Summary of this article
No change in income tax slabs in Budget 2026-27.
Income Tax Act, 2025 effective from April 1, 2026.
TCS cuts, easier compliance and penalty rationalisation announced.
Budget 2026 has delivered major announcements on direct tax, with the new Income Tax Act being effective from April 01, 2026. Lower TCS rates, simplified compliance, and relaxed timelines: Finance Minister Nirmala Sitharaman shared the tax updates for Budget 2026-27. She shared how the review of the Income Tax Act, 1961, has been completed in record time. Now, the Income Tax Act, 2025, is set to come into effect from April 01, 2026. This time around, there are no tax slab updates, but simplified tax rules and redesigned forms, which will be notified shortly.
“Today’s budget is focused on development and stability. The government has prioritised infrastructure, employment, and domestic manufacturing. On the income tax front, relief has been provided to the middle class by further simplifying the new tax structure, which effectively offers zero tax benefit on income up to approximately Rs 12 lakh. The new income tax law will reduce tax complexities and make compliance easier. Overall, this budget is not populist but a practical step towards long-term economic strength and ‘Developed India," said CA Nishant Kumar, FCA, GST Expert.
TCS Cuts, Exemptions and Compliance Relief
As a part of providing an ease in living measures, interest awarded by Motor Accident Claims Tribunals to individuals will be fully exempt from paying income tax. "I propose that any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from Income Tax, and any TDS on this account will be done away with," said the Finance Minister.’
The Government further proposed sharp reductions in the Tax Collected at Source (TCS). TCS on overseas tour packages will be cut to 2 per cent from the current 5 per cent and 20 per cent, without any minimum amount clauses. Another change is that TCS under the Liberalised Remittance Scheme for education and medical expenses will be reduced to 2 per cent from the present 5 per cent.
Manpower supply services will also be covered under contractor payments for TDS purposes, attracting TDS of 1 per cent or 2 per cent.
Filing Timelines Eased
The time limit for revising returns will be extended beyond December 31, with a payment of a nominal fee. Filing timelines are also set differently. ITR-1 and ITR-2 are going to be due by July 31, and non-audit business cases and trusts will get time till August 31.
One-Time Foreign Asset Disclosure Scheme
In order to ease the challenges faced by students, young professionals, and relocated NRIs, a one-time six-month asset disclosure scheme will be introduced. This scheme will be in two categories:
Category A: The limit of undisclosed income/assets is proposed to be up to 1 crore rupees. They need to pay 30 per cent of the Fair Market Value of the asset or 30 per cent of undisclosed income as tax, and 30 per cent as additional income tax in lieu of penalty.
Category B: Asset value is proposed to be up to 5 crore rupees. Here, immunity from both penalty and prosecution will be available with the payment of a fee of 1 lakh rupees.
Litigation and Penalties
Assessment and penalty proceedings will be integrated into a single order. Pre-deposit for appeals will be cut to 10 per cent from 20 per cent of the core tax demand.
A few technical penalties are now to be converted into fees, while minor offences will attract small fines only. Maximum imprisonment for remaining offences will be reduced to two years, with courts empowered to convert imprisonment into fines. Some defaults, such as non-production of documents and payments in kind, are now to be decriminalised.
