The Indian government released its Union Budget 2026 on February 1, 2026, introducing major changes to the country’s tax system. The budget puts a new Income Tax Act into effect and focuses on building a system based on trust between taxpayers and the government.
For anyone dealing with taxes—such as Chartered Accountants, tax professionals, and business advisors—this budget marks a structural shift. It aims to make tax rules simpler, clearer, and less likely to cause legal disputes. Below is a structured overview of the most important tax changes announced.
A Simpler System for Direct Taxes
New Income Tax Act, 2025 (Effective April 1, 2026)
The most significant reform is the introduction of the Income Tax Act, 2025, which comes into force from April 1, 2026, replacing the law that has been in place since 1961. The new legislation is designed to be easier to read, interpret, and apply.
- No change in tax rates for the current year
- The simplified tax regime becomes the default option for most taxpayers
- Lower tax rates continue, but most deductions and exemptions are removed
Rationalisation of Penalties and Prosecution
The government has taken steps to make enforcement more proportionate and trust-based:
- Assessment and penalty proceedings are merged to reduce delays
- Pre-deposit for filing appeals reduced from 20% to 10% of disputed tax
- Delays in statutory audits will now attract a daily fee with a capped limit, instead of a lump-sum penalty
- Minor compliance failures (such as non-submission of certain documents) are decriminalised
- Maximum imprisonment for remaining offences reduced to two years
Extended Timelines for Filing Returns
- Revised or belated income tax returns can now be filed up to March 31, instead of December 31
Key Changes in TDS / TCS Provisions
| Tax Rule | The Change | What It Means for You |
|---|---|---|
| Tax on Overseas Trips | Flat 2% tax with no minimum spending threshold | Lower upfront tax cost on foreign travel |
| Tax on Property Purchased from NRIs | PAN can be used instead of obtaining a TAN | Simpler compliance for property buyers |
| Tax on Accident Compensation | Interest fully exempt; no tax deduction | Full compensation retained by claimants |
FAST-DS Scheme for Foreign Asset Disclosure
A new one-time compliance window (FAST-DS) has been introduced for students, young professionals, and other individuals holding undisclosed foreign assets.
- Applicable up to a prescribed asset value
- Payment of due tax plus a nominal fee
- Immunity from prosecution for past non-disclosure
- Enables clean-up of legacy foreign asset reporting issues
Changes for Businesses and Investments
Minimum Alternate Tax (MAT) Simplification
- MAT rate reduced from 15% to 14%
- MAT will now operate as a final tax
- Limited-period utilisation of past MAT credits permitted
New Tax Treatment for Share Buybacks
- Buyback proceeds for shareholders will now be taxed as capital gains
- An additional tax on promoters has been introduced
- Objective: prevent use of buybacks as a tax-efficient substitute for dividends
Boost for IT, Data Centres, and Cross-Border Transactions
- Simplified compliance for international transactions in the IT sector
- Tax holiday extended up to 2047 for foreign companies establishing data centres in India
- Strong policy signal to attract long-term technology infrastructure investment
Easier Rules for Trade, Customs, and Indirect Taxes
Customs Duty Rationalisation under “Make in India”
- Customs duty on personal imports reduced from 20% to 10%
- New exemptions for manufacturing inputs used in:
- Li-Ion batteries for energy storage
- Civilian aircraft
- Microwave ovens
These changes are intended to strengthen domestic manufacturing capacity.
Trust-Based Customs Compliance
- For Authorised Economic Operators (AEOs):
- Duty payment window extended from 15 days to 30 days
- Automatic clearance on arrival of goods
- Customs warehousing shifts to:
- Self-declaration
- Electronic tracking
- Risk-based audits
Export Facilitation Measures
- ₹10 lakh courier export value limit removed
- Significant relief for:
- Small exporters
- E-commerce sellers
- Extended timelines and flexibility for sectors such as:
- Seafood processing
- Leather
- Textiles
Key GST Amendments
- Post-sale discounts allowed without mandatory pre-agreement
- For intermediary services, place of supply determined by customer location
- This change may significantly benefit Indian service providers catering to overseas clients
What This All Means
Budget 2026 represents a decisive shift toward a simpler, more transparent, and trust-based tax system. By reducing complexity, lowering compliance friction, and decriminalising minor defaults, the government aims to cut down disputes and litigation.
While tax professionals will need to familiarise themselves with the new Income Tax Act framework, the broader objective is clear: a modern tax ecosystem that supports growth, investment, and ease of compliance.
