Tax Amendments in
Union Budget 2026-27

While Union Budget 2026-27 left income tax slabs untouched, it introduced nearly 90 amendments to the Income-tax Act ahead of the new Act's effective date. The tax reforms focus squarely on compliance simplification, litigation reduction, and attracting global investment — marking a shift from rate-based reforms to governance-led administration.

The most significant structural change is the Income Tax Act, 2025 coming into effect from 1st April 2026, replacing the Income-tax Act, 1961 after over six decades. This is not merely a renumbering exercise — the new Act has been designed for simpler understanding and compliance.

• Effective Date: 1st April 2026 for Tax Year 2026-27
• Simplified Forms: New ITR forms redesigned for easier compliance; to be notified shortly
• ICDS Merger: Income Computation and Disclosure Standards (ICDS) requirements to be incorporated into Indian Accounting Standards (IndAS). ICDS will be scrapped with effect from Tax Year 2027-28
• Joint Committee: MCA and CBDT to constitute a Joint Committee for the ICDS-IndAS transition
• Income Tax Slabs: No changes proposed — new regime slabs remain as revised in Budget 2025

A. Due Date Changes

The Budget proposes a staggered approach to tax return filing to ease system load and reduce taxpayer congestion. Key changes to filing deadlines under Section 263 of the new Act:

B. Revised Return — Extended to March 31

The revised return window under Section 263 has been significantly expanded. A revised return can now be filed within twelve months from the end of the relevant tax year (up from nine months), effectively allowing filing up to 31 March of the succeeding year.

C. Updated Return — Expanded Scope

The updated return mechanism under Section 263(6) has been enhanced in two important ways:

• Loss Reduction: Taxpayers can now file an updated return to reduce a loss claimed in the original return — previously this was not permitted
• Reassessment Response: Where a reassessment notice is issued under Section 280, taxpayers can file an updated return within the period specified in the notice, with no penalty on income so disclosed
• Additional Tax (Normal): 25% (within 12 months), 50% (12–24 months), 60% (24–36 months), 70% (36–48 months) of aggregate tax and interest
• Additional Tax (Reassessment Response): An extra 10% surcharge — i.e., 35%, 60%, 70%, or 80% of aggregate tax and interest, depending on the period

A. TDS Amendments

1. Supply of Manpower — Reclassified under "Work"

The definition of "work" under Section 402(27) has been expanded to include supply of manpower. This means manpower supply will now attract TDS under the works contract provisions at 2% (for individuals/HUF) and 1% (for others), rather than as fees for professional/technical services at 10%. Effective: 1 April 2026.

2. No TAN Required for NRI Property Purchases

Where a resident individual or HUF buys immovable property from a non-resident seller, the buyer is no longer required to obtain a TAN. The buyer can deduct tax using PAN and file a PAN-based challan-cum-statement, making the process identical to resident-to-resident transactions. Effective: 1 October 2026.

3. Motor Accident Claims — TDS Exemption

Interest awarded by Motor Accident Claims Tribunals (MACT) under the Motor Vehicles Act, 1988 is now fully exempt from tax in the hands of an individual or legal heir. Consequently, no TDS will be deducted on such payments to individuals. Effective: 1 April 2026.

4. Form 15G/15H — Depository-Based Filing

Taxpayers can now submit declarations for nil TDS deduction (Form 15G/15H) directly to depositories (CDSL, NSDL) for income from mutual fund units, interest from securities, and dividends. The depository will forward these declarations to all relevant deductors. Deductors need to deliver declarations only on a quarterly basis (previously monthly). Effective: 1 April 2027.

5. Lower TDS Certificate — Electronic Processing

For small taxpayers, applications for lower or nil TDS certificates under Section 395 can now be made electronically to a prescribed income-tax authority, with electronic examination and issuance. Effective: 1 April 2026.

