Key Features of The Finance Bill, 2026

Introduction

On 1st February, 2026 Hon. Finance Minister introduced the Union Budget, 2026. The Finance Bill, 2026 introduces key legislative amendments aimed at simplifying tax provisions, reducing compliance burden, and enhancing clarity in the Income-tax law. The Bill focuses on rationalisation of deductions, streamlining of TDS and reporting requirements, and alignment of special provisions with general taxation principles. It also seeks to promote ease of doing business, improve tax certainty, and minimise litigation through targeted and prospective amendments, effective from Tax Year 2026–27 onwards, unless otherwise specified.

Due Dates for filing the return of Income

The due dates for filing returns of income have been rationalised to provide additional time to certain categories of taxpayers. Under section 263(1)(c) of the Income-tax Act, 2025, the due date for filing return of income in the case of non-audit business assessees and trusts has been extended from 31st July to 31st August.

This change has been introduced with the objective of allowing such taxpayers adequate time to finalise their books of account, complete statutory compliances, and thereby reduce grievances arising from time constraints.

It is clarified that there is no change in the due date for salaried individuals filing returns in Form ITR-1 or ITR-2, which shall continue to be 31st July. The amendments under section 263(1)(c) of the Income-tax Act, 2025 shall come into force with effect from 1st April, 2026 and shall apply for the tax year 2026-27.

Corresponding amendments have also been carried out in the Income-tax Act, 1961 by way of insertion of similar provisions under Explanation 2 to section 139(1). These amendments shall be effective from 1st March, 2026 and shall apply from assessment year 2026-27 (previous year 2025-26). Consequently, for assessment year 2026-27, the due date for filing return of income by non-audit business assessees and trusts under the Income-tax Act, 1961 shall be 31st August 2026.

Relaxation from requirement to obtain tax deduction and collection account number (TAN) in some cases

Section 397(1)(a) of the Income-tax Act mandates that every person responsible for deducting or collecting tax shall apply to the Assessing Officer for allotment of a Tax Deduction and Collection Account Number (TAN).

However, clause (c) of the said sub-section provides specific cases where a person is not required to obtain TAN. At present, where an individual purchases immovable property from a resident seller, the buyer is not required to obtain TAN for deduction of tax at source. In contrast, where the seller of immovable property is a non-resident, the buyer is mandatorily required to obtain TAN for deducting tax at source, even if the transaction is a one-time transaction.

This requirement results in an unnecessary compliance burden on the buyer, particularly resident individuals and Hindu Undivided Families, who are otherwise not regular deductors of tax.

In order to rationalise compliance requirements and reduce procedural hardship, it is proposed to amend section 397(1)(c) of the Act to provide that a resident individual or a Hindu Undivided Family shall not be required to obtain TAN for deducting tax at source in respect of consideration paid on transfer of any immovable property under section 393(2) [Table Sl. No. 17].

Applicability: This amendment shall come into effect from 1st October, 2026.

Rationalisation of Minimum Alternative Tax provisions (MAT)

Existing provisions:

• The existing provisions under section 206 of the Income-tax Act, 2025 (the Act) provide for Minimum Alternate Tax (MAT) which is applicable for companies. This tax is charged on the Book profit of the assessee at the rate of 15% for corporates (other than units located in an International Financial Services Centre). In case the MAT is higher than the income-tax payable on the company's total income computed under normal tax provisions, the assessee pays MAT.
• When a company pays MAT when it is higher than regular tax, the excess amount paid is allowed as a tax credit. This credit can be carried forward up to 15 years and set off in future years where the company's regular tax liability exceeds the MAT liability. The MAT regime is presently in place only for the old tax regime.

Proposed Changes:

• It is proposed that the tax paid under the provisions of MAT be made as final tax in the old regime and no new MAT credit may be allowed.

However, the tax rate of MAT has been reduced to 14% of book profit from the existing 15%.

Further, set-off of MAT credit may be allowed only in the new tax regime for domestic companies to the extent of 25% of the tax liability.

In the case of foreign companies, set off is proposed to be allowed to the extent of the difference between the tax on the total income and the minimum alternate tax, for the tax year in which the normal tax is more than MAT.

• These amendments will allow companies to make a smooth transition from the old tax regime (with deductions and exemptions) to the new tax regime.

