The Union Budget 2026-27 introduces wide-ranging reforms in India's income tax system. The government's approach focuses on simplifying tax laws, reducing compliance pressure, and creating a more transparent and stable framework for taxpayers. A major highlight of this budget is the introduction of a new income tax law along with several relief measures for individuals, businesses, and investors.
Below is a fresh and easy-to-understand overview of the key income tax proposals announced in the Budget.
1. New Income Tax Law from April 2026
A significant change announced in Budget 2026-27 is the replacement of the long-standing Income Tax Act, 1961.
- A new law, called the Income Tax Act, 2025, will be implemented from 1 April 2026.
- Tax rules and return filing formats will be simplified to make compliance easier for individual taxpayers.
- The government has confirmed that sufficient transition time will be provided to help taxpayers adjust to the new system.
2. Relief Measures for Individual Taxpayers
The budget includes several proposals aimed at reducing tax burden and easing compliance for individuals.
MACT Interest Exemption: Interest received on compensation awarded by the Motor Accident Claims Tribunal will be completely exempt from income tax. No TDS will be applicable.
Lower TCS on Specific Payments :
- Overseas travel packages will attract 2% TCS .
- Payments for education and medical treatment under the Liberalised Remittance Scheme will also attract 2% TCS , reduced from the earlier rate.
Simplified NRI Property Transactions: Resident buyers purchasing property from non-residents will no longer be required to obtain a TAN. TDS can be paid using a PAN-based challan.
Extended Return Filing Window: Taxpayers can now file revised or belated returns up to 31 March , subject to a nominal fee.
3. FAST-DS 2026: Disclosure of Foreign Assets
To address cases of missed reporting of overseas assets, the government has introduced a one-time disclosure scheme.
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FAST-DS (Foreign Assets of Small Taxpayers - Disclosure Scheme), 2026 provides a limited opportunity to declare foreign income or assets.
Category A
- Applies where foreign income or assets were not disclosed earlier
- Maximum limit: Rs 1 crore
- Payment required: 30% tax plus 30% additional tax
- Protection from prosecution provided
Category B
- Applies where income was reported but the foreign asset was not declared
- Asset value limit: Rs 5 crore
- Payment of a fixed Rs 1 lakh fee
- Immunity from penalty and prosecution
4. Changes in Penalty and Prosecution Rules
The budget proposes major reforms to reduce litigation and improve taxpayer confidence.
- Tax assessment and penalty proceedings will be combined into a single order .
- The required pre-deposit for filing appeals has been reduced from 20% to 10% of tax demand.
- Minor technical defaults, such as non-submission of documents, will no longer lead to criminal prosecution and will instead attract monetary penalties.
All Budget 2026 highlights at one place: Click here
5. Incentives for the IT and Digital Services Sector
The technology sector receives focused support through structural tax reforms.
- All IT, IT-enabled services, KPO, and software-related R&D activities will fall under one category called Information Technology Services.
- The Safe Harbour margin has been fixed at 15.5% , and the eligibility threshold has been raised significantly to Rs 2,000 crore.
- Foreign companies using Indian data centres to provide global cloud services will be eligible for a tax holiday up to the year 2047.
6. Corporate Tax and Capital Market Reforms
Several changes have been proposed to align corporate taxation with market practices.
Share Buybacks: Gains from buybacks will now be taxed as capital gains.
- Corporate promoters: 22% effective tax
- Non-corporate promoters: 30% effective tax
MAT Reduction: The Minimum Alternate Tax rate has been lowered from 15% to 14% .
STT Revision :
- Futures transactions will attract 0.05% STT
- Options transactions will attract 0.15% STT
7. Social and Welfare-Focused Tax Exemptions
The budget also introduces tax relief measures linked to social welfare.
- Armed Forces Disability Pension: Fully exempt from income tax.
- Land Acquisition Compensation: Amounts received under the RFCTLARR Act, 2013 will be tax-free for individuals and Hindu Undivided Families (HUFs).
Final Takeaway
The income tax proposals in the Union Budget 2026-27 signal a shift toward a more trust-based and taxpayer-friendly system. By introducing a new tax law, simplifying procedures, reducing penalties, and encouraging voluntary compliance, the government aims to create long-term stability in India's tax framework. These reforms are expected to benefit individual taxpayers, businesses, and global investors alike.
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