Highlights of Finance Bill 2026

Budget 2026 – Income-tax Proposals

 

 

1. Income Tax Act, 2025, to come into effect from 1 April 2026

The Budget states that a comprehensive review of the Income-tax Act, 1961, has been completed, and the Income Tax Act, 2025, will come into effect from 1st April, 2026. It is also stated that the simplified Income Tax Rules and Forms will be notified shortly, giving taxpayers adequate time to acquaint themselves with the requirements. The forms are stated to be redesigned so that ordinary citizens can comply without difficulty.

 

2. Change in TCS Rates

The amendment will take effect from the 1st day of April, 2026.

SR No.	Nature of Receipt	Current TCS Rate	Proposed TCS Rate
1	Sale of alcoholic liquor for human consumption	1%	2%
2	Sale of tendu leaves	5%	2%
3	Sale of scrap	1%	2%
4	Sale of minerals (coal, lignite, iron ore)	1%	2%
5	Remittance under LRS exceeding ₹10 lakh – Education / Medical	5%	2%
	Remittance under LRS exceeding ₹10 lakh – Other purposes	20%	20% (No change)
6	Overseas tour programme package	5% up to ₹10 lakh; 20% above ₹10 lakh	2% (Flat)

 

3. Staggered timelines for filing of Income-tax Returns

The Budget proposes to stagger the due dates for filing of Income-tax Returns. Individuals filing ITR-1 and ITR-2 shall continue to have the due date of 31st July. For non-audit business cases and trusts, the due date for filing returns is proposed to be extended to 31st August.

Category	Existing Due Date	Proposed Due Date
Taxpayers not having business/profession income	31 July	No change
Taxpayers having a business / Profession / Partner of a firm (non-audit cases)	31 July	31 August
Taxpayers having a business / Profession / Partner of a firm (Audit cases)	31 October	No change

 

4. Increase in the period of filing the revised return

The Budget proposes to allow taxpayers to file a revised Income-tax Return up to 31st March, subject to payment of a nominal fee, as prescribed. This measure is intended to facilitate voluntary compliance within the extended timeframe. However, the time limit to file a belated Return Continue to be 31 December.

Nominal fees of ₹1000 & ₹5000 to be levied for filing Revised Return after 31.12 and before 31.03

5. Minimum Alternate Tax (MAT) – Reforms

The Budget proposes reforms in the MAT framework to facilitate the transition to the new tax regime. From 1 April 2026, MAT shall become a final tax, and the MAT rate shall be reduced from 15% to 14%. Set-off of brought-forward MAT credit shall be allowed only under the new tax regime, limited to one-fourth of the tax liability. MAT credit accumulated up to 31 March 2026 shall continue to be available for such limited set-off.

Particulars	Current Provision	Proposed Provision (w.e.f. 1 April 2026)
Nature of MAT	MAT payable with a credit mechanism	MAT to become a final tax
MAT Rate	15%	14%
Set-off of Brought-forward MAT Credit	Allowed under the old regime	Allowed only under the new tax regime
Limit for MAT Credit Set-off	Up to the difference between normal tax and MAT	Limited to 25% (one-fourth) of tax liability
MAT Credit accumulated up to	Applicable till exhaustion period	MAT credit accumulated up to 31-03-2026 allowed (subject to 25% cap)

 

6. Taxation of buy-back of shares rationalised

Particulars	Provision w.e.f. 1 April 2026
Tax Head	Capital Gains
Earlier Treatment	Dividend Income
Individual Promoters	Effective tax @ 30%
Promoter Companies	Effective tax @ 22%
Applicable From	AY 2026-27 onwards

 

7. Tax Audit Report – Late filing to attract a fixed fee instead of a penalty

Key differences

Aspect	Old (Penalty u/s 271B)	New(Late Fee from 1 Apr 2026)
Amount (less than 1 month)	0.5% of total sales/turnover/gross receipts or ₹1,50,000, whichever is Lower	Fixed Rs 75,000
Amount (more than 1 month)		Fixed Rs 1,50,000
Nature	Penalty (discretionary, waivable for reasonable cause)	Fee (mandatory, fixed)
Turnover Link	Yes (for businesses with high turnover)	No (flat fee regardless of size)
Impact Example	Small firm (₹2 Cr turnover): Approx ₹1L penalty max, and can be revoked if tax payer proves reasonable cause.	Any firm: ₹75K/₹1.5L even if small, pay Fees otherwise, return taxpayer shall be unable to upload.

 

8. ITR-U-Updated Return

Taxpayers will be allowed to file an Updated Return (ITR-U) even where the original return was a loss return, provided the updated return results in a reduction of the loss earlier claimed.

