Income Tax proposals in the budget for 2026 at a glance

Income tax proposals in the budget for 2026 at a glance:

The Finance Minister, Smt. Nirmala Sitharaman has presented the Union Budget 2026, announcing a series of measures to strengthen tax administration, improve compliance flexibility, and support strategic sectors. New Income-tax Act, 2025: The new Income Tax Act will come into force from 1 April 2026. Focus on simpler language, cleaner structure, and reduced litigation, and have tax return forms and filing systems redesigned. Following are the Income-Tax Slabs – FY 2026-27 (AY 2027-28): Default New Tax Regime (Unchanged)

Total Income	Tax Rate
Up to INR 4,00,000	Nil
INR 4,00,001 – INR 8,00,000	5%
INR 8,00,001 – INR 12,00,000	10%
INR 12,00,001 – INR 16,00,000	15%
INR 16,00,001 – INR 20,00,000	20%
INR 20,00,001 – INR 24,00,000	25%
Above INR 24,00,000	30%

No age-based slabs. Same for everyone. Same as last year.

The REAL tax relief Section 87A Rebate – Increased to INR 12,00,000

• Tax payable becomes ZERO if taxable income ≤ INR 12 lakh
• For salaried taxpayers, add Standard Deduction = INR 75,000
• Effective tax-free salary income = INR 12.75 lakh

• For the salaried class: Zero tax up to INR 12.75 lakh, and the new regime is the default choice.
• For professionals & businesses, ITR extended deadlines and fewer penalties simplify accounting (ICDS separation removed).
• The objective of these change is less litigation, less interpretation, more automation

This single change makes the new regime the default winner for most middle-class salaried employees. New Income-tax Act, 2025 (Effective 1 April 2026) : This is bigger than slab changes. Structural Reforms Replaces the 1961 Act, has 50% fewer sections, a single “tax year” concept, and plain-language law also simplified ITR forms (coming soon).

Old Tax Regime—Still Alive

Income	Rate
Up to INR 2.5 lakh	Nil
INR 2.5 – INR 5 lakh	5%
INR 5 – INR 10 lakh	20%
Above INR 10 lakh	30%

The rebate ceiling is much lower . Works only if you have heavy deductions (home loan + HRA + 80C + 80D etc.). For most taxpayers earning INR 8–15 lakh, the new regime wins hands down.

TCS Rationalization Cash-flow relief

Transaction	Old	New
Overseas tour packages	5% / 20%	2% flat
LRS – Education & Medical	5%	2%
Threshold	Yes	No threshold

• Reduces blockage of funds and refund dependency. passive relief for professionals and taxpayers who miss errors late. Simplified procedures for Form 15G and 15H and lower or nil TDS certificates.
• Section 115BBE tax on unexplained income under sections 68 to 69D reduced from 60 percent to 30 percent

Business Deductions

• Employees’ contribution to PF and ESI allowable if deposited up to due date of filing return
• Long-standing disallowance controversy resolved prospectively

Assessment, Limitation and Jurisdiction

Section 144C Amendment

• Retrospective exclusion of time spent in draft assessment and DRP proceedings for computing limitation under section 153
• Judicial rulings such as Rocca Bathroom legislatively neutralised
• Time-barred assessments revived

Reassessment Jurisdiction

• New section 147A inserted retrospectively
• Notifications under section 151A overridden
• JAO versus FAO controversy settled in favour of revenue.

ITR Due Dates—Important Compliance Relief

Category	Due Date
ITR-1 / ITR-2 (Individuals)	31 July
Non-audit Business & Trusts	31 August
Revised Return u/s 139(5)	31 March (earlier 31 Dec)

PAN-Based TDS for NRI Property, Which Is GAME CHANGER

Earlier, pain was caused by the mandatory TAN, and one-time buyers struggled badly. Now, no TAN is required & there is a PAN-based challan, which is a simpler TDS deposit and huge compliance relief. PAN-based TDS compliance for NRI property transactions and TAN requirement removed This is one of the most taxpayer-friendly changes in years.