Extension of Time Limit for Filing Revised Return

• At present, both belated return and revised return must be filed within 9 months from the end of the relevant tax year.
• Because of this, taxpayers who file a belated return at the last moment do not get any chance to revise their return , even if they later discover an error or omission.
• To address this issue, it is proposed to extend the time limit for filing a revised return from 9 months to 12 months from the end of the relevant tax year.
• This additional time will give taxpayers a fair opportunity to revise their return, especially in cases where the belated return is filed close to the due date.
• A nominal fee under Section 428(b) will be levied if a revised return is filed after 9 months but within the 12-month extended period.
• Applicable from 1st April 2026, for Tax Year 2026–27 and subsequent years.

Updated return in the case of reduction of losses

• Who can file & time limit: Any taxpayer, whether or not a return was filed earlier, can file an updated return within 48 months from the end of the financial year following the relevant tax year.
• Restrictions: Updated return cannot reduce tax liability, increase refund, or be a return of loss.
• Proposed change: Currently, if a taxpayer has already filed a loss return, they cannot reduce the amount of loss in an updated return.
• The proposed amendment allows a taxpayer to file an updated return even if the claimed loss is reduced , provided the original return, belated return and revised return are filed within the specified due date. This change gives taxpayers more flexibility to correct or adjust losses without violating the law.
• Effective Date for IT Act, 2025: The proposed amendments will come into force from 1st April 2026.
• Alignment with IT Act, 1961: Similar amendments will be made in the Income tax Act, 1961 to ensure consistency with the changes in the IT Act, 2025.
• Effective Date for IT Act, 1961: The amendments in the IT Act, 1961 will come into force from 1st March 2026.

Updated Return in Case of Reassessment

• Presently: Taxpayers cannot file an updated return once a reassessment notice under Section 280 has been issued.
• Proposed Change: Taxpayers may be allowed to file an updated return even after reassessment proceedings have started and a notice under Section 280 has been issued.
• Updated return must be filed within the period specified in the notice.
• Once filed, no other return can be submitted in response to the same notice.
• Filing such an updated return requires payment of additional 10% tax on the aggregate of tax and interest.
• Income on which the additional tax is paid will not attract penalties under Section 439.
• The amendment reduces litigation, encourages voluntary compliance, and provides certainty and fairness to taxpayers.

Taxation of buyback of shares

Under the existing provisions of the Act, the consideration received by shareholders on buy-back of shares by a company is treated as dividend income under section 2(40)(f) and taxed accordingly.

At the same time, the cost of acquisition of the shares extinguished pursuant to the buy-back is recognised separately as a capital loss under section 69. This dual treatment has often resulted in inefficiencies and mismatches in the taxation framework applicable to buy-back transactions.

To address this, it is proposed to rationalise the taxation of share buy-backs by taxing the consideration received on buy-back under the head "Capital Gains" instead of treating it as dividend income.

Further, considering the distinct position and significant influence of promoters in corporate decision-making, particularly in relation to buy-back transactions, a differentiated tax treatment has been proposed.

In the case of individual promoters, the effective tax liability on gains arising from buy-back shall be 30 per cent, comprising tax payable at the applicable rates along with an additional tax. In the case of promoter companies that are domestic companies, the effective tax liability on such gains shall be 22 per cent.

Penalty Provision for non-furnishing or inaccurate information in a statement on transaction of crypto-assets

Section 509 of the Income Tax Act, 2025 provide obligation to furnish information on transaction of crypto-asset.

To ensure compliance the provision of Section 509 of the Act and create a deterrence for non-furnishing or furnishing inaccurate statement. Penalty provision is proposed.

• Penalty of Rs. 200/- per day for non-furnishing of statement.
• Penalty of Rs. 50,000/- for furnishing inaccurate particulars and failure to correct such inaccuracy.

Accordingly, it is proposed to amend Section 446 of the Act to provide penalty provisions for non-furnishing or furnishing inaccurate information in the statement.

Increase in Tax Rates of Securities Transaction Tax (STT)

In the latest Finance Bill, 2026 it is proposed to increase the rate of STT on specific options/future securities which are as follows:-

Rationalisation of TCS rates

Exemption for Sovereign Gold Bond

• The provisions of section 70(1)(x) of the Act provide an exemption from capital gains tax in respect of income arising from redemption of Sovereign Gold Bonds issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015. Sovereign Gold Bonds have been issued by the Reserve Bank of India on a recurring basis through multiple series notified from time to time, each constituting a separate issuance.
• In order to ensure uniform application of the exemption across all such issuances and to align the provision with its intended scope, it is proposed to amend section 70(1)(x) to provide that the exemption shall be available only where the Sovereign Gold Bond is subscribed to by a subscriber at the time of original issue and is held continuously until redemption on maturity, for all Sovereign Gold Bonds issued by the Reserve Bank of India from time to time.

