The Union Budget 2026–27 introduces extensive amendments under the Income-tax Act, 2025 to rationalise taxation, reduce litigation, and simplify compliance. Key proposals include excluding buy-back proceeds from dividend and taxing them as capital gains; reducing MAT rate to 14% while restructuring MAT credit utilisation; lowering tax on unexplained income from 60% to 30% and subsuming related penalties under misreporting provisions; and tightening exemption for Sovereign Gold Bonds to original subscribers only. TDS and TCS provisions are streamlined, including clarity that manpower supply attracts 2% TDS and relaxation of TAN requirement for property buyers. Employer contributions to provident funds are aligned to a ₹7.5 lakh cap. IFSC and Offshore Banking Units receive extended tax holidays and concessional 15% post-holiday tax. Penalties are largely converted into graded mandatory fees, and several prosecution provisions are decriminalised with reduced imprisonment terms. A disclosure scheme for small taxpayers holding foreign assets is also proposed.
Also Read: Budget 2026: Analysis of Key Proposals related to Income Tax Act, 1961
UNION BUDGET 2026-27
Key Direct Tax Proposals With reference to amendments made in Income-tax Act, 2025 (Part II)
DEFINITIONS
| Co-operative Society
[Section 2(32)] [New Act] |
Changes in Definitions:
– Clause (32) in Section 2 in the New Act (2025 Act) which defines “Co-operative Society” is amended slightly to also include co-operative societies registered under Multi-State Co-operative Societies Act, 2002 |
| Dividend
[Section 2(40)] [New Act]
[Section 2 (22)(e)] [Old Act] |
Buy-back of shares not to be considered as Dividend:
– Under the provisions of the Old Act, buy back by the company of its own shares or other specified securities was deemed to be dividend income of the shareholder under Section 2 (22)(e) of the Old Act – Under the New Act (before amendment vide Finance Bill 2026), the same provision of buy back of shares was deemed to be dividend as per definition of dividend in Section 2(40) (f) |
| Section 2(40)(e) – Loans and Advances for IFSC units
[New Act] |
– It is proposed in the Finance Bill to omit the sub-clause (f) in clause (40) of Section 2 in the New Act so as to exclude consideration received on buyback of shares from the scope of dividend.
– This is to rationalise the taxation buy-back of shares by providing that consideration received on buy-back shall be chargeable to tax under the head “Capital gains” Section 69 [New Act] instead of being treated as dividend income |
| Definition of Dividend For Income Of Off-Shore Banking Units And IFSC Units | – The definition of ‘dividend’ excludes certain loans and advances made between group entities, where one of the group entities is a ‘finance company’ or a ‘finance unit’ and the parent or principal entity of the group is listed on a stock exchange outside India
– In order to rationalise the said provision, it is proposed to amend the sub-clause (v) of clause (40) of Section 2 [New Act] to provide that, the other group entity to the transaction shall also be located in a country or territory outside India which shall be a notified jurisdiction Also, the parent entity or the principal entity of such group is listed on stock exchange in a country or territory outside India which shall be a notified jurisdiction |
| VTP Comment | – The Bill proposes to narrow this exclusion by introducing an additional condition that the other group entity involved in the transaction must also be located in a notified country or territory outside India. |
CORPORATE TAX
| CORPORATE TAXATION | Changes in MAT Provision
The following are the proposed changes: a. For companies that do not choose to opt for the Concessional Tax Regime for companies: – The MAT rate is proposed to be reduced from 15% to 14% – With effect from tax year 2026–27, MAT will be treated as a final tax, and no fresh MAT credit will be generated in respect of tax paid under the MAT provisions – Such companies will not be permitted to set off their accumulated MAT credit against normal tax liability – The accumulated MAT credit will lapse unless the company subsequently transitions to the Concessional Tax Regime – However, when such companies transition to the Concessional Tax Regime, the MAT credit accumulated under the Old Act until March 31, 2026, would be allowed to be set-off as per the provisions of Section 206(3) of the New Act |
| [Section 206] New Act | b. For companies which opt for the Concessional Tax Regime:
– The Bill proposes to add a new sub-Section to Section 206 which will be applicable to domestic companies opting for the Concessional Tax Regime for a tax year beginning on or after 1 April 2026. In such cases, the Bill proposes the following treatment of MAT credit: – Accumulated MAT credit, as of March 31, 2026, is allowed to be brought forward and set off in the Concessional Tax Regime – However, unlike the traditional method which allowed full set off of MAT credits, the set-off in the Concessional Tax Regime is capped. The credit can be utilized to the extent of 25% of the total tax payable on the total income for that year – Any unutilized credit can continue to be carried forward, subject to the original 15-year limitation period |
| [Section 115JB] Old Act | c. Special Dispensation for Foreign Companies
– For foreign companies, which do not have the option to opt into the Concessional Tax Regime, the Bill proposes to insert a new sub-Section (4) to Section 206, providing the following relief: – The MAT rate is proposed to be reduced from 15% to 14% – With effect from tax year 2026–27, MAT will be treated as a final tax, and no fresh MAT credit will be generated in respect of tax paid under the MAT provisions – Foreign companies may continue to set off their brought-forward MAT credit – The 25% cap on utilisation of MAT credit will not apply – MAT credit may be set off to the extent of the difference between the tax on total income and the MAT liability – Credit for tax paid under the Old Act shall be allowed under the New Act for the period in which it would have been allowed under the Old Act |
| VTPA Comment: | – By disallowing the utilisation of accumulated MAT credit for companies that remain outside the Concessional Tax Regime, the government effectively presents companies with a clear choice:
– Either shift to the Concessional Tax Regime and utilise MAT credit (subject to the 25% cap per year) or continue under the existing regime with no ability to use such credit – Domestic companies would need to evaluate the action that they would be required to take, whether to migrate to the Concessional Tax Regime from FY 2026–27 onwards or not |
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| Interest for defaults in furnishing return of income
[Section 423] [New Act]
[Section 234A] [Old Act]
Interest for defaults in payment of advance tax [Section 424] [New Act] [Section 234B][Old Act] Interest for Deferment of Advance Tax [Section 425] [New Act] [Section 234C] [Old Act] |
Consequential amendments synchronising proposed MAT credit provisions and carry forward and set-off of losses for Interest on defaults
– Sections 423 (234A of the Old Act), 424 (234B of the Old Act) and 425 (234C of the Old Act) of the Income-tax Act deal with interest charged for delay in filing the return of income, failure to pay advance tax, and shortfall in advance tax payments, respectively
– The Finance Bill proposes to revise the cross-references contained in Sections 423(4)(d)(vii), 424(2)(f) and 425(5)(f) so that the interest-calculation mechanism corresponds to the updated MAT credit framework under Section 206 (115JB of the Old Act) – In line with this restructuring, the phrase “any tax credit allowed to be set off as per sections 206(2)(e) to (h) and 206(3) and (4)” is intended to replace the existing reference to Sections 206(1)(m) to (p) and 206(2)(e) to (h) – This amendment follows from the proposed deletion of Sections 206(1)(m) to (p) in this Finance Bill, which previously governed the utilisation and set-off of minimum alternate tax paid in excess of the tax liability – Similar changes have been made to payment of Self Assessment Tax under Section 266 (Section 140A of the Old Act) – These amendments are effective from 1 April 2026 |
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| Deduction relating to Employee Welfare
[Section 29] [New Act] Other Deductions [Section 36] [Old Act] |
– Section 29(1)(e)(i) relates to deduction related to employee welfare
– The Section provides for deduction of any amount of contribution received by the assesee being an employer from an employee to which the provisions of Section 2(49)(o) apply [funds like provident fund, superannuation fund or employee’s state insurance], if such amount is credited by the assessee to the account of the employee in the relevant fund or funds by the due date – In the corresponding provisions of the Old Act, and the applicable provision in the New Act, the ‘due date’ means the date by which the assessee is required as an employer to credit employee contribution to the account of an employee in the relevant fund – It is proposed to substitute the said clause so as to provide that ‘due date’ shall be on or before the ‘due date of filing of return of income’ for the assessee – This amendment will take effect from 1 April, 2026 and will, accordingly, apply in relation to the tax year 2026-27 and subsequent years |
| VTPA Comment | – This provision will facilitate the taxpayer (employer). Earlier, if the contribution received by the assessee being an employer from an employee was not deposited or credited to the respective fund on the due date of depositing by the employer, the business deduction to the employer was denied. Now with the extended time up to date of filing of return, this will give adequate opportunity to the employer to deposit the contribution of the employee |
CAPITAL GAINS
