Budget 2026 Failed To Redress The Persistent Practical Problems

Budget 2026 is criticised for failing to resolve long-standing, practical issues faced by taxpayers despite promises of simplicity. The continuation of dual tax regimes with differing exemption limits, rates, and rebate structures has increased confusion rather than clarity, particularly due to denial of marginal relief under the old regime and lack of special relief for senior citizens under the new regime. The withdrawal of savings-linked deductions is seen as discouraging long-term savings and burdening taxpayers who made commitments based on earlier incentives. Procedural inefficiencies persist, including long timelines for rectification, condonation, and disposal of petitions, causing hardship through delayed relief and coercive recoveries. Presumptive taxation rules for partnership firms remain unclear, risking double taxation of partner remuneration and interest. Rigid disallowance provisions for cash transactions ignore modern banking realities. Assessment procedures continue to generate avoidable litigation due to inadequate disclosure of reopening reasons, Form 26AS mismatches, weak communication systems, and absence of timelines for consequential or revisional orders, collectively undermining taxpayer confidence.

1. CONFUSING REGIMES RATES AND REBATES

1.1 As per the Income Tax Act 2025 the tax slabs for individuals, Hindu Undivided Families, and other categories under the new regime are

1.2 Rebate under Section 156:

• For residents with total income up to Rs. 5 lakh, the rebate will be 100 percent of the income tax payable or Rs. 12,500, whichever is lower.
• Under the new regime, residents with incomes up to Rs. 12 lakh can claim a rebate of up to Rs. 60,000. For incomes above Rs. 12 lakh, the rebate amount will reduce gradually, capped at the tax payable.
• There is no relief for Senior Citizens (above the age of 60 years) or for the Super Senior Citizens (above the age of 80 years) under the New Tax Regime

Old Tax Regime Rates (As per Income Tax Act 2025)

These rates are not explicitly revised in the Income Tax Act 2025 and are expected to be updated annually via the Finance Act, as per tradition.

1.3 Rebate Under the Old Tax Regime

Eligibility: Resident individuals with net taxable income up to Rs. 5,00,000
Maximum Rebate: Rs. 12,500
Effective Tax Payable: Zero

Old Tax Regime followers are denied marginal relief if their income is marginally above Rs. 5 lakhs, which is totally unfair. Rebate is available up to a taxable income of Rs. 5 lakhs, and they need not pay any tax if their income is Rs. 5 lakhs. But if the income exceeds Rs. 5 lakhs, the rebate is not available, and they have to pay tax from Rs. 2.5 lakhs onwards. For example, if the taxable income is Rs. 5,01,000, the tax payable, including education cess, will be Rs. 13,208, which is totally unfair; for an additional income of Rs. 1,000, the tax payable is Rs. 13,208. Marginal relief should be given to the extent that the tax payable should be restricted to the income that exceeds Rs. 5 lakhs.

1.4 While it is widely publicized that the new Act will be simple and easy to understand for the common man, it is not understood why they are continuing the two regimes by prescribing two sets of taxation and rebates, which is confusing the assessees. It seems that there is no logical reasoning to have the basic exemption limit under NTR at Rs. 4 lakhs by prescribing rates ranging from 5% to 10% up to Rs. 12 lakhs and allowing the entire tax as rebate for income up to Rs. 12 lakhs, and under OTR keeping the exemption limit at Rs. 2.5 lakhs and allowing the entire tax as rebate for income up to Rs. 5 lakhs.

1.5 Instead, to have simplicity and to gain confidence among the tax-paying public, it is better to have only one tax regime, i.e., the ‘old one’, due to the following reasons:

It is not understood why the Government is in favour of a ‘spending economy’ by discouraging savings, which are considered to be the backbone of the Indian economy. In fact, in the past, the Government promoted savings by encouraging people to invest in specified savings schemes, including the payment of life insurance premiums, and by giving deductions for repayment of housing loans and allowing deduction up to Rs. 2 lakhs for loss under house property due to interest on housing loans. Many assessees have entered into long-term commitments by purchasing life insurance policies and have constructed houses by taking housing loans from banks and housing finance companies on the belief that they will be able to save income tax under Section 80C for repayment of housing loans and premiums for life insurance policies, and for interest on housing loans up to Rs. 2 lakhs under the head ‘Income from House Property’. Now, all of a sudden, these benefits were withdrawn, putting the assessees who purchased life insurance policies and availed housing loans in trouble (which are long-term commitments in the form of yearly payment of premiums and repayment of housing loans with interest), mainly for the purpose of saving income tax, believing that the Government would continue to give concessions to promote savings. In addition, since bank fixed deposits are also eligible for deduction and interest from banks is also deductible up to the specified limits from the Gross Total Income, by following the OTR, deposits in banks will increase substantially.

Suggested Rates of Tax

Senior Citizens (60 years of age): Exemption limit Rs. 12,00,000
Super Senior Citizens (80 years of age): Exemption limit Rs. 16,00,000

All deductions will be allowed, and there will be no rebate.

Surcharge and education cess should not be levied.