B. TCS Rate Rationalisation

TCS rates have been rationalised to provide uniform rates where possible and reduce the locking of funds:

Effective date: All TCS changes are effective from 1 April 2026.

A. Securities Transaction Tax (STT) — Increased

In a move to curb excessive speculative activity in derivatives, STT rates have been substantially increased:

Effective: 1 April 2026. This follows the trend set in Budget 2024 of progressively increasing the cost of derivatives trading.

B. Buyback of Shares — Reverted to Capital Gains

In a significant reversal, income from buyback of shares will once again be taxed as capital gains instead of as dividend. This allows deduction of the cost of acquisition.

• General shareholders: Standard capital gains taxation; cost of acquisition deductible
• Promoters (Domestic companies): Capital gains tax + additional tax, capped at total effective rate of 22% (aligned with new regime corporate tax rate)
• Promoters (Others — firms, LLPs, individuals): Capital gains tax + additional tax, capped at total effective rate of 30% (aligned with highest slab/firm rate)

Effective: Tax Year 2026-27 onwards.

C. Sovereign Gold Bonds (SGB) — Exemption Clarified

The capital gains exemption under Section 70(1)(x) on redemption of SGBs has been tightened with explicit conditions:

This applies uniformly to all SGB series issued by RBI. Effective: Tax Year 2026-27 onwards.

A. Minimum Alternate Tax (MAT) — Becomes Final Tax

In the most significant corporate tax reform of this Budget, MAT under Section 206 has been fundamentally restructured:

• Companies already in the new regime cannot claim MAT credit (they have already benefited from lower rates)
• The 25% cap applies per year — credit is set off over multiple years until exhausted or 15 years from original creation expires
• Non-residents on presumptive taxation: MAT exemption expanded to include cruise ship operations and electronic manufacturing services businesses

B. Unexplained Income — Tax Rate Halved

The tax rate on unexplained credits, investments, assets, and expenditure under Sections 102–106 of the new Act has been reduced from 60% to 30%. The earlier separate 10% penalty under Section 443 has been subsumed into the misreporting penalty regime under Section 439. If the taxpayer voluntarily declares such income in the ITR, no penalty is levied.

C. Interest Deduction on Dividend — Removed

The 20% deduction for interest expenditure incurred for earning dividend income (Section 93) has been completely removed. No expenditure of any kind can now be claimed against dividend income or income from mutual fund units taxable under "Income from Other Sources". Effective: Tax Year 2026-27.

A. Combined Assessment + Penalty Order

Where penalty is proposed under Section 439 (under-reporting/misreporting), a single composite order of assessment and penalty will be passed, eliminating separate penalty proceedings. Effective: For assessments/draft orders on or after 1 April 2027.

B. Immunity Expanded to Misreporting Cases

Section 440 now allows immunity from penalty and prosecution even in misreporting cases (previously limited to under-reporting only), provided the taxpayer pays an additional income-tax in lieu of penalty. The taxpayer must pay tax and interest in full, not appeal, and file within one month of receiving the order.

C. Penalties Converted to Fees

Several penalties have been converted to automatically levied fees, removing discretion and the "reasonable cause" defence:

D. Prosecution — Decriminalisation

The Budget continues the government's decriminalisation agenda with sweeping changes to Sections 475–478 & 494:

• Fully decriminalised: Failure to produce accounts/documents; non-payment of TDS on lottery winnings (in kind), online gaming winnings (in kind), VDA consideration (in kind), and benefits/perquisites
• Crypto-asset reporting: New penalty — ₹200/day for non-filing of statements, ₹50,000 for inaccurate information (s.509)
• Penalty u/s 466: Maximum increased from ₹1,000 to ₹25,000 for failure to furnish information under Section 254
• Black Money Act: Prosecution under s.49 and s.50 no longer applies where foreign assets (excluding immovable property) ≤ ₹20 lakh. Retrospective from 1 October 2024

A. Cloud Services — Tax Holiday till 2047

Foreign companies providing cloud services to global customers using Indian data centres are exempt from income tax on Indian-sourced income till 31 March 2047. Conditions include: the foreign company must not own/operate the data centre's physical infrastructure, and sales to Indian customers must be routed through an Indian reseller entity (an Indian company).