| Capital Gains on purchase by company of its own shares or other specified securities: | – Section 69 of the New Act relates to capital gains on purchase by company of its own shares or other specified securities is amended
– A new sub-Section (2) in Section 69 is inserted to provide that in respect of capital gains above referred, where the shareholder or holder of other securities is a promoter, the aggregate income-tax payable on such capital gains shall be- |
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| [Section 69] [New Act] | (a) the income-tax payable on such capital gains in accordance with the provisions of the Act; and
(b) an additional income-tax in respect of capital gains specified in the table below: |
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| [Section 46A][Old Act] |
– For the purposes of this Section, in the case of a company whose shares are listed on a recognized stock exchange in India, ‘promoter’ shall have the meaning as assigned in SEBI regulations; – For any other case, ‘promoter’ means a person who holds, directly or indirectly, more than 10% of the shareholding in the company – These amendments will take effect from 1 April, 2026 and will, accordingly, apply in relation to the tax year 2026-2027 and subsequent years |
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| VTPA Comment | – It is to be noted that the combined rate of tax and additional tax on short-term capital gains for promoters who are say individuals would be 20%+10%=30% and for long-term capital gains would be 12.5%+17.5% = 30%
– Whereas, for promoter companies, the short-term capital gains would 20%+2% = 22% and for long-term capital gains would be 12.5%+9.5%=22% – It appears to be discriminatory that individual promoters have to pay 30% tax on long-term capital gains on such buy-back whereas promoter companies have to pay only 22% |
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| Transfer of Capital Assets – Transactions not regarded as Transfer
[Section 70] [New Act] [Section 47] [Old Act]
|
– Section 70(1)(x) of the Act provides an exemption from capital gains tax in respect of income arising from redemption of Sovereign Gold Bonds issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015 or any later scheme
– It is proposed to substitute Section 70(1)(x) to provide that the capital gains exemption will apply only to Sovereign Gold Bonds which are originally subscribed by an individual and held continuously by that individual till maturity and redemption – These amendments will take effect from 1 April, 2026 and will accordingly apply to tax year 2026–27 and subsequent years |
| VTPA comment
|
– The amendment has significantly tightened the exemption criteria, as only sovereign bonds held from the original issue till maturity qualify for exemption, while bonds purchased or sold through the secondary market will now attract capital gains tax |
TDS/TCS
| Tax to be deducted at source [Section 393] [New Act] | TDS on sale of immovable property
– Section 393 of the Income Tax Act 2025 consolidates multiple Tax Deducted at Source (TDS) provisions into a single Section (formerly Sections 193-197A) – There was a referencing error in Note 3 to Section 393(1) of the Act whereby it refers to [Table Sr. No. 3(iii)] (relating to compulsory acquisition of any immovable property other than agricultural land) instead of referring to [Table Sr. No. 3(i)] (sale of any immovable property other than agricultural land), which is now corrected by amending the Note 3 of Section Application of TDS on supply of manpower – Section 402 of the Income Tax Act, 2025, serves as the interpretation clause for Chapter XIX-B, defining key terms related to the collection and recovery of tax, specifically focusing on TDS/TCS obligations. It provides definitions for terms like “authorised person” for non-resident payments, “work”, etc., and specific turnover thresholds (e.g., one crore, fifty lakh, ten crore) to determine compliance obligations – There was no such Section in the Old Act as all the definitions were covered in respective sections that dealt with the deduction of tax for specific nature of transactions – Section 393(1) [Table: Sl. No. 6(i)] [Section 194C of the Old Act] provides for the tax deduction at source (TDS) in the case of payments made to contractors for carrying out any work. It provides for rate of deduction of 1% when payment is made to individual or HUF and 2% in other cases – An ongoing point of contention has been the treatment of “manpower supply” arrangements, specifically, whether such payments should be regarded as consideration for contractual work, attracting a 2% TDS under Section 393(1) [Table: Sl. No. 6(i)] / [Section 194C of the Old Act], or whether they should fall under the category of professional or technical services, which carry a higher withholding obligation of 10% – In several assessments, officers have attempted to classify manpower supply as a professional/technical service under Section 194J [Old Act], resulting in disallowances and additional tax demands. These positions were regularly appealed, and higher judicial forums, including various ITAT benches and High Courts have repeatedly concluded that manpower supply contracts constitute “work” within the meaning of Section 402(47), and do not amount to professional or technical services. Consequently, they are liable only for 2% TDS under Section 393(1) [Table: Sl. No. 6(i)] [Section 194C of Old Act] – Therefore, to remove any remaining ambiguity, the Finance Bill proposes to amend the definition of “work” under Section 402(47) by explicitly adding “supply of manpower” to its scope. This legislative clarification confirms that such payments fall squarely within Section 393(1) [Table: Sl. No. 6(i)] (194C) and not under Section 393(1) [Table: Sl. No. 6(iii)] (194J) and attract 2% TDS, thereby limiting scope for future disputes Exemption of TDS on interest paid to co-operative societies engaged in the banking business – Section 393(4) provides a negative list where tax is not required to be deducted for such listed transactions. The Finance Act proposes to add, with a Banking company, under serial no. 4, interest paid to “any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank)”. This aims at including co-operative societies which are carrying on banking business but were not entitled to this exemption of non-deduction of TDS |
| [Section 193-197A]
[Old Act] |
Exemption on interest income under the Motor Vehicles Act, 1988
– Schedules II to VII of the Income Tax Act 2025 read with Section 11 enumerates all the incomes that are not to be included in the total income of persons specified therein. These schedules are nothing but all the provisions of exemptions under series of Section 10 of the Old Act – Section 11 of the Income-tax Act, 2025 provided tax exemption for the income of certain persons specified in Schedule III, subject to the conditions laid out therein. The Finance Bill proposes to expand Schedule III to include, as exempt income, the interest granted by the Motor Accident Claims Tribunal under the Motor Vehicles Act, 1988, when such interest is received by an individual or by the legal heir of the victim The intent behind this amendment is to ease the financial strain on those affected by accidents, either the victims themselves or their surviving families, by ensuring that interest awarded on compensation for death, permanent disability, or bodily injury is not taxed No tax to be deducted at source in respect of interest on compensation amount awarded by Motor Accidents Claims Tribunal to an individual – Under the current provisions of Section 393(4) [Table: Sl. No. 7, Column C (c)(iv)] of the Income-tax Act 2025, tax is not required to be deducted from interest granted by the Motor Accidents Claims Tribunal only when the total interest paid in a financial year is INR 50,000 or less – As the Finance Bill proposes to make such interest income fully exempt under Section 11 read with Schedule III, as discussed above, it further seeks to remove the TDS requirement altogether in cases where the compensation is paid to an individual. This change is aimed at easing the financial burden on accident victims by ensuring that no tax is deducted at source on the interest component, irrespective of the amount involved |
| [Section 193-197A]
[Old Act] |
Enabling filing of declaration for no deduction to a depository
– Section 393(6) of the Income-tax Act, [Section 197A of the Old Act] provides that no tax is required to be deducted under certain provisions if the taxpayer submits a prescribed declaration confirming that their estimated total income for the relevant year attracts no tax. This requirement appears in Column C of the TDS Table under Section 393(6) the Act – Currently, investors receiving income from a variety of units and securities experience significant administrative burden, as they must submit individual declarations to each payer, resulting in increased compliance requirements. To streamline this process, a new clause, Section ‘393(6)(b)’ has been proposed. The amendment would allow an investor to submit a single electronic declaration to a depository in cases where:
– The depository would then be responsible for passing on this declaration to the concerned payer, thereby eliminating the need for multiple submissions – The proposed changes aim to reduce compliance for investors earning income from multiple securities by allowing them to submit a single declaration to the depository, which will then forward it to the payer – Further, sub-Section (7) of Section 393 is proposed to be amended where the payers will now need to submit these declarations to the Income-tax authorities i.e. Principal Chief Commissioner / Chief Commissioner / Principal Commissioner / Commissioner on a quarterly basis instead of monthly basis. This simplified mechanism will apply only to investors who hold listed securities or units in dematerialised form with a depository |
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| Collection of tax at source