Taxability is as under

Timeline for Depositing Employee Contributions Regulatory Focused

Section 29(1)(e) of the Income-tax Act, 2025 permits deduction of employees' contributions to approved provident fund, superannuation fund or any fund set up under the ESI Act, where such contributions are received by the employer and credited to the respective employees' accounts within the prescribed "due date".

Under the existing provisions, the term "due date" refers to the timelines specified under the respective welfare fund laws, which generally require both employer's and employee's contributions to be deposited within 15 days from the end of the calendar month in which wages are paid.

The Finance Bill, 2026 proposes to rationalise this position by allowing deduction of employees' contributions if the amount is credited to the relevant fund on or before the due date for filing the return of income under section 263(1) of the Income-tax Act, 2025, as applicable to the employer.

This amendment seeks to align the tax treatment of employees' contributions with that of employer's contributions, which are already allowed as a deduction if paid up to the return filing due date. The proposal also recognises that the relevant provident fund and ESI laws do not distinguish between employer and employee contributions for payment timelines and that adequate enforcement and compliance mechanisms already exist under those laws to ensure timely deposit by employers.

Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026 (FAST-DS 2026)

In the past, the Government had provided a one-time compliance opportunity between 1 July 2015 and 30 September 2015, allowing taxpayers to voluntarily disclose undisclosed foreign assets acquired up to 31 March 2015 upon payment of tax and penalty. Despite this measure, instances of non-compliance continue to persist, particularly among small taxpayers who may hold legacy foreign assets or have inadvertently failed to disclose foreign-sourced income due to lack of awareness or complexity of reporting requirements.

To address this gap and promote voluntary compliance, the Finance Bill, 2026 proposes the introduction of the Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026 (FAST-DS 2026) . The scheme provides a time-bound window for eligible small taxpayers to declare undisclosed foreign assets and foreign-sourced income on payment of the prescribed tax or fee. In order to encourage participation, the scheme offers limited immunity from penalty and prosecution; however, such immunity will not be available in cases where prosecution proceedings have already been initiated or where the assets represent proceeds of crime. The proposed scheme seeks to balance enforcement with fairness by enabling clean disclosure while safeguarding the integrity of the tax system.

Amendment to Sections 49 & 50 of the Black Money Act

1. Relief from Prosecution for Small-Value Non-Disclosures

Sections 49 and 50 of the Black Money (Undisclosed Foreign Income and Assets) Act presently prescribe stringent prosecution provisions, including rigorous imprisonment and monetary penalties, for wilful non-disclosure of foreign income or assets. The proposed amendment introduces relief in cases of minor or inadvertent non-disclosures by small taxpayers

2. Threshold-Based Protection for Foreign Assets

Under the proposed change, foreign assets other than immovable property, having an aggregate value of up to ₹20 lakh, will be kept outside the ambit of prosecution. Consequently, such small-value cases will not attract the harsh penal consequences envisaged under the existing provisions.

3. Retrospective Applicability

The amendments are proposed to take effect retrospectively from 1 October 2024, thereby providing relief in pending and past cases involving small-value foreign assets and aligning the enforcement framework with principles of proportionality and fairness.

Increase in Maximum Penalty under Section 466

• Section 254 empowers the income-tax authorities to collect information from business or professional premises by requiring the proprietor, employees, or any person present to furnish relevant details.
• Under the existing provisions of Section 466, a penalty of up to Rs. 1,000 is leviable for failure to comply with such information requirements.
• The proposed amendment enhances the maximum penalty from Rs. 1,000 to Rs. 25,000 .
• This increase is aimed at strengthening enforcement, ensuring timely compliance, and promoting greater accountability in furnishing accurate and complete information to the tax authorities.

Widening Scope of Deduction for Cooperative Societies

Under Section 149(2)(b), primary cooperative societies engaged in supplying milk, oilseeds, fruits, or vegetables grown by their members are presently allowed a full deduction of profits, where such produce is supplied to a federal cooperative, the Government, a local authority, or a Government-owned entity engaged in the same business.

In addition to core agricultural produce, members of primary cooperative societies commonly undertake allied activities such as supplying cattle feed and cotton seeds. However, profits from these activities were not specifically covered under the existing provision, leading to interpretational issues and denial of deductions.