Foreign Income and Assets: One-Time Foreign Asset Disclosure Scheme

6-month window for the Foreign Asset Disclosure Scheme, and this scheme is for small taxpayers, students, and NRIs covered, with a penalty-free threshold. Immunity even with retrospective effect from 1-10-2024. A voluntary disclosure scheme for undisclosed foreign income and assets was introduced. Structured tax cost with enhanced penalties outside the scheme. Disclosure is permitted even after reassessment at higher cost. This will significantly reduce Black Money Act litigation.

Appeals, Penalties and Prosecution

• The pre-deposit for stay of demand reduced to 10 percent
• Tax audit and transfer pricing penalties converted into fixed fees
• Prosecution removed for procedural defaults
• Maximum imprisonment capped at two years

Penalties → Fees → Immunity

• Audit failure → Fee instead of penalty
• Non-production of books → Decriminalised
• Expanded immunity even for misreporting
• Honest taxpayers can settle disputes by paying an extra amount. Clear shift from punitive → facilitative tax administration
• Penal intensity diluted while anti-abuse framework retained

Corporate Tax

• MAT not applicable to companies opting for the new corporate tax regime
• Corporate tax governed solely by normal computation provisions
• Legacy MAT credit preserved with restricted utilisation

Investment and Capital Markets

• The tax holiday for data centers is extended till 2047.
• The safe harbor margin for transfer pricing fixed at 15 percent
• Buyback taxation for minority shareholders aligned with capital gains
• Securities Transaction Tax on options increased

Proposed amendment of buyback provisions in the budget

What Finance Bill, 2026 proposes: Key consequences of the shift

• Buy-back consideration received by shareholders shall now be taxed under the head “Capital Gains.” It will no longer be characterised as dividend income, as is currently characterised from 1st Oct 2024.
• The cost of acquisition becomes relevant: Shareholders can now reduce the buyback price by their cost base, which was irrelevant earlier.

Additional income tax comes via Budget 2026

Additional tax comes into the picture after The Finance Bill 2026 mandates an  “Additional Income Tax” for promoters as below:

• Promoter is a Domestic Company: The effective tax rate is 22% Short-term Capital Gains (STCG):Normal Rate (20%) + Additional Tax (2%) Long-term Capital Gains (LTCG): Normal Rate (12.5%) + Additional Tax (9.5%)
• The promoter is other than a domestic company: the effective tax rate is 30%. STCG: Normal Rate (20%) + Additional Tax (10%). LTCG: Normal Rate (12.5%) + Additional Tax (17.5%).
• Effective Tax Rates for Non-Promoters: For shareholders who are not promoters, the consideration received is taxed as normal capital gains without the “Additional Income Tax” component.
• Treaty relief becomes meaningful: Non-resident shareholders can potentially claim capital gains articles under DTAA, which was largely ineffective under dividend characterisation.
• Definition of promoter: The definition of “promoter” is as defined in SEBI (Buy-Back of Securities) Regulations, 2018, for listed companies and for unlisted Companies, the promoter is defined as per Section 2(69) of the Companies Act, 2013

In Summary Budget 2026, here’s a snapshot of the top 10 changes

Rajput Jain and Associates’ observation is spot on Budget 2026 is not just a fiscal event; it resets India’s direct tax architecture like simplified, modern tax law (effective 2026), Lower litigation & proportionate enforcement, a digitally driven compliance ecosystem, and global competitiveness and investor-friendliness. these India’s direct tax regime is moving decisively toward clarity, predictability, trust and global alignment. However, a few highlights of the budget 2026 are mentioned hereunder:

• Data centre services income exempt till 31 March 2047
• Interest deduction disallowed for dividend & MF income
• Tax exemption for electronics supply to bonded units
• Uniform 2% TCS on liquor, scrap, minerals, LRS & tour packages
• Updated return allowed with 10% additional tax post-notice
• ITR due date extended to 31 August (non-audit cases)
• Revised return window – 9-12 months with fee
• Legacy foreign asset disclosure scheme for small taxpayers
• Loss reduction permitted in updated return
• STT increased on derivative transactions