2. Rectification & Condonation

2.1 As per the present Act, the Assessing Officer/CPC/NFAC can take six months to dispose of the rectification petition filed under Section 287 of the Income Tax Act 2025 (Section 154 of the Income Tax Act 1961). It is not just and equitable to direct the assessee to respond within 30 days (1 month) for payment of the disputed demand while the Department takes six months to rectify or reject the petition, which is filed within 30 days. As per the existing provisions of the law, even if the Assessing Officer does not attend to the petition, he cannot be questioned. To be fair and equitable, the Income Tax Act should be amended in such a way that the Assessing Officer/CPC/NFAC will also be given only 30 days for rectification, and if the rectification order rejecting the petition is not passed within the time allowed, the petition made should be deemed to have been allowed. Once the rectification petition is filed, the assessee should automatically be given time until the disposal of the petition to pay tax as well as to prefer an appeal. Many assessees are suffering because even clerical errors are not rectified, and they are compelled to pay a minimum of 20% of the demand and go for appeal. While online rectification petitions are being filed, even though there is an option to spell out the defects/errors in the order, the CPC simply reprocesses the return once again and sends the same order, which is of no use. The Act is to be amended in such a way that if the assessee prefers an appeal, he has to deposit 20% of the demand, and if he is not in a position to pay even the 20% of the demand, he can apply for a stay of collection of taxes stating the reason to the Jurisdictional Assessing Officer or the Commissioner of Income Tax, who can decide the case on merits within 30 days of the demand so that the assessee can take further steps to file the appeal within the time allowed.

2.2 As of now, if there is a mistake in the order passed by the CIT (Appeals) and the assessee applies for rectification, there is no time limit for disposing of the rectification petition by the CIT (Appeals). It is just and equitable to fix a time limit of 30 days for disposing of such petitions.

2.3 As per the present Act, it seems that there is no time limit for disposing of various condonation petitions filed, such as petitions for condonation of delay in filing Form 10. Due to the delay, the exemption is withdrawn, and heavy taxes are levied, and the appellate authorities are not in a position to pass orders in such cases because the condonation petitions are kept pending with the concerned CIT (Exemptions) for years together. Hence, a time limit of, say, 30 days may be prescribed for disposing of such condonation petitions by the concerned authorities.

3. PROBLEMS IN PRESUMPTIVE TAXATION

3.1 In the case of partnership firms, it will be fair and just to allow interest and salary to partners so that those partnership firms which opt for presumptive tax are also treated on par with others who get their accounts audited. Further, in the present situation, if a partner gets interest and salary from a partnership firm which has offered income under the presumptive taxation scheme, whether such interest and salary are exempt from income tax in the hands of the partners is not specified in the Act, though they are not allowed as expenditure in the firm’s hands. Since all the expenditure is deemed to have been allowed in the firm’s hands, the interest and salary would be subject to tax in the partners’ hands also, which will lead to double taxation. In the normal course, in the case of firms which are subject to audit and offer less income than the rates prescribed under this scheme, such interest and salary (which are allowed as deductions) are not taxable in the hands of the partners as income from business or profession. Hence, it is suggested that the assessees who offer income under this scheme be allowed to deduct interest and salary to partners up to the existing limits from the income offered at the prescribed rates so that they are also treated on par with those who offer lower income with audited accounts.

4. DISALLOWANCES

4.1 Regarding cash transactions under Sections 185, 186, and 189 of the Income Tax Act 2025 (Sections 269SS, 269T, 269ST of the Income Tax Act 1961) for acceptance and repayment of loans and for expenditure allowable under the Act under Sections 36 and 37, exemption may be provided for direct payment of cash into the other party’s account by the assessee, because nowadays, due to ‘anywhere banking’, the public can deposit cash at any branch near them. If the amendment is made, it will go a long way in augmenting large-scale business transactions, because these sections were brought in to curb black money transactions.

5. ASSESSMENT PROCEDURES

5.1 While reopening cases under Section 280, the reasons for reopening the case should be mentioned in the notice itself, because many such reopenings were struck down at appellate stages due to there being no valid reason at all for reopening. Because of this, many man-hours are wasted in ascertaining the reasons from the Department and then contesting whether the reasons spelled out are valid or not.

5.2 As of now, if discrepancies are found in Form No. 26AS, such as receipt of maturity amount of a policy and the TDS being reflected in Form 26AS, whereas the assessee, in whose Form No. 26AS it appears, has not received any such amount during the year, and if the return is filed without taking into account such information, the assessee will receive a notice from CPC for the differences in Form No. 26AS enhancing the income and demanding additional tax. Filing rectification or appealing for such issues is time-consuming. Hence, it is suggested that in such instances, the assessee should be given an opportunity to apply for rectification with the entity concerned which uploaded the wrong information, with an option to inform the CPC also about the discrepancies. For this purpose, a separate window may be provided on the site for the assessees to make representations so that automatic alerts may be sent to the concerned authorities who uploaded incorrect information.

5.3 As of now, hearing notices are sent by email to the assessee’s email ID as well as an alternate email ID. But there are some cases where the assessees deny having received the hearing notices sent to both email IDs. There is no mechanism to prove the emails sent or received by the Department. Likewise, there is no record to prove the replies sent by the assessee via email. It is requested to devise a foolproof system for emails sent by the Department with a date stamp for having been sent and for emails received by the Department with a date stamp for having received the email from the assessees. Since Registered A.D. post has been dispensed with by the Postal Department, they can send the notices by Speed Post or approved couriers so as to ascertain the date of service through tracking by the acknowledgment number provided at the time of dispatch.

6. TIME LIMIT FOR PASSING REVISIONAL ORDERS

6.1 Likewise, there is no time limit for passing revisional orders to be passed by the jurisdictional officers based on the orders made by the CIT (Appeals)/ITAT, which results in undue hardship to the assessee due to non-receipt of refunds due. A time limit of 30 days is to be fixed for the jurisdictional officers to pass orders based on the orders passed by the appellate authorities.