The Union Budget for FY27 is unlikely to bring sweeping amendments to the income tax law. Instead, the most consequential changes for taxpayers are expected to emerge through a new set of income tax rules that will govern the practical operation of the Income Tax Act, 2025, according to two people familiar with the matter.
The Finance Bill, 2026, which will be tabled in Parliament alongside the FY27 Budget, is expected to carry only essential income tax proposals. These may include notification of tax rates for the year and provisions outlining the transition to the new income tax regime from 1 April, the people said.
The real framework of the new regime, however, will be shaped by subordinate rules to be issued by the Central Board of Direct Taxes (CBDT), which are expected to be notified shortly.
Why the Rules Matter More Than the Budget
Tax experts say these rules will be critical as they will directly influence taxpayer rights, fairness in enforcement, compliance burden and the distinction between procedural lapses and deliberate tax evasion.
The upcoming rules are expected to cover several sensitive and operational areas, including:
- Procedures under faceless assessment
- Safeguards against excessive administrative discretion
- Processes for initiating prosecution
- Mechanisms governing the transition to the new tax regime
With many operational aspects shifted from statute to subordinate legislation, the rules will effectively determine how the new tax system functions on the ground.
Simplified Law, Greater Reliance on Rules
The Income Tax Act, 2025, which is set to replace the six-decade-old Income Tax Act, 1961, has been sharply pared down. The new law reportedly contains nearly half the number of chapters and words as the existing Act, in an attempt to make the legislation simpler and more accessible.
As part of this streamlining exercise, several procedural and administrative provisions, including those relating to faceless assessment, have been moved out of the law and into the rule-making framework.
The parliamentary panel that examined and cleared the Income Tax Bill approved these changes after the government assured lawmakers that adequate safeguards would be built into the rules.
Uncertainty Over Pending Rules Raises Compliance Concerns
While experts expect the FY27 Budget to include announcements on the transition to the new tax regime and measures to support its rollout, they caution that many rules, forms and reporting mechanisms are yet to be notified.
This delay has raised concerns over uncertainty and the risk of inadvertent non-compliance, particularly for businesses and professionals.
"Industry and other stakeholders are keenly awaiting timely notification of the rules, filing mechanisms and explanatory FAQs," a tax expert said. "Much will depend on how these rules are ultimately framed. They will play a decisive role in shaping taxpayer rights, ensuring proportional enforcement and reducing the compliance burden."
He added that adopting global best practices and allowing meaningful stakeholder consultation before finalising the rules would be essential to ensure the new law delivers on its promise of a simpler and more taxpayer-friendly system.
Long-Frozen Tax Thresholds Back in Focus
Experts have also flagged that several monetary thresholds in the tax framework have remained unchanged for decades, despite inflation, economic growth and shifting urban realities.
Cities such as Bengaluru, Hyderabad and Pune, despite comparable costs of living, are still treated as non-metros. The tax-free gift limit of Rs 50,000 has also remained unchanged since its introduction, even as income levels and social practices have evolved.
"While income tax rules cannot override the Act, they can significantly influence how the law operates in practice," another tax expert said. "Rules governing reporting formats, valuation methods and faceless procedures can either simplify compliance or increase procedural burden. Loosely drafted rules may also expand executive discretion beyond what Parliament intended."
Budget Still Key to Taxpayer Impact
Experts note that while major structural reforms are embedded in the new law, the Union Budget can still materially influence taxpayers' actual burden through adjustments to tax slabs, rebates, standard deductions and compliance-related provisions that will operate alongside the new Act.
The Income Tax Act, 1961 is slated for repeal, with the Income Tax Act, 2025 scheduled to take effect from 1 April. Queries sent to the finance ministry seeking comments on the matter remained unanswered till press time.
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