The Finance Bill, 2026 (FB 2026) was presented by Finance Minister Nirmala Sitharaman on 1 February 2026, proposing sweeping amendments to both the existing Income-tax Act, 1961 (ITA 1961) and the new Income-tax Act, 2025 (ITA 2025). The ITA 2025 is set to take effect from 1 April 2026, on which date the ITA 1961 stands repealed. While moving the Bill for approval before the Lok Sabha on 25 March 2026, the Finance Minister introduced a significant set of amendments to FB 2026 — what we refer to as the “Amended FB 2026.” This article offers a practitioner’s analysis of the most consequential changes introduced at the enactment stage.
1. Capital Gains Exemption Under Andhra Pradesh Land Pooling Scheme Restored
The ITA 1961 provided capital gains exemption to individuals and Hindu Undivided Families who owned land or buildings as of 2 June 2014 and transferred them under the Andhra Pradesh Capital City Land Pooling Scheme. Surprisingly, ITA 2025 had omitted this exemption on the assumption that all eligible stakeholders had already received reconstituted plots.
However, representations received by the government clarified that many landowners have still not received possession of reconstituted plots due to operational issues with the scheme. Accordingly, FB 2026 at enactment stage proposes to restore this exemption under ITA 2025, subject to a sunset clause, possession of the reconstituted land must be received on or before 31 March 2031.
Effective date: 1 April 2026.
Read also: https://taxguru.in/income-tax/income-tax-act-2025-tds-rates-thresholds-compliance-ty-2026-27.html
2. Tax Immunity Extended to The New Development Bank
India is a signatory to the Agreement on The New Development Bank (formerly BRICS Development Bank), signed on 15 July 2014 in Fortaleza, Brazil. Article 34 of that Agreement mandates immunity from all forms of taxation for the Bank, its income and transfers. FB 2026 now codifies this immunity by providing an explicit income-tax exemption on the total income of the New Development Bank under ITA 2025, with the mechanism to be prescribed separately.
Effective date: 1 April 2026.
3. Startup Tax Exemption Threshold Enhanced to INR 300 Crore
In alignment with the DPIIT notification G.S.R. 108(E) dated 4 February 2026 revising the turnover threshold for recognised startups, the tax exemption available to eligible start-ups has been enhanced from INR 100 crore to INR 300 crore under ITA 2025. This change brings more fast-growing startups within the ambit of the tax holiday benefit.
A caveat worth noting: while a larger pool of startups may now qualify for the holiday, the expanded threshold could trigger non-creditable Minimum Alternate Tax (MAT) on book profits for those newly included entities.
Effective date: 1 April 2026.
Read Also: https://taxguru.in/income-tax/depreciation-income-tax-act-2025-section-34-rates-provisions.html
4. No Interest on Penalty During Appellate Pendency
FB 2026 originally proposed to integrate assessment and penalty proceedings through a combined order with effect from 1 April 2027. However, the language of the original amendment was ambiguous as to whether the waiver of interest on penalty during the appellate period applied only to orders passed from 1 April 2027 or also to earlier orders.
The enactment-stage amendment clarifies this explicitly: no interest shall be levied on the penalty under any assessment or reassessment order passed on or after 1 April 2027, for the period during which the matter remains pending before the first appellate authority, regardless of the outcome of such appeal.
Applicable to: Orders passed on or after 1 April 2027.
5. Buyback Tax Regime Rationalised
FB 2026 proposed to restore the pre-October 2024 position, whereby consideration received on buyback of shares is taxable as capital gains (with applicable beneficial tax rates) rather than as dividend income. Separately, an additional tax was proposed for ‘promoter’ shareholders, resulting in an aggregate tax liability of 22% for domestic companies and 30% for other promoters.
Key clarifications at the enactment stage:
- The additional tax on promoter shareholders applies only when a domestic company undertakes a buyback in accordance with section 68 of the Companies Act, 2013. This aligns the scope of the additional tax with the erstwhile deemed dividend framework for buybacks.
- A surcharge of 12% has been specified on the tax charged under the buyback provision. However, ambiguity persists as to whether this surcharge applies to the additional tax alone or to the aggregate income tax on buybacks for promoters, a clarification on this point is still awaited.
Effective date: 1 April 2026.
Read also: https://taxguru.in/income-tax/tax-loss-harvesting-losses-work.html
6. Extended Tax Holiday for Offshore Banking Units and IFSC Units
FB 2026 had proposed to extend the tax holiday for Offshore Banking Units (OBUs) from 10 to 20 consecutive years, and for IFSC units from 10 out of 15 years to 20 out of 25 years. The enactment-stage amendment goes further: OBUs whose original 10-year holiday expired on 31 March 2025 are now explicitly granted an additional 10-year benefit starting from tax year 2026–27. This ensures that no OBU falls into a gap year between the two holiday windows.
Effective date: 1 April 2026 (tax year 2026–27 onwards).
7. Minimum 30-Day Window to File Return in Reassessment
Under the current law, while there is a maximum of 3 months from the end of the month in which a reassessment notice is issued to file a return, there is no prescribed minimum time. This had led to situations where taxpayers were practically unable to comply in time.