To remove this anomaly, the Finance Bill proposes to extend the scope of Section 149(2)(b) to include profits and gains arising from the supply of cattle feed and cotton seeds. This amendment broadens the deduction to cover allied agricultural activities and provides additional tax relief to cooperative societies.

The change will be effective from 1st April 2026 and applicable from Tax Year 2026–27 onwards.

Tax Exemption for Foreign Companies Procuring Data Centre Services in India

• To encourage foreign investment and promote the growth of India's AI-driven data centre ecosystem, it is proposed to amend Schedule IV of the Act.
• The amendment provides tax exemption to a foreign company in respect of income accruing or deemed to accrue in India from procuring data centre services from a specified data centre located in India.
• The exemption will be available up to the tax year ending 31st March 2047, providing long-term tax certainty to foreign investors.

Condition: Where the data centre services are ultimately provided to users in India, the foreign company must route such services through an Indian reseller entity in order to qualify for the exemption.

Tax Exemption for Foreign Companies Supplying Capital Equipment to Electronic Contract Manufacturers

• To promote the manufacturing of electronic goods through contract manufacturing arrangements in India, it is proposed to amend Schedule IV of the Act to provide a tax exemption to foreign companies supplying capital equipment.
• Under the proposed amendment, income earned by a foreign company from supplying capital goods, equipment, or tooling to an Indian resident contract manufacturer will be exempt from tax in India.
• The exemption will be available only where the Indian contract manufacturer is located in a customs bonded area and undertakes manufacturing of electronic goods on behalf of the foreign company for consideration.
• This tax exemption is proposed to remain in force up to the tax year 2030–31 , thereby offering certainty and predictability in taxation for foreign suppliers and supporting the growth of India's electronics manufacturing ecosystem.

Rationalisation of Schedule XI relating to Provident Funds

Under the existing provisions of the Income-tax Act, 2025, recognized provident funds are governed primarily by Schedule XI, which prescribes various conditions and restrictions, including parity-based limits on employer contributions, percentage-based caps on excess contributions, differentiated limits for employees who are also shareholders, and mandatory investment ceilings in Government securities.

In addition, such provident funds are regulated through related provisions such as the definition of a recognized provident fund under section 2(91), deduction under section 123, taxability of employer contributions under Schedule XV, and exemption provisions under Schedule VII of the Act.

The Finance Bill proposes a comprehensive rationalisation of Schedule XI by deleting or amending several provisions in Parts A and C, with a view to aligning the income-tax framework governing recognized provident funds with the statutory and administrative regime under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 and the Employees' Provident Fund Scheme, 1952, as well as with other relevant provisions of the Income-tax Act, 2025.

As part of this rationalisation, existing restrictions on employer contributions based on parity with employee contributions, annual crediting requirements, and percentage-of-salary limits are proposed to be removed. Instead, employer contributions will be governed by the aggregate monetary ceiling of Rs. 7.5 lakh prescribed under section 17(1)(h) of the Act, and any contribution in excess of this limit will be taxable as a perquisite. Correspondingly, the provisions in Schedule XI deeming employer contributions as income are proposed to be omitted.

Further, recognition under the Income-tax Act, 2025 will be available only to those provident funds which have obtained exemption under section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, and Schedule XI is proposed to be amended to explicitly reflect this requirement. The proposed amendments also remove the differentiated contribution limits for employees who are also shareholders of the employer company, placing them on the same footing as other employees under the uniform framework prescribed in section 17(1)(h) and the EPFO regulations.

Additionally, the rigid statutory ceiling restricting investment of provident fund monies in Government securities to 50 per cent is proposed to be done away with, with investment norms thereafter continuing to be governed under the applicable EPF framework and subordinate legislation.

Conclusion

The Finance Bill, 2026 reflects a clear policy intent to simplify the Income-tax framework, reduce avoidable compliance burdens, and bring greater certainty and consistency in tax administration. By rationalising return filing due dates, easing TAN requirements for one-time transactions, restructuring the MAT regime, and providing extended timelines and flexibility for revised and updated returns, the proposed amendments seek to balance revenue considerations with taxpayer convenience. Measures such as the rationalisation of buy-back taxation, calibrated changes in STT and TCS rates, clearer treatment of Sovereign Gold Bonds, and the introduction of penalty provisions for crypto-asset reporting further demonstrate the Government's focus on plugging gaps while aligning special provisions with general tax principles. Overall, the proposals aim to promote voluntary compliance, reduce litigation, and support ease of doing business, making the tax system more predictable, transparent, and taxpayer-friendly from Tax Year 2026–27 onwards.

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