Where the data centre service provider is a related entity, a safe harbour margin of 15% on cost has been proposed for transfer pricing purposes.

B. IT Services Safe Harbour — Simplified

• Threshold raised: Safe harbour eligibility from ₹300 crore to ₹2,000 crore
• Unified category: Software development, ITeS, KPO, and contract R&D clubbed into a single "Information Technology Services" category
• Uniform margin: Common safe harbour margin of 15.5% for all IT services
• This provides significant tax certainty to GCCs and reduces transfer pricing disputes

C. Toll Manufacturing — 5-Year Tax Exemption

Non-residents supplying capital goods, equipment, or tooling to Indian contract manufacturers operating in customs bonded zones are exempt from income tax for 5 years (up to Tax Year 2030-31). This is designed to boost electronics manufacturing in India, particularly for companies like Apple that rely on contract manufacturing.

D. Component Warehousing — 2% Safe Harbour

Non-residents using bonded warehouses for component warehousing will benefit from a safe harbour at a profit margin of 2% of invoice value. The resultant tax of approximately 0.7% will be much lower than in competing jurisdictions, aimed at encouraging just-in-time logistics for electronic manufacturing.

E. Non-Resident Experts — Global Income Exempt

Non-resident experts visiting India to render services under notified government schemes are exempt from tax on their global (non-India-sourced) income for 5 consecutive years from the first year of visit. This is designed to attract specialised global talent.

F. Foreign Assets of Small Taxpayers — FAST-DS 2026

A one-time disclosure scheme for small taxpayers with undisclosed foreign assets:

G. IFSC & OBUs — Extended Benefits

• 100% deduction period extended: 10 years out of 15 → 20 years out of 25
• Post-deduction tax rate: 15% on business income
• Deemed dividend relaxation extended for treasury centres in IFSC

Budget 2026 does not introduce headline GST rate changes but deepens the system-first approach to GST enforcement with targeted amendments to the CGST and IGST Acts:

A. Post-Sale Discounts — Section 15 (CGST)

The amendment removes the requirement to link post-sale discounts to a pre-existing agreement entered into at or before the time of supply. As long as a credit note is issued under Section 34 and the recipient reverses the related ITC, the discount can be excluded from taxable value. This is one of the most practical, litigation-reducing GST reforms in this Budget.

B. Credit Notes & Debit Notes — Section 34 (CGST)

Conditions for issuance, reporting, and linking credit notes and debit notes to original invoices have been tightened, especially when adjustments affect tax liability or input tax credit.

C. Intermediary Services — Section 13(8)(b) (IGST) Removed

The special rule for intermediary services that treated the place of supply as the location of the supplier has been removed. Place of supply will now follow the general rule — the location of the recipient. This is a landmark change that effectively treats intermediary services provided to foreign clients as exports, improving export clarity and reducing litigation in cross-border transactions.

D. Refund Reforms — Section 54 (CGST)

• Inverted duty structure: Now eligible for provisional refunds (90% of claimed amount), improving cash flow — on par with zero-rated supply refunds
• Export refunds: Minimum threshold for sanctioning refund claims removed for exports made with payment of tax

E. Other GST Changes

• NAAAR authority strengthened: National Appellate Authority for Advance Ruling reinforced as the final authority for ensuring uniformity in GST interpretation
• Tobacco GST: Rate increased from 28% to 40% (sin tax replacing compensation cess)
• Common Information System (CIS): Platform to be developed within 2 years for seamless information sharing across GST/Customs

A. Customs Duty Reductions — What Gets Cheaper

B. What Gets Costlier

C. Export & SEZ Reliefs

• Export realisation period: Extended from 6 months to 1 year for leather, textiles, footwear, and related products
• Shoe uppers: Duty-free input benefits extended (previously only for leather/synthetic footwear)
• SEZ one-time relief: Eligible units allowed to sell limited output in the domestic market at lower import duty rates (capped at a share of exports)
• Fish caught by Indian fishermen in EEZ/high seas: duty-free; landing at foreign ports treated as export

D. Central Excise

The value of biogas is excluded from the calculation of central excise duty on biogas-blended CNG, along with GST paid on the biogas/CBG component.