The amendment now mandates a minimum of 30 days from the date of notice for the taxpayer to file the return in response to a reassessment notice, a welcome taxpayer-friendly reform.
Effective date: 30 March 2026 under ITA 1961 and 1 April 2026 under ITA 2025.
Read also: https://taxguru.in/income-tax/key-income-tax-april-1-2026-income-tax-act-2025.html#google_vignette
8. Three-Month Time Limit to Issue Reassessment Notices Post Court Orders
Previously, there was no explicit time limit for issuing reassessment notices to give effect to court or appellate orders. The amendment now expressly permits the issuance of such notices and prescribes a 3-month window from the end of the quarter in which the order of the higher authority is received by the tax authority.
A safeguard is also built in: reassessment notice can only be issued if the assessment was not time-barred at the time when the ITL proceedings that were the subject matter of the court proceedings were initiated. However, this limitation safeguard has been noted to be expressed in somewhat ambiguous terms.
Effective date: 1 February 2026 under ITA 1961; 1 April 2026 under ITA 2025.
9. Defects in Statutory Approvals Cannot Invalidate Assessments
This is perhaps the most controversial amendment in the enactment-stage changes. Courts have in the past quashed assessment proceedings where prior approvals were granted without sufficient reasons, without due application of mind, or in a mechanical manner (including cases where approval was accorded in an implausibly short timeframe).
The amendment, inserted retrospectively from 1 April 2021 under ITA 1961 (and from 1 April 2026 under ITA 2025), provides that prior approvals are administrative and supervisory in nature. Assessment proceedings shall not be held invalid merely on account of:
- Inadequacy of reasons recorded in the approval;
- Defects in the form or manner of authentication or communication of approval; or
- Absence of digital signatures, provided that electronic approval exists.
While this aligns with the stated legislative intent of prior approvals being procedural checks, it raises a significant question: if the validity of approvals cannot be tested before courts, what practical safeguard remains for taxpayers against arbitrary action by the approving authority? This provision is likely to attract constitutional scrutiny.
Effective date: Retrospectively from 1 April 2021 (ITA 1961); 1 April 2026 (ITA 2025).
Read also: https://taxguru.in/income-tax/tcs-rate-chart-tax-year-2026-27-income-tax-act-2025.html
10. Tribunal Orders to Be Uploaded Electronically from 1 October 2026
Currently, the Income Tax Appellate Tribunal (ITAT) sends orders to both taxpayers and the tax authority in physical form. From 1 October 2026, Tribunal orders shall be uploaded on a designated portal, making them available to the tax authority in real time. The limitation period for challenging such orders shall be computed from the date of such electronic upload. Taxpayers, however, shall continue to receive orders in physical form.
Effective date: 1 October 2026 (for orders passed on or after that date).
11. Power to Arrest Taxpayers for Tax Recovery Abolished
One of the most taxpayer-friendly measures in the Bill, the power of the Tax Recovery Officer (TRO) to arrest and detain a taxpayer in civil prison for recovery of tax dues has been abolished. The government has taken the view that other modes of recovery are sufficient and that coercive measures such as arrest are not necessary. Consequential amendments have also been made to the recovery procedure.
Effective date: 30 March 2026 under ITA 1961; 1 April 2026 under ITA 2025.
12. Transition Clarity on Interest: ITA 1961 Provisions Continue to Apply
For proceedings relating to tax years up to 2025–26, the interest provisions of ITA 1961 will continue to govern even after 1 April 2026 — even where refunds fall due or defaults in tax payment occur after that date. The earlier dual-period approach (ITA 1961 up to 31 March 2026 and ITA 2025 thereafter) has been abandoned. Any future change in interest rates under ITA 2025 will apply prospectively from the date of such modification.
Effective date: 1 April 2026.
13. Other Notable Amendments
- Faceless assessment units (Assessment Unit, Verification Unit, Technical Unit and Review Unit) can now authenticate electronic records without digital signatures, effective retrospectively from 1 April 2022.
- Refund adjustment provisions expanded: refunds under ITA 1961 may now be set off against liabilities under ITA 2025 and vice versa, enabling seamless cross-Act netting of amounts.
Read also: https://taxguru.in/income-tax/form-26-era-tax-audit-reporting india.html#google_vignette
Conclusion
The enactment-stage amendments to Finance Bill 2026 go well beyond routine drafting corrections. They reflect a deliberate legislative strategy: to reduce litigation, ease the compliance burden, and streamline the transition to ITA 2025, all while introducing substantive policy changes that merit careful evaluation.
On the positive side, the abolition of the TRO’s arrest power, the minimum 30-day filing window in reassessment, and the expanded startup threshold are genuinely welcome moves. On the other hand, the retrospective amendment shielding defective approvals from judicial scrutiny raises significant constitutional concerns that are likely to be tested before the courts.
Practitioners and taxpayers alike should carefully review the interaction of these amendments with pending assessments, ongoing appeals, and transition-related compliance obligations before 1 April 2026.
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Disclaimer: This article is intended for general informational purposes only and does not constitute legal or tax advice. Readers are advised to consult their professional advisors for guidance specific to their circumstances
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