[Section 394] [New Act] [Section 206C] [Old Act] |
Rationalization of TCS provisions – Amendment to Section 394
– Section 394 of the Income Tax Act, 2025, consolidates Tax Collection at Source (TCS) provisions, largely replacing the old Section 206C of the 1961 Act. It uses a tabular format to define rates, thresholds, and responsibilities for specific transactions, including foreign remittances, luxury vehicle sales, and commodity sales – The Finance Bill proposes to amend the rates of TCS to provide uniform rates wherever possible. The summary of changes in TCS rates are as under:
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| Certificates [Section 395] [New Act]
[Section 197] [Old Act]
|
Enabling electronic verification and issuance of certificate for deduction of income-tax at lower rate or no deduction of income-tax
– Section 395 of the Act deals with the issue of certificates that allow tax to be deducted or collected at source at a lower rate or at nil rate. Currently, an applicant must approach the Assessing Officer, who, after verifying the taxpayer’s details and determining that their estimated income warrants a reduced or nil TDS, issues the relevant certificate – To simplify this process for small taxpayers, the proposal introduces an option to submit the application electronically to a designated income-tax authority which may issue the certificate electronically subject to fulfillment of prescribed conditions. This authority may grant the certificate after verifying that the prescribed conditions are met, or reject the request where the conditions are not satisfied or the application is incomplete – Relevant rules in this regard will be notified separately by the Central Government and consequential amendments have been made to recognize certificates issued through the electronic mechanism – The amendment shall take effect from 1 April 2026 |
| VTPA Comment | – The proposed change is designed to ease compliance of small taxpayers by offering an electronic alternative to the current manual procedure for obtaining lower or nil TDS certificates. By making it online and minimizing physical interaction, it may expedite verification and enable quicker issuance of certificates |
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| Compliance and Reporting
[Section 397] [New Act] [Section 194-IA] [Old Act] |
TDS on purchase of immovable property – Compliance and Reporting
– Section 397(1)(a) of the Act mandates that anyone responsible for deducting or collecting tax must obtain a Tax Deduction and Collection Account Number (TAN), except in situations covered under clause (c), where this requirement is waived – At present, a buyer purchasing property from a resident is not required to obtain a TAN for deducting TDS on the consideration. However, if the seller is a non-resident, the buyer must apply for a TAN even when the transaction is a one-time event, creating avoidable compliance for individuals and HUFs – To address this burden, the Bill proposes an amendment to Section 397(1)(c) so that resident individuals and HUFs will no longer be required to obtain a TAN for deducting tax on payments made for the transfer of immovable property under Section 393(2) [Table Sl. No. 17], even when the seller is a non-resident – This relaxation is proposed to be effective from 1 October 2026 |
| VTPA Comment | – The amendment will help ease the burden of compliance which was cast on the buyer in case the seller was a non-resident and the resident buyer was required to obtain a TAN for this one time transaction |
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| Processing
[Section 399] [New Act]
[Section 200A & 206CB] [Old Act]
|
– Section 399 of the Income-tax Act provides the mechanism for processing TDS and TCS statements, including any correction statements filed
– At present, clauses (c) and (d) of Section 399(1) refer to Section 427 (Section 234E of the Old Act) for determining and adjusting the fee payable for delayed filing of such statements – The Finance Bill proposes to revise these clauses by replacing the reference to “Section 427” with “Section 427(1) and (2)” – This change is a consequential change that aligns Section 399 with the amendments introduced through Clause 83 of the Finance Bill, which restructured Section 427 to cover fees not only for defaults relating to TDS/TCS compliance under Section 397 but also for failures connected to reporting obligations under Section 508 (Section 285BA of the Old Act) concerning statements of financial transactions or reportable accounts (SFT’s). |
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| Fee for default in furnishing statements
[Section 427] [New Act]
[Section 234E] [Old Act]
|
Additional Fee for default in furnishing statements
– Section 427 of the Income Tax Act, 2025 deals with fees for default in furnishing statements, (Section 234E of the Old Act). It imposes a late fee of INR 200 per day for failing to file TDS/TCS statements – Section 427 of the Income-tax Act is proposed to be expanded to cover additional reporting failures – At present, this provision deals only with delays in filing TDS/TCS-related statements required under Section 397(3)(b). Where such a statement is furnished after the prescribed deadline, the person responsible must pay a daily fee of INR 200, restricted to the amount of tax deductible or collectible, and this fee must be cleared before the statement is finally filed – The Finance Bill seeks to broaden the ambit of Section 427 by bringing another category of non-compliance within its scope namely, the failure to file a statement of financial transaction (SFT) or reportable account within time as prescribed under Section 508(2) – Persons recording or maintaining specified financial transactions or reportable accounts are obligated to submit these statements within the time limit laid out in Section 508(2). Under the proposed amendment, any delay in meeting this obligation will attract a fee of INR 200 per day, but unlike the TDS/TCS statements, the cumulative fee for such defaults will be capped at INR 1,00,000 – This amendment will take effect from 1 April 2026 and shall apply from Tax Year 2026-27 |
INTERNATIONAL FINANCIAL SERVICES CENTRE / OFFSHORE BANKING UNITS (OBUs)
| Deductions for income of Offshore Banking Units and Units of International Financial Services Centre
[Section 147] [New Act] [Section 80IA] [Old Act] |
– Section 147 provides tax deductions to entities operating as Offshore Banking Units (OBUs) and as Units in International Financial Services Centre (IFSC)
– Sub-Section (1) of the said Section allows deduction to certain entities specified therein. Sub-Section (2) of the said Section provides the time period for such deduction – It is proposed to amend sub-Section (2) of Section 147, so as to extend the tax holiday:
– Bill also proposes to introduce a new Section 218, which provides that upon the expiry of the tax holiday period, the specified business income of IFSC units shall be taxable at a concessional rate of 15%, while other income shall be taxable at the rates in force – These amendments will take effect from the 1 April, 2026 and shall accordingly, apply in relation to the tax year 2026-27 and subsequent tax years |
| VTPA Comment | – The amendment is a welcome development, as it incentivises global banks, fund managers, and insurers to make long-term commitments to India’s International Financial Services Centre (GIFT City). This is expected to accelerate growth and strengthen the overall development of GIFT City
– The proposed 15% tax rate on specified business income is also lower than the applicable tax rates for Indian companies, thereby further strengthening the attractiveness and competitiveness of IFSCs – It would be necessary for the government to clarify, in which manner a Unit or an OBU can claim the extended holiday period for those Units / OBUs, whose tax holiday period ended on or before 31 March 2025 under Section 80LA of the Old Act – From the plain reading of the New Act it seems that only Units / OBUs whose tax holiday period ended on 31 March 2026, can transition and claim the extended tax holiday of another 10 years under the New Act – Thus, it would be discriminatory if all Units / OBUs who enjoyed the tax holiday under Section 80LA of the Old Act cannot claim the tax holiday for the remaining period of the extended holiday – Further, it needs to be noted that Units / OBUs who claimed the tax holiday under Section 147, will be taxed at a concessional rate after the expiry of the tax holiday period. The concessional rate of tax for the profits of such Units / OBUs, referred to in Section 147(3) will be 15% – Manufacturing companies and Co-operative Societies under Section 201 and 203 respectively are taxed at the concessional rate of 15%, however, the transactions between related parties are covered under specified domestic transactions under Section 164, but it seems that Units / OBUs taxed at concessional rate of 15% are not covered under specified domestic transactions |
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| Tax on business income of Offshore Banking Units or International Financial Services Centre unit
[Section 218] |
– Where the total income of an assessee includes income of the nature referred to in Section 147(3) (Units in IFSC and OBU), the aggregate of income-tax payable by the assessee shall be the aggregate of income-tax computed on the income specified at the rate specified as below:
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TRANSFER PRICING
| Time-limit for passing of order by TPO
[Section 166] [New Act]
[Section 92CA] [Old Act]
|
– Section 166(7) states that the TPO is required to pass an order sixty days before the expiry of the limitation period, under Section 286 (regular assessment – Section 153 of the Old Act) or 296 (Section 158BE of the Old Act) for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be
