What you need to do:

• If you are sending money abroad for education (personal or for employees/family), check the applicable TCS rate
• TCS paid can be claimed as credit in your ITR

Change 7: Digital Payment 2FA Mandate

All digital payments above a specified threshold now require two-factor authentication (2FA). This affects UPI, net banking, debit card, and credit card transactions.

What you need to do:

• Ensure your business bank accounts have 2FA enabled
• If you accept digital payments from customers, verify your payment gateway supports 2FA
• Train staff on the new authentication requirements for high-value transactions
• This may slightly increase payment processing time for large B2B transactions

Change 8: FASTag Fee Revision

FASTag charges at toll plazas have been revised. For businesses with logistics and transport operations, this directly affects transportation costs.

What you need to do:

• Update your logistics cost estimates for FY 2026-27
• Ensure all company vehicles have valid, recharged FASTags
• Factor revised toll costs into pricing and quotation calculations

Master Compliance Checklist

Week 1 (April 1-7)

• Verify accounting software is updated for new Income Tax Act sections
• Confirm CA is aware of all 8 changes
• Reset GST document series for FY 2026-27
• File LUT for FY 2026-27 (if exporter)

Month 1 (April)

• Update payroll for HRA metro city changes (if applicable)
• Review SGB holdings and exit strategy
• Update logistics cost estimates for revised FASTag charges
• Ensure digital payment 2FA is active on all business accounts

Before Filing (By August 2026)

• Download and verify AIS from e-filing portal
• Collect Form 130 from employer (if applicable)
• Calculate tax under both old and new regimes
• Get tax audit completed (ITR 3 filers)
• File ITR before August 31

The Cost of Ignoring These Changes

Each change has compliance consequences if ignored:

Let Tax Garden Keep You Compliant

Tracking 8 simultaneous regulatory changes while running your business is exactly what compliance services exist for. Tax Garden's tax and compliance plans cover every change listed here, from updated filings to payroll adjustments.

Frequently Asked Questions

Does the Income-tax Act, 2025 apply to the return I file in 2026?

No. The return filed in 2026 is for AY 2026-27, covering income earned from 1 April 2025 to 31 March 2026, and it is governed by the Income-tax Act, 1961. The 2025 Act and the Income-tax Rules, 2026 apply to income earned from 1 April 2026, called Tax Year 2026-27, so SMEs will first file returns under the new Act in 2027.

What are the ITR due dates for SME owners for AY 2026-27?

Proprietors and partners filing ITR-3 or ITR-4 without a tax audit had until 31 August 2026. Businesses requiring a tax audit must file the audit report by 21 October 2026 and the return by 21 November 2026 (both extended by CBDT Circular 07/2026 dated 28 September 2026 from 30 September and 31 October), while transfer pricing cases have until 30 November 2026. A belated return can be filed until 31 December 2026 with a late fee of up to Rs 5,000.

What changes in TDS compliance for SMEs from April 2026?

From Tax Year 2026-27, the separate TDS sections of the old Act, such as 194C, 194J and 194-I, are consolidated into Section 393 of the Income-tax Act, 2025, with payment types identified by codes in a table. Deduction rates and most thresholds carry over, but accounting and payroll software, vendor master data and TDS return mapping must use the new references for deductions made from 1 April 2026.

Do exporters need to file a fresh LUT for FY 2026-27?

Yes. A Letter of Undertaking for zero-rated exports or SEZ supplies without paying IGST is valid only for the financial year for which it is filed. Exporters should file a fresh LUT in Form GST RFD-11 on the GST portal for FY 2026-27, ideally before the first export invoice of the year, to avoid having to pay IGST and claim a refund later.

Is the new tax regime automatically applied to proprietors from April 2026?

The new regime under Section 115BAC has been the default since AY 2024-25, so it applies unless you opt out. Individuals with business or professional income must file Form 10-IEA by the due date of the return to choose the old regime, and they can switch back to the old regime only once in their lifetime after leaving it. Salaried individuals without business income can choose each year in the return.