Highlights of Direct Tax Proposals in Budget 2026-27 in Bullet Form

The direct tax proposals under the new Income-tax framework, applicable from 1 April 2026, focus on compliance simplification, litigation reduction, and targeted rationalisation while retaining existing personal and corporate tax rates. Key measures include higher Securities Transaction Tax, withdrawal of interest deduction against dividend and mutual fund income, and taxation of share buyback proceeds as capital gains. The Minimum Alternate Tax regime is overhauled by reducing the rate to 14%, discontinuing future MAT credit, and restricting utilisation of existing credit under the new tax regime. Filing timelines are eased through extended due dates, broader scope for revised, belated, and updated returns, and relief on employees’ PF/ESIC contributions if paid before return filing. Several penalty provisions are converted into prescribed fees, interest on penalties is deferred until appellate orders, and many offences are decriminalised. International tax measures include a foreign asset disclosure scheme, relaxed safe harbour rules for IT services, exemptions for specified non-resident income, and rationalised TCS rates across multiple transactions.

Direct Tax Proposals:

• The New Income Tax Act will be applicable with effect from 1^st April 2026
• No change in the Personal Income Tax Slabs or Tax rates
• No change in the Corporate Tax Rates

Major Direct Tax Proposals:

• Increase in tax rates of Securities Transaction Tax (STT)
• No deduction in respect of any interest expenditure incurred for earning dividend income or income from units of mutual funds
• Tax Exemption on redemption of Sovereign Gold Bonds (SGB) shall be available only where the SGB is redeemed by the Original Subscriber
• Consideration on Buy-back shall now be chargeable to tax under the head “Capital gains” instead of being treated as Dividend Income
• Enabling provisions for electronic processing and issuance of a certificate for deduction of TDS at a lower rate or Nil TDS
• Individuals and HUFs buying property from NRIs will henceforth be able to deposit TDS using their PAN
• Enabling mechanism for Filing of Form 15H/15G with the Depository instead of filing these Forms with each Company or Mutual Funds
• Exemption to a Foreign Company on Income from Data Centre Services till 31st March 2047
• TDS on supply of Man Power is now clarified to be @1% or 2% and not @10%
• MAT rate reduced from 15% to 14% of Book Profit
• MAT credit to be discontinued from 1^st April 2026
• Set off of earlier MAT Credit will be allowed only under the New Tax Regime up to 25% of the Tax Liability
• Change in the Due date of filing the Return of Income to 31st August

for a person having Business Income not under Audit

• Employees’ contribution to PF, ESIC etc., won’t be disallowed if deposited before the due date of filing the return of income
• Extension in the period of filing of the revised return till 31st March of the next Financial Year, subject to payment of the prescribed Fees
• Belated returns can be revised with payment of additional fees
• Updated return can be filed where reported losses are reduced as compared to the Original Return
• Updated returns allowed to be filed after issuance of reassessment notice with payment of an additional 10% tax
• Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026 (FAST-DS 2026) announced to declare certain Foreign Assets subject to payment of prescribed tax
• Small value Undisclosed Foreign Assets, (except immovable property) of less than Rs. 20 Lac to be excluded from prosecution under the Black Money Act

Safe Harbor Provisions under Transfer Price rationalized

• Clubbing of services under a single category of Information Technology services with a common Safe Harbor Margin of 15.5%
• Continuation of Safe Harbor for a period of five years at the

The company’s choice

• Safe harbour threshold for IT services increasing from ₹ 300 crore to ₹2,000 crore
• Approval of safe harbour for IT services by an automated rule-driven Process
• Rationalisation and Decriminalization of many prosecution provisions
• Rationalisation of the period of block period in case of third party whose undisclosed income is detected during search
• Prescribed Fees to be paid for non-filing of Tax Audit Report, Transfer Price Report etc. instead of penalty
• Penalty for under-reporting or misreporting of income will now be levied in the Assessment Order itself instead of separate penalty proceedings
• Interest under section 220 proposed to be levied only after issuance of Order by CIT(A) or ITAT
• Rationalisation of tax and penalty on unexplained credits, unexplained investment, unexplained asset etc.

Reduction/Rationalisation in following TCS rates

• Clarification regarding jurisdiction to issue notice u/s 148 where income has escaped assessment and for carrying out pre-assessment procedure
• Extension of immunity from penalty and prosecution to misreporting of income subject to payment of additional tax
• Filing of return or modified return as a consequence of Advance Pricing Arrangement allowed
• Exclusion of specified business of Non-residents which are under presumptive taxation from the applicability of Minimum Alternate Tax
• Exemption to Foreign Income of Non-residents for rendering services under a notified Scheme in India for 5 years
• Assessments not to be invalid on the grounds of non-quoting of computer-generated DIN, if such assessment is referenced by computer-generated DIN in any manner
• Clarification regarding the manner of computation of sixty days for passing of the order by the Transfer Pricing Officer
• Penalty provision for non-furnishing of statement or furnishing inaccurate information in a statement on transaction of crypto-assets
• Exemption to Interest Income on Compensation received under the Motor Vehicles Act, 1988
• No TDS on Interest on Compensation paid under the Motor Vehicles Act, 1988
• Exemption to Income from compulsory acquisition of any Land under the RFCTLARR Act
• Exemption for Disability Pension to armed forces personnel

Other Proposals:

• Individual Persons Resident Outside India (PROIs) will be permitted to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme (PIS)

• Joint Committee of Ministry of Corporate Affairs and Central Board of Direct Taxes for incorporating the requirements of Income Computation and Disclosure Standards (ICDS) in the Indian Accounting Standards (IndAS).