Cooperatives

• Definition expanded: Multi-State Co-operative Societies Act, 2002 registered entities now included in the definition of "co-operative society"
• Primary co-ops: Cattle feed and cotton seed added to eligible items for profit/gain deduction under Section 149(2)(b)
• Inter-cooperative dividends: Deduction now available under the new tax regime as well, provided dividends are distributed to members
• Notified federal cooperatives: 3-year deduction (Tax Years 2026-29) for dividend income from company investments recorded before 31 January 2026; available under both old and new regimes

Provident Fund Regime — Rationalised

• Schedule XI aligned with the EPF Act, 1952 and EPF Scheme, 1952
• Employer contribution limits governed by the ₹7.5 lakh ceiling under Section 17(1)(h) — separate restrictions removed
• PF/ESI employee contribution due date aligned with return filing date under Section 263(1)
• Separate limits for employee-shareholders: removed
• Government securities investment ceiling (50%): removed

Insurance Business

Schedule XIV rationalised for non-life insurance: amounts disallowed under Section 35(b)(i)/(ii) (TDS non-compliance) can now be claimed as deduction in the year compliance is achieved.

Critical Minerals

Part A of Schedule XII expanded to include critical minerals, making expenditure on prospecting, extraction, and production eligible for special deduction under Section 51 (amortised over 10 years).

Tonnage Tax

The tonnage tax scheme under Chapter XII-G has been extended to inland vessels, broadening the benefit beyond ocean-going ships.

Block Assessment — Search Cases

• Block period limited for non-search persons where undisclosed income pertains to only one tax year
• Reference point changed to date of initiation of search (not last authorisation)
• Time limit for block assessment: 12 months → 18 months

For Salaried Individuals

• ITR-1/ITR-2 deadlines remain 31 July — no change in your filing calendar
• Study the new ITR forms under the Income Tax Act, 2025 when notified
• If you hold SGBs purchased from secondary market or plan premature redemption, factor in capital gains tax
• Senior citizens: Prepare to file Form 15H via depository (from April 2027)

For Businesses & MSMEs

• Non-audit businesses and trusts: Note the extended filing deadline of 31 August
• Review TDS compliance for manpower supply payments — now classified as "work" contracts
• Companies in old regime: Evaluate shifting to new regime to utilise accumulated MAT credit (25% per year cap)
• Exporters: Leverage the extended 1-year export realisation period for leather/textiles

For Investors & Traders

• F&O traders: Factor in the significantly higher STT (futures +150%, options +50%) in trading strategies
• Buyback participants: Plan for capital gains treatment — favourable for non-promoter shareholders
• Dividend investors: No interest deduction against dividend income from Tax Year 2026-27

For NRIs & International Clients

• Students/ESOP holders with unreported foreign assets: Avail the FAST-DS scheme at a ₹1 lakh flat fee (for explained assets ≤ ₹5 Cr)
• Benefit from reduced LRS TCS (2% for education/medical)
• Property buyers: No TAN required for TDS on NRI property purchases (from Oct 2026)

For Companies & Corporates

• GCCs: Benefit from unified IT services safe harbour (15.5%, ₹2,000 Cr threshold)
• Evaluate MAT implications: final tax at 14%, plan credit utilisation by moving to new regime
• Unexplained income: Reduced 30% rate offers opportunity for voluntary disclosure without penalty
• Review combined assessment-penalty order implications for ongoing assessments