Breaking News: Income Tax Changes in Budget 2026-27 | New Income Tax Act 2025

• Admin
• February 02, 2026

Breaking News: Income Tax Changes in Budget 2026-27 | New Income Tax Act 2025

The Union Budget 2026–27 introduces several important changes in the Income Tax framework with the objective of simplifying compliance, reducing litigation, improving ease of living for taxpayers, and creating a stable and predictable tax environment. These proposals are primarily covered under Part B – Direct Taxes of the Budget Speech and its annexures.

This document explains all Income Tax–related provisions announced in the Budget in a clear and structured manner.

1. Introduction of the New Income Tax Act, 2025

A comprehensive review of the existing Income Tax Act, 1961 has been completed, and a new legislation titled Income Tax Act, 2025 will come into force from 1st April 2026.

• Simplified Income Tax Rules and Forms will be notified separately.
• Tax return forms have been redesigned to ensure that ordinary taxpayers can comply without difficulty.
• Adequate transition time will be provided to familiarize taxpayers with the new system.

2. Ease of Living Measures for Individual Taxpayers

2.1 Exemption of MACT Interest Income

• Any interest awarded by the Motor Accident Claims Tribunal (MACT) to a natural person will be fully exempt from Income Tax.
• No Tax Deducted at Source (TDS) will apply on such interest, irrespective of the amount.

2.2 Reduction in Tax Collected at Source (TCS)

The following TCS rates are reduced:

• Overseas tour programme packages: TCS reduced to 2%.
• Education and medical purposes under Liberalised Remittance Scheme (LRS): TCS reduced from 5% to 2%.

2.3 Clarification on TDS for Manpower Supply

• Supply of manpower services is classified under payment to contractors.
• Applicable TDS rate will be 1% or 2%, eliminating ambiguity with professional fees.

2.4 Automated Lower or Nil TDS Certificate

• A rule-based automated system will be introduced for small taxpayers.
• Taxpayers can obtain lower or nil deduction certificates online without approaching the Assessing Officer.

2.5 Centralized Form 15G / Form 15H Submission

• Depositories will be enabled to accept Form 15G / Form 15H from investors.
• Depositories will share the declaration with all relevant companies.
• This removes the need to submit declarations to multiple payers.

2.6 Extension and Staggering of Return Filing Dates

• Revised or belated returns can now be filed up to 31st March, subject to payment of a nominal fee.
• Filing due dates:
  • Individuals (ITR-1 and ITR-2): 31st July
  • Non-audit business cases and trusts: 31st August

2.7 Simplification for Sale of Property by Non-Residents

• Resident buyers purchasing immovable property from non-residents will not be required to obtain TAN.
• TDS will be deducted and deposited using PAN-based challan.

3. Foreign Assets Disclosure Scheme (FAST–DS), 2026

A one-time Foreign Assets of Small Taxpayers – Disclosure Scheme (FAST–DS) is introduced.

Category A

• Applies where foreign income or assets were not disclosed.
• Maximum undisclosed amount: ₹1 crore
• Tax payable:
  • 30% tax
  • 30% additional tax in lieu of penalty
• Immunity from prosecution granted.

Category B

• Applies where income was disclosed but the asset was not declared.
• Maximum asset value: ₹5 crore
• Payment of ₹1 lakh fee
• Immunity from penalty and prosecution.

4. Rationalisation of Penalty and Prosecution Provisions

• Assessment and penalty proceedings will be combined into a single order.
• No interest will be charged on penalty during the appeal period.
• Pre-deposit requirement reduced from 20% to 10% of core tax demand.
• Taxpayers may file updated returns even after reassessment begins, subject to additional tax.
• Immunity from penalty extended to cases of misreporting upon payment of additional tax.
• Penalties for technical defaults converted into fees.
• Decriminalisation of:
  • Non-production of books of accounts
  • TDS-related offences where payment is made in kind
• Maximum imprisonment reduced to two years, and minor offences will attract only fines.

5. Tax Benefits for Cooperative Societies

• Deduction extended to primary cooperative societies supplying:
  • Cattle feed
  • Cotton seed
• Inter-cooperative dividend income allowed as a deduction under the new tax regime, to the extent it is further distributed.
• Dividend income of notified national cooperative federations exempt for three years, subject to onward distribution.

6. Income Tax Provisions for IT and Technology Services

• All software, IT-enabled services, KPO, and contract R&D services grouped as Information Technology Services.
• Safe Harbour Margin fixed at 15.5%.
• Threshold for safe harbour increased from ₹300 crore to ₹2,000 crore.
• Safe harbour approvals will be fully automated.
• Safe harbour validity extended to five years.
• Unilateral Advance Pricing Agreements (APA) to be concluded within two years, extendable by six months.

7. Measures to Attract Global Business and Talent

• Foreign companies providing global cloud services using Indian data centres will receive a tax holiday up to 2047.
• Non-resident experts working in India under notified schemes will enjoy exemption on global income (non-India sourced) for five years.
• Non-residents opting for presumptive taxation will be exempt from Minimum Alternate Tax (MAT).

 

For complete details, official documents, and annexures of Union Budget 2026–27, the full Budget statement and sheets are available on the Government of India’s official website here: [www.pib.gov.in]

8. Corporate Tax Reforms

• Share buyback taxation shifted to Capital Gains:
  • Corporate promoters: 22% effective tax
  • Non-corporate promoters: 30% effective tax
• MAT made final tax from 1 April 2026.
• MAT rate reduced from 15% to 14%.
• Existing MAT credit allowed for limited set-off under the new regime.

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9. Other Important Direct Tax Amendments

• Securities Transaction Tax (STT) increased:
  • Futures: 0.05%
  • Options premium and exercise: 0.15%
• Capital gains exemption on Sovereign Gold Bonds restricted to original subscribers holding till maturity.
• Interest deduction against dividend and mutual fund income removed.
• Disability pension of Armed Forces personnel fully exempt.
• Compensation received under RFCTLARR Act, 2013 exempt from Income Tax for individuals and HUFs.

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Conclusion

The Income Tax proposals in Budget 2026–27 focus on simplification, transparency, reduced litigation, taxpayer convenience, and global competitiveness. The introduction of a new Income Tax Act, rationalised penalties, digital processes, and targeted exemptions represent a structural shift toward a more predictable and compliance-friendly tax system.

 

For expert guidance on income tax compliance, disclosures, penalties, and regulatory matters arising from Union Budget 2026–27, LegalDev provides reliable legal and tax support tailored for individuals and businesses.