An updated Income-tax Return can now be filed even after reassessment (re-audit) proceedings have been initiated. The taxpayer is required to pay an additional 10% income tax over and above the prescribed tax and interest. Explicit protection from penalty is provided in such cases. This measure is aimed at encouraging voluntary compliance.

9. Litigation and Rationalisation of Penalty & Prosecution Provisions

• Tax rate on unexplained credit, investment, expenditure, or assets proposed to be reduced from 60% to 30%.
• Litigation process to be simplified by:
  –Merging assessment and penalty proceedings into a single order
  – Removing interest on penalty during the pendency of the appeal till the first appellate level
  – Reducing pre-deposit for stay of demand from 20% to 10%
• Prosecution provisions to be rationalised, including decriminalisation of procedural and technical defaults, shift from rigorous to simple imprisonment, and reduction in maximum imprisonment for specified offences.
• The Finance Bill, 2026, proposes to disallow the deduction of interest expenditure against dividend income and income from units of mutual funds. Accordingly, no interest expense shall be allowed to be set off against such income, withdrawing the earlier limited deduction available. This amendment shall be effective from 1 April 2026
• The Budget proposes a rule-based automated system to enable small taxpayers to obtain lower or nil TDS certificates without approaching the Assessing Officer. The certificates shall be issued through an electronic and automated process, as prescribed under the provisions of the Income-tax Act, with effect from 1 April 2026.
• Resident individuals or HUFs purchasing immovable property from a non-resident will not be required to obtain a TAN for deducting TDS. Eases compliance for one-time property transactions. Effective from 1 October 2026.
• The Union Budget 2026 proposes that employee contribution to PF, ESI and other welfare funds shall be allowed as a deduction if deposited on or before the due date of filing the Income-tax Return. Aligns the treatment of employee contribution with employer contribution. Applicable from AY 2026-27, as provided in the Finance Bill, 2026.

                 Example

                 Employee PF contribution deducted in March 2026:

                Deposit by 31st August (non-audit ITR due date).

                 Deposit by 31st October (audit ITR due date)

                 Full deduction allowed in AY.

                Delay beyond = Disallowance + 30% MAT liability.

• The Union Budget 2026 proposes that the capital gains exemption on redemption of Sovereign Gold Bonds (SGBs) shall be available only to the original subscriber, provided the bond is held continuously till maturity. Subsequent transferees will not be eligible for the exemption. applicable from Tax Year 2026–27, as per the Finance Bill, 2026.
• Investors can give one no-TDS declaration to the depository instead of multiple entities. Applicable for dividend, interest, and mutual fund income from listed securities held in a demat account. Compliance is simplified with quarterly reporting. Effective from 1 April 2027.
• There were many ambiguities about applicable rate of TDS for supply of manpower provide clarity concerning the deduction of tax at source in case of supply of manpower, it is proposed to include it under the ambit of “work” in section 194C .194C provides for rate of deduction of 1% when payment is made to individual or HUF and 2% in other cases. The amendment will take effect from the 1st day of April, 2026.
• The Budget proposes an increase in. increase the rate of STT on sale of an option in securities from 0.1 per cent to 0.15 per cent of the option premium, on sale of an option where the option is exercised from 0.125 per cent to 0.15 per cent of the intrinsic price, and on sale of a future in securities from 0.02 per cent to 0.05 per cent of the traded price. The amendment will take effect from the 1st day of April, 2026.
• A five-year tax exemption would be available on foreign-sourced income (excluding income deemed to accrue or arise in India) for individuals visiting India for the first time in connection with a Central Government Scheme to be notified during the last five tax years before such visit and fulfilment of such other conditions as may be prescribed.
• One-time Foreign Asset Disclosure Scheme, 2026, to allow eligible taxpayers to make voluntary disclosure of undisclosed/unreported foreign income/assets and payment of prescribed tax (as applicable), and provides immunity from penalty and prosecution under Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
• Prosecution under Black Money Act shall not be initiated where the aggregate value of undisclosed foreign income/assets (other than immovable property) does not exceed ₹20,00,000. This amendment aligns the threshold for applicability of the penalty and is effective from 1st October 2024.
• All individuals being Persons Resident Outside India (PROI) under the Exchange Control Regulation can now invest in equity instruments of listed Indian companies under the Portfolio Investment Scheme, extending the benefit beyond NRIs and OCIs. The individual investment limit also increased from 5% to 10% of issued capital.

Author’s Note

CA Ketan Agarwal specialising in GST, taxation, and compliance advisory. With experience across practice and industry, he regularly writes on indirect tax reforms and their impact on businesses, with a focus on practical solutions for MSMEs.

Disclaimer: The views exprssed are personal and intended for informational purposes only. They do not constitute professional or legal advice.

Ref :-

1. 1. Finance Bill 2026
   2. Memo