– The sub-Section (7) is now amended to make it abundantly clear that the date of limitation of the assessment will be included in the computation of sixty days. Further, it is now amended to state that the reference to ‘days’ is removed and now the time limit for passing order by the TPO would expire before ‘one month’ prior to the month in which the period of limitation referred to in Section 286 or 296, as the case may be, expires. For example, if the date of limitation of assessment order is 31 March 2026, the time-limit for passing order by TPO would be 31 January of that year – The above amendment will take effect retrospectively from 1 June, 2007 |
| VTPA Comment | – The amendment is similar to the amendment made in the Old Act in Section 92CA as regards limitation period of passing of order by the TPO |
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| Advance pricing agreement
[Section 168] [New Act]
Effect to advance pricing agreement
[Section 169] [New Act]
[Section 92CD] [Old Act]
|
Modified Returns of Associated Enterprises
– The existing provisions of Section 168 (1) allow filing of modified return of income only by the person who has entered into advance pricing agreement (APA) with the Board · The provisions do not allow for modifying the return of income or filing of return of income by the associated enterprise whose income and tax liability is correspondingly modified consequent to the APA – Hence, there is no provision in the existing law to enable such Associated Enterprise (who is not the person entering into an APA) for filing of return of income and claiming refund of any additional taxes paid by it or withheld from its income – To rationalise the aforesaid provision, it is proposed to provide that where an income is modified because of advance pricing agreement entered with any person then, such person shall, or any other person being an associated enterprise, may, furnish are turn or a modified return, as the case may be, in accordance with and limited to the agreement, within a period of three months from the end of the month in which the said agreement was entered into, in respect of tax years covered by such agreement – These amendments will take effect from the 1 April, 2026 and shall accordingly, apply in relation to the tax year 2026-27 and subsequent tax years |
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| Safe Harbour Rules For IT/ITeS In Software Development Services | a. Tax certainty to IT/ITES Sector
– New safe harbour provisions for IT/ITES with higher threshold and competitive margin – New Rule 89 in the Draft Rules (Old Rule 10 TD) – To encourage software development services, IT enabled services (“ITeS”), knowledge process outsourcing services and contract R&D services relating to software development, the Bill proposes a set of far-reaching reforms comprising of the following: a. Creation of a unified category of IT services combining (a) software development services, (b) IT enabled services, (c) knowledge process outsourcing and (d) contract R&D services relating to software development b. A common safe harbour margin of 15.5% apply to this unified category c. Enhancement of the safe harbour eligibility threshold for IT services from INR 300 crores to INR 2000 crores d. Approval of safe harbour applications for IT services through an automated, rule-driven process without tax officer intervention e. The option for an eligible company, once it opts for the safe harbour, to continue applying the same safe harbour for a continuous block of five years – The above policy is implemented through new Draft Rules introduced, namely Rules 86–93 (Old Rules: 10TA-10TG) – Under the current safe harbour regime, IT services are classified into distinct categories—software development services, ITeS, knowledge process outsourcing and contract R&D services relating to software development—each subject to different revenue thresholds and safe harbour margins. This fragmented approach has historically led to categorisation disputes and uncertainty – The consolidation of these services into a single unified category is a welcome move, and is likely to materially enhance ease of doing business, reduce litigation risk, and provide greater certainty to taxpayers |
RETURNS, ASSESSMENTS AND APPEALS
| Return of Income
[Section 263] [New Act]
[Section 139D] [Old Act] |
– Under Section 263(1)(c) Due date of filing Return of income in the case of small taxpayers, partners of firms and spouses of such partners, if spouses are governed by the Portuguese Civil Code in Goa, and Individuals having business and professional income but are not required to get their accounts audited under this Act or any other law in force, the due dates for filing income tax returns is extended to 31 August
– In case of other assessees, the due date of filing return of income remains the same – Under Section 263(5) Filing of Revised Return it is now proposed to extend the time limit for filing a revised return from nine months to twelve months from the end of the relevant tax year. Further, a fee would be payable under the substitute Section 428(b) on payment of additional fees of Rs. 1,000 if total income does not exceed 5,00,000 and Rs. 5,000 if total income exceeds Rs. 5,00,000, if the revised return of income is filed beyond nine months from the end of the relevant tax year – Under Section 263(6) Filing of Updated Return it is now proposed to amend the said Section for filing an updated return which has the effect of reducing the loss, in comparison to the amount of loss claimed in the return of loss already furnished within the due date specified under sub-Section (1) – It is also now proposed to amend the said Section where an updated return is furnished by a person for the relevant tax year in pursuance of a notice issued under Section 280 (where income has escaped assessment) within such period as specified in the said notice and in such a case, the assessee shall be precluded from filing return in pursuance of the said notice in any other manner |
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| Tax on updated return | – Substituted Section 267(5) of the Act provides that additional income-tax payable at time of furnishing the return under Section 263(6) shall be equal to amounting to 25%, 50%, 60% and 70% of the aggregate of tax and interest payable if such return is furnished after the expiry of the time available and before completion of 12 months, 24 months, 36 months and 48 months respectively, shall be paid along with original tax and interest payable, from the end of the financial year succeeding the relevant tax year |
| [Section 267] [New Act] | – Further, where an updated return is filed in pursuance of a notice issued under Section 280 (where income has escaped assessment) within the period specified in the said notice, the additional income-tax payable as stated above in Section 267(5) shall be increased by a further sum of 10 % of the aggregate of tax and interest payable, on the basis return furnished by such assessee under Section 263(6) |
| [Section 140B] [Old Act] | – A new sub-Section (13A) is proposed to clarify that income for which additional tax has been paid under Section 267 (updated return) will not be considered for penalty under Section 439 (Section 270A of the Old Act). |
–
| Fee for default in furnishing return of income
[Section 428] [New Act]
[Section 234F] [Old Act]
|
Extended timeline for filing of revised and belated return of income and late filing fee for Audit Reports
– Section 428 (Section 234F of the Old Act) of the Income-tax Act currently imposes a fee on taxpayers who miss the due date for filing their return of income under Section 263(1) – Under the existing regime, the fee for late filing is limited to INR 1,000 for individuals with income up to INR 5 lakh and INR 5,000 in all other cases – The Finance Bill proposes a substitution of this provision, expanding its scope significantly whereby the revised Section addresses a wider range of compliance delays. Apart from the late filing of the original return, the new framework will also cover the following situations:
– These changes are slated to take effect from 1 April 2026 |
| VTPA Comment | – The tendency of the government to levy a fee for delay in adhering to the timelines as stated in the Act. It therefore makes such payment mandatory without any recourse to the taxpayer to demonstrate reasonable cause for such delay in compliance and is regressive in nature
– The compliance burden on the taxpayer, small businesses, etc., is increasing at a compounding rate for various statutes and is it fair that honest taxpayers are now burdened with fee when most of the compliances are carried out at the behest of the government and is therefore actually a burden not emanating from business, but in reality, is to carry out the duties on behalf of the government, like TDS, TCS, etc. – It would be equitable that an opportunity be given to the taxpayer to demonstrate reasonable cause for not levying the fee |
–
| Failure to get Accounts Audited
[Section 446] [New Act] [Section 271B] [Old Act]
Penalty for failure to furnish report u/s. 92E
[Section 447] [New Act]
[Section 271BA] [Old Act]
Penalty for failure to furnish SFT [Section 454] [New Act] [Section 271FA] [Old Act] |
Omission of Sections 446, 447 and substitution of Section 454(1) – Instead of penalties, now charging of mandatory fees
– The following penalties are proposed to be converted into mandatory graded fees under Section 428 (mirroring Section 234F of the Old Act):
– Penalty under Section 446 (Section 271B r.w. Section 44AB of the Old Act): The penalty for failure to get accounts audited is converted into a graded fee of INR 75,000 or INR 150,000, depending on the duration of the delay – Penalty under Section 447: The penalty for failure to furnish an accountant’s report for international or specified domestic transactions under Section 172 (Section 271BA of the Old Act for failure to furnish report u/s. 92E) is replaced with a graded fee of INR 50,000 to INR 100,000 – Penalty under Section 454(1): The penalty for failure to furnish a Statement of Financial Transactions or reportable accounts is INR 1000 for every day for which such failure continues, with an upper limit of INR 1,00,000 |
