The Finance Bill 2026 proposes a series of targeted amendments aimed at simplifying compliance, reducing litigation, and rationalising tax administration under the Income-tax Act. Key proposals include aligning the due date for depositing employee welfare contributions with the return filing due date, enabling electronic applications and automated issuance of lower or nil TDS certificates, and removing the requirement for resident individuals and HUFs to obtain TAN when deducting tax on purchase of immovable property from non-residents. The Bill clarifies TDS applicability on manpower supply by bringing it within the definition of “work,” extends the due date for filing returns for non-audit business cases to 31 August, and allows revised returns to be filed up to 31 March with a graded fee. It expands the scope of updated returns, including cases involving loss reduction and post-reassessment notices, with an additional tax cost. Penalties for certain procedural defaults are converted into fixed fees, and TCS rates are rationalised, with reductions for education, medical remittances, and overseas tour packages, and increases for scrap, minerals, and liquor, signalling a shift towards predictable, rule-based compliance.
1. Rationalising the due date to credit employee contribution by the employer to claim such contribution as deduction-
Section 29 of the Act provides for deductions related to employee welfare. Clause (e)(i) of sub-section (1) of the said section provides for deduction of any amount of contribution received by the assessee being an employer, from an employee to which the provisions of section 2(49)(o) apply, if such amount is credited by the assessee to the account of the employee in the relevant fund or funds by the due date.
It is proposed to amend section 29(1)(e) to provide that the due date for the said clause shall be the due date of filing of return of income under section 263(1) of the Act. Effective from tax year 2026-27 –
2. Enabling electronic verification and issuance of certificate for deduction of income-tax at lower rate or no deduction of income-tax-
It is proposed to ease the compliance burden of small taxpayers by providing an option to the payee, to file the application for issuance of certificate for lower or nil deduction of income-tax electronically before the prescribed income-tax authority, which may issue the certificate subject to fulfilment of conditions as may be prescribed, or reject the application if prescribed conditions are not fulfilled or the application is incomplete. Effective from 01.04.2026—
3. Relaxation from requirement to obtain tax deduction and collection account number (TAN) by a resident individual or HUF, where the seller of the immovable property is a non -resident-
In order to reduce compliance burden for the resident individual and Hindu undivided family, it is proposed to amend section 397(1)(c) of the Act to provide that resident individual or Hindu undivided family, is not required to obtain TAN to deduct tax at source in respect of any consideration on transfer of any immovable property under section 393(2)- Effective from 01.10.2026–
4. Application of TDS on supply of manpower-
In order to provide clarity with regard to 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 402(47) so that the provisions of Section 393(1) the case may be, applies. Effective from 01.04.2026 —
5. Changes in the due dates for filing of return of Income.
Assessees having income from profits and gains of business or profession whose accounts are not required to be audited under this Act or under any other law in force and partner of a firm whose accounts are not required to be audited under this Act or under any other law in force or the spouse of such partner (if section 10 applies to such spouse), their due date for filing of return is proposed to be extended from 31st July to 31st August. Further, individuals who files ITR-1 & ITR-2, their due date for filing return of Income shall remain 31st July- Applicable for AY 2026-27 and subsequent tax years-
6. Extending the period of filing revised return-
- It is proposed to amend section 263(5) of the Act so as to increase the prescribed time limit for filing the revised return from its existing time limit of nine months to twelve months from the end of the relevant tax year i.e. up to 31st March of tax year.
- Further, a fee is also proposed under section 428(b), for revised returns which are filed beyond nine months from the end of relevant tax year. Applicable for AY 2026-27 and subsequent tax years-
7. Scope of filing of updated return in the case of reduction of losses-
It is proposed to amend section 263(6) of the Act, so as to allow filing of updated return in such cases where taxpayer reduces the amount of loss in comparison to the amount of loss claimed in the return of loss furnished within the due date specified under sub-section (1). Applicable for AY 2026-27 and subsequent tax years-
8. Allowing the filing of updated return after issuance of notice of reassessment:
- It is proposed to amend section 263 of the Act, so that an updated return may be furnished by a person for the relevant tax year in pursuance of a notice under section 280 within such period as specified in the said notice and in such a case assessee shall be precluded from filing return of income in pursuance of notice under section 280 in any other manner.
- Also where an updated return is filed in pursuance of a notice issued under section 280 within the period specified in the said notice, the additional income-tax payable shall be increased by a further sum of 10 % of the aggregate of tax and interest payable on account of furnishing the updated return. Applicable for AY 2026-27 and subsequent tax years-
9. Conversions of penalties into fee-
- Penalty under section 446 for failure to get accounts audited is converted to a fee under proposed section of 428(c). Accordingly, Graded fee of Rs. 75,000 and 1,50,000 is proposed depending upon the period of delay.
- Penalty under section 447 for failure to furnish report under section 172 is converted to a fee under section 428(4). Graded fee of Rs. 50,000 and 1,00,000 is provided depending upon the period of delay.
- Penalty under section 454(1) for failure to furnish statement of financial transaction or reportable account is converted to a fee under section 427(3).
- Applicable from 01.04.2026 tax year—
10. Rationalisation of TCS RATES-
Section 394(1) of the Act provides multiple rates for collection of tax at source (TCS).
It is proposed to rationalize the rates of TCS by providing uniform rates to the extent possible.
It is also proposed to reduce some of the rates so as to provide relief to the collectees.
- TCS on sale of alcoholic liquor for human consumption be collected at the rate of 1%. It is proposed that the rate shall be increased to 2%.
- Earlier – 5% TCS be collected on sale of tendu leaves. It is proposed that the rate shall be reduced to 2%.
- Earlier collection of tax at source by the seller at the rate of 1% on sale of scrap. It is proposed that the rate shall be increased to 2%.
- Earlier TCS be collected at the rate of 1% on sale of minerals, being coal or lignite or iron ore. It is proposed that the rate shall be increased to 2%.
- TCS on remittances made under Reserve Bank of India’s Liberalised Remittance Scheme (LRS). At present, TCS at 5% is collected if remittance is for the purposes of education or medical treatment and the remittance amount is more than ten lakh rupees. It is proposed to reduce the rate of TCS to 2%
- TCS at the rate of 5% and 20% on sale of overseas tour programme package including expenses for travel or hotel stay or boarding or lodging or any such similar or related expenditure. It is proposed to reduce the rate of TCS to 2% irrespective of amount…
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