The last twelve months have brought the biggest set of finance and compliance changes Indian businesses have seen in years: a new income-tax law, a reworked GST rate structure, four new labour codes and India’s first full data-protection rules. None of them is optional, and several affect your cash flow, payroll costs and pricing, not just your paperwork.
Here are the five changes every SME and startup should act on in 2026, what each one means, and what to do next.
1. The Income-tax Act, 2025 is now in force
What changed: The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. Most reporting on the new law says core tax rates and slabs are broadly unchanged; the main change is structure and process. It introduces a single “tax year” in place of the old previous-year / assessment-year system, and section numbers have been reorganised, including the TDS provisions.
Watch out for: Income for FY 2025-26 (assessment year 2026-27) is still governed by the 1961 Act, so this year you will be dealing with both laws. Reporting also notes changes to some TCS rates and new payment codes for TDS deposits.
What to do: Make sure your accounting and TDS software, invoice templates and internal checklists use the new section references and codes. Update any agreements and policies that quote old section numbers, and check every TCS rate that applies to what you sell.
2. GST 2.0: two main slabs, new cash-flow effects
What changed: From 22 September 2025, GST moved from four main slabs to two main rates, 5% and 18%, with a 40% rate for luxury and sin goods. The 12% and 28% slabs were largely removed. The government’s stated aim is simpler compliance and lower costs on many everyday goods and business inputs.
Watch out for: Items that moved up from 12% to 18% raise your output tax and the price customers pay, even when input tax credit keeps the net position neutral. Where your inputs now carry a higher rate than your outputs, you may face an inverted duty structure, with credit piling up and refunds tying up cash.
What to do: Check the HSN codes and rates on every product and service against the current GST notifications. Review your pricing and contracts, and model the effect on working capital, especially if you may have an inverted duty structure.
3. The four Labour Codes and the 50% wage rule
What changed: The Code on Wages, the Industrial Relations Code, the Code on Social Security and the Occupational Safety, Health and Working Conditions Code took effect on 21 November 2025, replacing 29 older central labour laws. The headline payroll change is the uniform definition of “wages”: basic pay plus dearness allowance (and retaining allowance) should make up at least 50% of total remuneration. If allowances exceed half, the excess is added back to wages for statutory calculations.
Watch out for: Because PF, gratuity and other statutory benefits are calculated on wages, a salary structure with low basic pay and high allowances will now cost more and may reduce employees’ take-home pay. Several states are still finalising their own rules, so local requirements can differ.
What to do: Re-check every salary structure against the 50% rule, re-budget your statutory costs, update your offer-letter templates and keep track of the rules in each state where you employ people. Our payroll and employee compliance team can run this review for you.
4. Paying MSME suppliers late still costs you tax
What changed: The rule known as section 43B(h), which defers your tax deduction for amounts owed to micro and small enterprise suppliers until you actually pay them, carries over into the new Act. Published commentary places it at section 37(2)(g) of the Income-tax Act, 2025. The payment limits come from the MSMED Act: 45 days where there is a written agreement, and 15 days where there isn’t.
What to do: Tag every supplier’s MSME status in your accounts, put written payment terms in place, and track ageing against the 15- and 45-day limits. Late payments can increase your taxable profit for the year and create a cash and tax surprise at year-end.
5. Data protection: the DPDP Rules clock is running
What changed: The Digital Personal Data Protection Rules were notified in November 2025 and are being phased in. Most of the substantive obligations take effect around May 2027, 18 months after notification. They include clear consent and privacy notices, handling individuals’ rights requests, and reporting personal data breaches. Reported penalties run up to ₹250 crore, and there is no exemption based on company size.
What to do: Start now. List the personal data you collect (customers, employees, vendors), where you store it and who has access. Then update your consent forms, privacy notice and vendor contracts. Finance and HR data is often the most sensitive data a business holds.
Your 2026 action checklist
- ☐ Accounting and TDS systems updated for the Income-tax Act, 2025 sections and codes
- ☐ GST rates and HSN codes checked on every product and service; pricing reviewed
- ☐ Inverted duty and input tax credit position modelled for cash flow
- ☐ Salary structures checked against the 50% wage rule; statutory costs re-budgeted
- ☐ MSME suppliers tagged, with payments tracked against the 15- and 45-day limits
- ☐ Personal data mapped, and a DPDP compliance plan started ahead of May 2027
How CFO Edge can help
Keeping up with this much change alongside running a business is hard. CFO Edge’s statutory and regulatory compliance, accounting and bookkeeping and virtual CFO services help SMEs and startups put these changes in place correctly. We also plan for what they mean for your cash flow, costs and growth. If you are deciding how much finance support you need, read our guide on virtual CFO vs full-time CFO.
Want a quick review of where your business stands? Request a callback or call +91 94455 89860.
Sources
- Press Information Bureau, Government of India: The Income Tax Act, 2025 to come into effect from 1st April, 2026
- Press Information Bureau: GST Reforms 2025
- Cyril Amarchand Mangaldas: A Guide to the New Labour Codes (December 2025)
- Littler: India’s Labor Law Overhaul: Snapshot of Key Changes
- Tally Solutions: Section 43B(h) MSME payment rules
- TCSA: DPDP Rules 2025: Compliance roadmap and deadlines
This article is general information based on government releases and published professional commentary available in October 2026. It is not tax or legal advice. Rules, state notifications and deadlines can change, so confirm the details for your business with a qualified professional before acting.