–
| Time-limit for completion of assessment under Section 144C and time-limit for completion of assessment under Section 153 / 153B
[Old Act]
[Section 275] [New Act] |
– Section 144C of the Old Act lays down a special assessment procedure for eligible assessee, such as non-residents or cases involving transfer pricing adjustments. Under this provision, the Assessing Officer must issue a draft assessment order, which the assessee may either accept or object to before the Dispute Resolution Panel (DRP)
– If the assessee accepts the draft order, the assessment must be completed within one month from the end of the month of such acceptance or after the objection period expires. If objections are filed, the DRP must issue its directions within nine months from the end of the month in which the draft order is issued, and the Assessing Officer must complete the assessment within one month from the end of the month in which these directions are received. These timelines seemed to apply irrespective of the time limits prescribed under sections 153 (regular assessment) and 153B (search assessment) – High Courts have expressed a view that the overall time limits under sections 153 or 153B would also apply to assessments under Section 144C. The Supreme Court has given a split verdict in the Shelf Drilling case and the matter has been referred to a larger bench – To remove this uncertainty, the Bill clarifies that the timelines under Section 144C for applications made to the DRP and subsequent assessment order, will prevail over sections 153 and 153B, notwithstanding any court ruling – Consequential amendments have been made in sections 153 and 153A – It is proposed to amend Section 153 by adding a new sub-Section (10) to clarify that, under sub-sections (1) to (4) of Section 153, the draft assessment order referred to in Section 144C(1) may be issued at any time up to the prescribed time limit for completing the assessment, reassessment, or recomputation, and shall be deemed to have always been validly issued within that time limit – This clarification applies retrospectively from 1 April 2009 for sections 144C and s.153 and from 1 October 2009 for Section 153B |
–
| VTPA Comment
|
– The memorandum explaining the provisions of the Bill explains that the legislative intent was always that the code enumerated in s. 144C was a self-contained code and the timelines for s.144C were to be followed irrespective of the timelines given in ss.153 and 153B. Since the judicial pronouncements of High Court in Roca Bathroom and the split verdict of SC recently in Shelf Drilling cases were not in alignment with the above legislative intent, hence the amendment in Section 144C and consequent amendment in s. 153 and 153B have been brought in to make the legislative intent abundantly clear
– Since the provisions of 144C were introduced from 1.4.2009, hence the insertion of sub-Section (4A) has been made w.e.f. 1.4.2009 and (4B) w.e.f. 1.10.2009 and sub-Section (13A) inserted w.e.f. 1.4.2009 – The important point for consideration is whether the proposed amendments with retrospective effect can cure the defect of not adhering to the timelines as originally legislated. This amendment may therefore lead to litigation as to the constitutional validity of the retrospective nature of the amendment |
–
| Time Limit for completion of assessment, reassessment and recomputation
[Section 286] [New Act] [Section 153] [Old Act] |
To give effect to the amendment made in Section 275 wherein the time limits specified in the DRP proceedings override the general time limits specified in Section 286, the said Section is amended to state that the time limit for draft assessment order referred to in Section 275 shall be made at any time, up to the time limit of assessment, reassessment or recomputation referred to in Section 286 (1) |
|
VTPA Comment |
The amendments carried out in the New Act is based on the similar lines of the amendment carried out in the Old Act. The amendments intend to clarify and state that the DRP proceedings are special proceedings and therefore, the time limits prescribed under Section 275 are not subsumed in the general time limits prescribed under Section 286 |
–
| Income escaping assessment [Section 279] [New Act]
[Section 147] [Old Act] |
Structural changes inserting sub-Section (3) after sub-Section (2) as below:
The “Assessing Officer” for the purposes of sections 280 (issuing notice where income has escaped assessment) and 281 (procedure before issuance of notice under Section 280) shall mean to be an Assessing Officer other than the National Faceless Assessment Centre or any assessment unit referred to in Section 273(3) NaFAC (faceless assessment) The purpose of above amendment is to separate the pre-assessment enquiry from the actual assessment. The pre-assessment enquiry, including the decision to issue notice under Section 280/ 281, is carried out only by the Assessing Officer. After the notice is issued by AO, the reassessment proceedings are conducted in a faceless manner by NaFAC Similar amendments have been made to the Old Act |
–
| Undisclosed income of any other person
In case of search [Section 295] [New Act] [Section 158BD] [Old Act] |
– After clause (b) of Section 295(2) clause (c) and (d) shall be inserted as below:
(c) where the undisclosed income of the other person pertains only to the period (i) commencing from the specified year immediately preceding the year of initiation of search or requisition; and (ii) ending on the date of initiation of search or making of requisition, then the block period in respect of such other person shall comprise of the specified year and the period starting from the 1 April of the tax year in which search was initiated or requisition was made and ending on the date of the execution of the last of the authorisations for such search or such requisition; (d) where the undisclosed income of the other person pertains to a single tax year out of the five tax years preceding the specified year, then the block period in respect of such other person shall comprise of only that single tax year – This amendment will take effect from the 1 April 2026, for search or requisition is initiated or made as the case maybe, on or after 1 April 2026 |
–
|
Time limit for completion of block assessment in case of search
[Section 296] [New Act] [Section 158BE] [Old Act] |
– In Section 296 sub-Section (1) shall be substituted as below: – Thus, now the time limit in case of search assessments is to be reckoned now from the date of initiation of search and not from the date of the last of the authorisations for search was executed |
|
Dispute Resolution Committee (DRC) in certain cases [Section 379] [New Act] [Section 245MA] [Old Act] |
– In Section 379(2), DRC subject to conditions as may be prescribed may make modifications to the variation in specified order or reduce or waive any penalty imposable under this Act or grant immunity from prosecution for any offence punishable under this Act, in case of a person whose dispute is resolved under this chapter
– It is now proposed that for the words “waive any penalty imposable”, the words “waive any penalty imposed or imposable” shall be substituted |
NON-PROFIT ORGANIZATION
| Application for registration of non-profit organization
[Section 332] [New Act] [Section 11, 12A, 12AB, 80G] [Old Act] |
– In Section 332(1) persons referred in clause (a) to (g) claiming benefits under this Part as a registered non-profit organisation may make an application for registration in such form and manner as may be prescribed to Principal Commissioner or Commissioner:
– Amended clause (f), pertaining to any persons referred in table mentioned in schedule III and schedule VII, for the words, “Schedule VII (Table: Sl. No. 10) to (Table: Sl. No. 19)”, the words, “Schedule VII [Table: Sl. Nos. 17 to 19]” shall be substituted – The amendment aims to curtail the persons required to get registration under Section 332 |
–
| Return of Income of non-profit organization
[Section 349] [New Act] [Section 12A] [Section 139] [Old Act] |
Section 349 states that where the total income of a registered non-profit organisation without giving effect to the provisions of this part, exceeds the maximum amount which is not chargeable to income-tax in any tax year, it shall furnish the return of income for that tax year as per the provision of Section 263, within the time limit allowed under Section 263(1)(c ) it is now proposed to insert “or 263(4)” after Section 263(1)(c)
Section 263(4) refers to a belated tax return |
–
| Tax on accreted income
[in case of Merger]
[Section 352, 354A] [New Act]
[Section 12AC, 115TD] [Old Act] |
– In respect of registered non-profit organisations (NPO) (erstwhile charitable organisations) new Section 354A has been inserted, so that in case of the merger by a NPO with another NPO no income-tax shall be chargeable in respect of accreted income if such merger fulfils the following conditions:
(a) the other registered non-profit organisation has same or similar objects; and (b) the said merger fulfils such conditions as may be prescribed – However, if such merger do not fulfil the above conditions, then the specified person shall in addition to the income-tax chargeable in respect of his total income, be liable to pay additional income tax on accreted income at the maximum marginal rate in any cases specified in table given in Section 352(4). Serial number 8 shall be substituted as below:
|
PENALTIES
| Penalty for Under-reporting and misreporting of Income
[Section 439] [New Act]
[Section 270A] [Old Act]
Penalty in respect of certain income
[Section 443] [New Act]
[Section 271AAC] [Old Act] |
– Section 439 of the Income-tax Act, 2025 (Section 270A of the Old Act) imposes penalties for the under-reporting and misreporting of income. It enables authorities to levy a 50% penalty on tax payable for under-reported income and 200% for misreported income
– In Section 439, a new clause (g) is proposed to be added to sub-Section (11), under which any income detected by the Assessing Officer, such as unexplained credits, investments or assets covered under Sections 102 to 106 (Sections 68 to 69D of the Old Act) when not reported in the return, and assessed by the tax officer, will be categorised as misreporting of income – As a result, such additions will attract the higher penalty rate applicable to misreporting, namely 200% of the tax on the under-reported income – With respect to Section 443 (mirroring Section 271AAC of the Old Act), the standalone penalty provision for income referred to in Sections 102 to 106 is proposed to be omitted entirely. Since these cases will now fall within the misreporting category under Section 439(11), the separate penalty of 10% of the tax payable under Section 443 will cease to apply and will be fully subsumed under the Section 439 framework – These changes are proposed to take effect from 1 April 2026 |
–
| Immunity from imposition of penalty, etc
[Section 440] [New Act] [Section 270AA] [Old Act]
|
Waiver of penalty and immunity from prosecution
– Section 440 provides the mechanism for granting waiver or immunity by the Assessing Officer from penalties under Section 439 and prosecution under Sections 478 (276C of the Old Act) or 479 (276CC of the Old Act) in cases involving under-reported income – The proposed amendment expands by adding two new sub-sections under Section 440 to cover situations where under-reporting arises due to misreporting, subject to certain conditions. These include: (a) full payment of tax and interest demanded in the assessment or reassessment order within the prescribed time; (b) in cases falling under Section 439(11)(a) to (f), payment of an additional income-tax equal to 100% of the tax on the under-reported income in place of the penalty; (c) in situations covered under Section 439(11)(g), payment of additional income-tax at 120% of the tax on such income; and (d) the taxpayer must refrain from filing any appeal against the assessment, reassessment, or related penalty order. |
–
| Penalty for failure to comply with the provisions of Section 254
[Section 466] [New Act] [Section 272AA] [Old Act] |
Increase in amount of penalty imposed under Section 466
– Section 466 of the Income-tax Act deals with penalties for non-compliance with Section 254 (Section 363 of the Old Act), specifically where a person fails to provide the information sought by the designated income-tax authorities – Under the current framework, the Joint Commissioner, Deputy Director, Assistant Director, or Assessing Officer may levy a penalty capped at INR 1,000. The proposed amendment seeks to significantly raise this ceiling, increasing the maximum permissible penalty to INR 25,000 |
–
| Penalty not to be imposed in certain cases
[Section 470] [New Act]
[Section 273B] [Old Act] |
– Section 470 of the Income-tax Act, 2025, corresponds to Section 273B of the 1961 Act and provides relief to taxpayers against the imposition of penalties for certain failures in the sections mentioned in this Section, if they can prove that a “reasonable cause” existed for the failure
– Section 447 is proposed to be omitted from the list of sections referenced in Section 470 to which it applies |
–
| Procedure [Section 471]
[New Act]
[Section 274] [Old Act]
|
Issuance of a Show Cause Notice under Section 471
– Section 471 of the Income Tax Act, 2025, titled “Procedure,” serves as the fundamental provision for imposing penalties, mandating that no penalty order can be made without granting the assessee a reasonable opportunity of being heard – Section 471 currently requires that an assessee must be heard, or at least given a fair chance to be heard, before any penalty under Chapter XXI is imposed – In addition, the proposal seeks to integrate penalties arising under Section 439 (Section 270A of the Old Act) directly into the draft assessment, assessment, or reassessment orders issued under Sections 275 (Section 144C of the Old Act), 270 (Section 143 of the Old Act) and 279 (Section 147 of the Old Act) respectively |
–
| When tax payable and when assessee in default
[Section 411] [New Act] [Section 220] [Old Act]
|
Deferral of Interest Accrual on Penalty Assessments
– Section 411 of the Income-tax Act (Section 220 of the Old Act) governs payment of tax demanded under Section 289 (Section 156 of the Old Act) and prescribes interest for late payment – Under the current provisions of Section 411(3), simple interest at 1% per month (or part of a month) applies to any portion of the demand that remain unpaid after the due date – The Finance Bill proposes to modify Section 411(3) so that interest will not accrue on penalties imposed under Section 439 (Section 270A of the Old Act) until the date on which the relevant appellate order is issued. This covers orders passed under Section 359 (Section 250 of the Old Act – First Appeal) by the Joint Commissioner (Appeals) or Commissioner (Appeals), as well as orders under Section 363 (Section 254 of the Old Act – Second Appeal) by the Appellate Tribunal where the assessment or reassessment follows directions of the Dispute Resolution Panel (DRP under Section 275 (Section 144C of the Old Act) – The amendment shall come into effect from 1 April 2026 – All the above amendments in the law are similar to those carried out in the Old Act under Sections 274, 156 and 220. |
OFFENCES & PROSECUTION
| Contravention of order made under sub-Section (4) of Section 247
[Section 473] [New Act] [Section 275A] [Old Act] |
– Section 473 of the New Act applies when a person violates an order passed during search and seizure under Section 247(4)
– This Section is similar to the Section 275A under the Old Act – It is proposed to amend the marginal heading of this Section as below: “Contravention of order made during search action.” – The words ‘rigorous imprisonment’ have been substituted with the words ‘simple imprisonment’ – This amendment will take effect from the 1 April 2026 |
–
| Failure to comply with the provisions of clause (ii) of sub-Section (1) of Section 247
[Section 474] [New Act] [Section 275B] [Old Act] |
– Section 474 of the New Act applies when a person fails to afford necessary facility during search and seizure under Section 247(1)(ii)
– This Section is similar to the Section 275B under the Old Act – It is proposed to amend the marginal heading of this Section as below: “Failure to afford facility for inspection of books of account during search.” – The words ‘rigorous imprisonment for a term which may extend to two years….’ have been substituted with the words ‘simple imprisonment for a term up to six months….’ – This amendment will take effect from the 1 April 2026 |
–
| Removal, concealment, transfer or delivery of property to prevent tax recovery
[Section 475] [New Act] [Section 276] [Old Act] |
– This Section pertains to transfer of assets to evade recovery of tax
– This Section is similar to the Section 276 under the Old Act – For the words “rigorous imprisonment for a term which may extend to two years and shall also be liable to fine”, the words “simple imprisonment for a term up to two years and with fine” have been – This amendment will take effect from the 1 April 2026 |
–
| Failure to pay tax to the credit of Central Government under Chapter XIX-B
[Section 476] [New Act] [Section 276B] [Old Act]
|
– Section 476 pertains to a taxpayer’s failure to pay tax deducted at source to the credit of Central Government, or;
– Pay tax as required by Section 393(1) or 393(3) – Rigorous punishment for a term which shall not be less than three months but which may extend to seven years, and with fine – This Section is similar to the Section 276B under the Old Act – The offences under Section 476 are proposed to be decriminalized, as below: (i) with simple imprisonment for a term which may extend to two years, or with fine, or with both, in a case where amount of such tax exceeds fifty lakh rupees; (ii) with simple imprisonment for a term which may extend to six months, or with fine, or with both, in a case where amount of such tax exceeds ten lakh rupees but does not exceed fifty lakh rupees; (iii) with fine, in any other case – This amendment will take effect from 1 April 2026 |
–
| Failure to pay tax collected at source
[Section 477] [New Act]
[Section 276BB [Old Act]
|
– Section 477 pertains to a taxpayer’s failure to pay tax collected at source to the credit of Central Government as required under Section 397(3)(a) or;
Rigorous punishment for a term which shall not be less than three months but which may extend to seven years, and with fine – This Section is similar to the Section 276BBA under the Old Act – It is proposed to amend Section 477 of the Act so as to change the punishment as below: (a) with simple imprisonment for a term up to two years, or with fine, or with both, where the amount of such tax exceeds fifty lakh rupees; or (b) with simple imprisonment for a term up to six months or with fine, or with both, where the amount of such tax exceeds ten lakh rupees but does not exceed fifty lakh rupees; or (c) with fine, in any other case – These amendments will take effect from 1 April 2026 |
–
| Wilful attempt to evade tax, etc
[Section 478] [New Act] [Section 276C [Old Act]
|
– Section 478 provides that if a person wilfully attempts to evade tax, penalty or interest, or to under-report income under the Act, is punishable, without prejudice to any other applicable penalties as below:
(i) in a case where the amount sought to be evaded or tax on under-reported income exceeds twenty-five hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and with fine – 478(2) – This sub-Section provides for wilful evasion of payment of tax – If a person wilfully attempts in any manner to evade the payment of any tax, penalty or interest under this Act, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to two years and shall, in the discretion of the court, also be liable to fine – These sections are similar to Section 276C under the Old Act – The above provisions have been amended to reduce the punishment as below: (a) with simple imprisonment for a term up to two years, or with fine, or with both, where the amount sought to be evaded or tax on under-reported income exceeds fifty lakh rupees; or (b) with simple imprisonment for a term up to six months, or with fine, or with both, where the amount sought to be evaded or tax on under-reported income exceeds ten lakh rupees but does not exceed fifty lakh rupees; or (c) with fine, in any other case – This amendment will take effect from 1 April 2026 |
–
| Failure to furnish returns of income
[Section 479] [New Act] [Section 276CC] [Old Act] |
– Section 479(1) of the New Act states that person wilfully failing to furnish in due time, the return of income, under sections 263(1), 268(1) or 280, shall be punishable with :
a) in a case, where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds twenty-five lakh rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years, and with fine; (b) in any other case, with imprisonment for a term which shall not be less than three months but which may extend to two years and with fine – This Section is similar to the Section 276CC under the Old Act – This punishment is reduced as below: “(a) with simple imprisonment for a term up to two years, or with fine, or with both, where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds fifty lakh rupees; or (b) with simple imprisonment for a term up to six months, or with fine, or with both, where the amount of tax, which would have been evaded if the failure had not been discovered, exceeds ten lakh rupees but does not exceed fifty lakh rupees; or (c) with fine, in any other case.” – This amendment will take effect from the 1 April 2026 |
–
| Failure to furnish returns of income setting forth undisclosed income
[Section 480] [New Act]
[Section 276CCC] [Old Act] |
– Section 480 of the New Act states that person wilfully fails to furnish in due time, the return of total income which is required to be furnished by notice given under Section 294(1)(a):
– He shall be punishable with imprisonment for a term which shall not be less than three months but which may extend to three years and with fine – This Section is similar to the Section 276CCC under the Old Act This punishment is reduced and substituted as below: (a) with simple imprisonment for a term up to two years, or with fine, or with both, where the amount of tax, exceeds fifty lakh rupees; or (b) with simple imprisonment for a term up to six months, or with fine, or with both, where the amount of tax, exceeds ten lakh rupees but does not exceed fifty lakh rupees; or (c) with fine, in any other case – This amendment will take effect from the 1 April 2026 |
| Failure to comply with a direction of special audit or valuation
[Section 481] [New Act] [Section 276D] [Old Act] |
– Section 481 of the New Act states that if a person wilfully fails to produce, or cause to be produced, the accounts and documents as are referred to in the notice served on him under Section 268(1) on or before the date specified in such notice, or wilfully fails to comply with a direction issued to him under Section 268(5), he shall be punishable with rigorous imprisonment for a term which may extend to one year and with fine
– This Section is similar to Section 276D under the Old Act This punishment is reduced and substituted as below: – punishable with simple imprisonment for a term up to six months, or with fine, or with both – This amendment will take effect from the 1 April 2026 |
–
| False statement in verification, etc
[Section 482] [New Act] [Section 277] [Old Act] |
– As per the existing provision, if a person makes a statement in any verification under the Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he is punishable with:
(i) Rigorous imprisonment for a minimum term of six months, which may extend up to seven years and fine for cases where tax evasion would have been more than 25,00,000; and (ii) Rigorous imprisonment for a minimum period of three years upto two years and fine – This Section is similar to the Section 277 under the Old Act – It is proposed to amend and for clauses (i) and (ii), the following clauses shall be substituted namely: (a) with simple imprisonment for a term up to two years, or with fine, or with both, where the amount of tax, which would have been evaded, exceeds fifty lakh rupees; or (b) with simple imprisonment for a term up to six months, or with fine, or with both, where the amount of tax, which would have been evaded, exceeds ten lakh rupees but does not exceed fifty lakh rupees; or – This amendment will take effect from the 1 April 2026 |
| Falsification of books of account or document, etc
[Section 483] [New Act] [Section 277A] [Old Act] |
– Section 483 provides that if any person wilfully makes or causes to be made false entries or statements in books of account or documents, with the intent of enabling another person to evade tax, interest or penalty under the Act, such person shall be punishable with rigorous imprisonment not less than three months which may extend to two years and fine
– This Section is similar to the Section 277A under the Old Act – The punishment in this Section of rigorous imprisonment for a term not be less than three months up to two years with fine, is now changed to simple imprisonment for a term up to two years with fine – This amendment will take effect from the 1 April 2026 |
–
| Abetment of False return, etc
[Section 484] [New Act] [Section 278] [Old Act]
|
– Section 484 provides for prosecution of any person who abets or induces another person:
to make and deliver an account or a statement or declaration relating to any income chargeable to tax which is false and which he either knows to be false or does not believe to be true; or to commit an offence under Section 478(1), Where the amount sought to be evaded exceeds INR25 lakh, the offence is punishable with rigorous imprisonment of minimum 6 months and up to 7 years and fine – In all other cases, the offence is punishable with rigorous imprisonment of 3 months to 2 years and fine – This Section is similar to the Section 278 under the Old Act – This Section is amended to provide that the punishment is as below: (i) with simple imprisonment for a term up to two years, or with fine, or with both, where the amount of tax, penalty or interest which would have been evaded, if the declaration, account or statement had been accepted as true, or which is wilfully attempted to be evaded, exceeds fifty lakh rupees; or (ii) with simple imprisonment for a term up to six months, or with fine, or with both, where the amount of tax, penalty or interest which would have been evaded, if the declaration, account or statement had been accepted as true, or which is wilfully attempted to be evaded, exceeds ten lakh rupees but does not exceed fifty lakh rupees; or (iii) with fine, in any other case – This amendment will take effect from the 1 April 2026 |
| Punishment for second and subsequent offences
[Section 485] [New Act] [Section 278A] [Old Act] |
– Section 485 provides person convicted of an offence under sections 476, 477, 478(1), 479, 480, 482 or 484 is again convicted of an offence under any of the said sections, he shall be punishable for the second and for every subsequent offence with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years, and with fine
– This Section is similar to the Section 278A under the Old Act – Section 485 has been amended to the effect that: “rigorous imprisonment” for a term which shall not be less than six months but which may extend to seven years, and with fine”, the words “simple imprisonment” for a term which shall not be less than six months but which may extend to three years and with fine” – This amendment will take effect from the 1 March 2026 |
–
| Disclosure of particulars by public servants [Section 494]
[Section 280 of the Old Act] |
– Section 494 restricts public servants from furnishing any information or produce any documents in contravention to Section 258(3)
– Liable to be punished with an imprisonment up to six months with a fine – This Section is similar to the Section 280 under the Old Act – Section 494 is now amended, to say that the punishment for furnishing confidential taxpayer information will be simple imprisonment up to one month, or with fine, or with both – This amendment will take effect from 1 of March, 2026 |
| Return of income, etc., not to be invalid on certain grounds
[Section 522] [New Act] [Section 292B] [Old Act] |
– Section 522 of the Act states that No return, assessment, notice, summons or proceeding under the Act shall be invalid merely due to any mistake, defect or omission, provided it is in substance in accordance with the intent and purpose of the Act
– This Section is similar to the Section 292B under the Old Act – A new sub-Section (2) is proposed to be introduced as follows: “(2) No assessment under any of the provisions of this Act shall be invalid on the ground of any mistake, defect or omission in respect of quoting of a computer generated Document Identification Number, if the assessment order is referenced by such number in any manner.” |
–
| Repeals and Savings
[Section 536] [New Act] [Section 297] [Old Act] |
– Section 536 which pertains to repeals and savings clause has been amended to enable easier transitioning into the New Act:
(i) The first amendment is merely a change in cross referencing to the correct sub-Section(4) instead of sub-Section(3) (ii) The second amendment replaces clause (h) of Section 536(2) and states that: – Where any deduction has been allowed or any amount has been excluded from total income for a tax year beginning before 1 April 2026, whether subject to conditions or for any other reason, and such amount would have been required to be included in the total income of a subsequent tax year including beginning on or after the 1 April, 2026 under the repealed Income-tax Act on account of violation of those conditions or for any other reason, then, such amount shall be:
(iii) The third amendment replaces sub-clauses (i) and (ii) of Section 536(2) and states that : – The substituted provision clarifies that taxes paid under the repealed Income-tax Act shall be treated as tax credit under the corresponding provisions of this Act or Section 206(3) or (4), as applicable – That such credit shall be allowed for the same duration and subject to the same conditions as would have applied under the repealed Act, provided the assessee continues to satisfy the relevant requirement |
| VTPA Comments | – This amendment intends to ensure that there is a smooth and efficient transition into the New Act while also saving various ongoing proceedings etc |
OTHER PROVISIONS
| Annual Value of House Property [Section 21]
[Section 23] [Old Act] Deduction from Income from House Property [Section 22] [Section 24] [Old Act] |
– Section 21(5) of the New Act refers to Annual value of property held as stock-in-trade. This to be taken as Nil up to two years from the end of the financial year in which certificate of completion of construction is obtained from the competent authority
– Section 22 of the Act deals with deductions in the case of income from house property. Further, Section 22(2) provides that, the aggregate amount of deduction in the case of self-occupied property shall not exceed Rs. 2 lakh where property is acquired or constructed with borrowed capital. The amendment in the Section now provides that the aggregate amount of deduction for interest on borrowed capital shall be inclusive of prior period interest payable – This brings it in line with the existing provisions of Section 24 of the Old Act. |
| VTPA Comment | – These changes are proposed to be made in sections 21 and 22 of the Income-tax Act, 2025, only to bring them in alignment with the corresponding provisions of Income-tax Act, 1961 |
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| Non-Resident Indians becomes resident
Application of benefits under sections 212 to 216 Chapter not to apply if the assessee so chooses [Section 217] [Section 115H and Section 115-I [Old Act] |
– These sections deal with benefits available to non-residents in respect of certain incomes earned by them. The non-residents have an option to continue to enjoy the benefits of these sections even after they become residents
– There is only a structural change where Section 218 is replaced by Section 217(2) which referred to the option available to the assessee after he becomes resident not to be governed by these sections |
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| Power of Central Government to relax provisions of this Chapter
[Section 400] [New Act]
[Section 270AA] [Old Act] |
– Section 400 of the Income-tax Act empowers the Central Government to grant relief in matters relating to tax collection and recovery under Chapter XIX
– Sub-Section (2) authorizes the CBDT, with prior approval of the Central Government, to issue guidelines to address difficulties in implementing the provisions of this Chapter, and such guidelines must be placed before Parliament – The Finance Bill now proposes to amend Section 400(2) to clarify that these CBDT-issued guidelines will be binding not only on income-tax authorities but also on the persons responsible for deducting or collecting tax – This amendment will take effect from 1 April, 2026 |
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| Deductions (for income from other sources)
[Section 57] [Old Act] |
– The said Section provides for deduction of interest expenditure, subject to a specified limit, while computing dividend income and income from units of mutual funds
– It is proposed to amend sub-Section (1) and substitute sub-Section (2) of the said Section so as to provide that no deduction shall be allowed in respect of any expenditure against dividend income and income from units of mutual funds – These amendments will take effect from 1April, 2026 and will, accordingly, apply in relation to the tax year 2026–2027 and subsequent years |
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| Computation of tonnage income
[Section 227] [New Act] [Section 115VG [Old Act] Relevant shipping income and exclusion from book profit
[Section 228] [New Act] [Section 115V-I] [Old Act] Certain conditions for applicability of tonnage tax scheme
[Section 232] [New Act] [Section 115VT, 115VU, 115VV, 115VW] [Old Act] Interpretation [Section 235] New Act] [Section 115VC, 115VD] [Old Act] |
There are only a few structural changes
– In Section 227(4) (a) the word “certificate”, shall be substituted by the words “valid certificate” as referred in sub-Section 9
– In Section 227 (9) (b) (iii) the word “certificate”, shall be substituted by the words “certificate of registration”
– In Section 228(3)(b)(ii) in item (A), after the words “passenger ships”, the words “or inland vessels” shall be inserted
– Once the tonnage tax company is approved under Section 231(4) being method of opting of tonnage tax scheme and validity, the company shall comply with the minimum training requirement as per the guidelines issued by the Director-General of Shipping or the Inland Waterways Authority of India, as the case may be, and notified by the Central Government under Section 232(12)
– Further, under Section 232(13) the company shall be required to furnish a copy of the certificate issued by the above authorities along with the return of income filed under Section 263
– In Section 235 after clause (f), the clause (fa) shall be inserted as below: (fa) “Inland Waterways Authority of India” shall have the same meaning as assigned to it in Section 3 of the Inland Waterways Authority of India Act, 1985” |
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| OTHER PROVISIONS
[Sections 195, 439. 443] [New Act]
[Section 115 BBE] [Old Act] |
Tax on Income referred to in sections 102 to 106 – Regarding income from undisclosed sources etc
Omission of Section 443 regarding penalty in respect of certain income referred to in sections 102 to 106, and subsuming the same under penalty provisions in Section 439 – Section 195 of the New Act provides for tax on income referred to in Section 102 to 106. Section 102 to 106 (Sections 68 to 69D of the Old Act) which provides for income on account of, unexplained credits, unexplained investment, unexplained asset, unexplained expenditure and amount borrowed or repaid through negotiable instrument, hundi, etc – Section 195(1) further provides that where total income of an assessee includes any income referred to in Section 102 or 103 or 104 or 105 or 106, the income-tax calculated on such income will be charged at the rate of 60% – Further, Section 443 provides that, penalty amounting to 10% of the tax payable under Section 195(1)(i), on an assessee if the income determined in his case for any tax year includes any income referred to in Section 102,103,104,105 or 106 – With regard to the Section 195 (Section 115BBE of the Old Act) on the tax on income referred to in Section 102 to 106, it is considered that the tax rate of 60% which is currently charged on income referred to in Section 102 to 106 as per Section 195, is not proportionate and need rationalisation. Therefore, to rationalise the same, the tax rate of 30% is proposed under Section 195 of the Act – Therefore, it is proposed to amend Section 195 to reduce the tax rate from 60% to 30%. Further, it is also proposed to omit penalty under Section 443 and subsume this penalty under Section 439(11) of the Act – This amendment will take effect from the 1 April, 2026 and shall apply for tax year 2026-27 and subsequent tax years |
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Interpretation [Section 66] [New Act]
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Interpretation of certain terms in Section 66
– Interpretation Section for Computation of Total Income under Part D of Chapter-IV – “Profits and gains of business or profession” is given in Section 66 – It is proposed to provide the definition of commodity derivative therein in Section 66(3) as – “commodities transaction tax” and “commodity derivative” shall have the same meanings as respectively assigned to them in Chapter VII of the Finance Act, 2013 – This amendment will take effect from 1 April 2026 and will, accordingly, apply in relation to the tax year 2026-27 and subsequent years |
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| Deduction in respect of income of co-operative societies
[Section 149] [New Act] [Section 80P]
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Deduction in respect of income from Co-operative Societies – Section 149
– Section 149 provides for deductions on income earned by cooperative societies engaged in specific activities, with the objective of promoting rural and agricultural economic growth – In sub Section 2(b)(i), it is proposed to expand the scope of the clause to include “cotton seeds” and “cattle feed” after the word “oilseeds.” – After sub Section (5) of Section 149, it is proposed to insert sub Section (6), which provides definitions for three categories of co-operative society:
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AMENDMENT TO SCHEDULES TO THE INCOME TAX, 2025
| Schedule IV
Income Not to Be Included in Total Income of Eligible Non-Residents, Foreign Companies And Other Such Persons [Section 297] [Old Act] |
– Schedule IV specifies various categories of income that are not to be included in the total income of eligible non-residents and foreign companies
– Serial Nos. 13A, 13B and 13C are inserted to extend the exemption framework to select manufacturing, services and data centre arrangements, subject to notification, ownership and time-limit conditions as summarized below:
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Exemption of Income for Non Resident Section 11 r.w. Schedule IV |
Exemption to a foreign company on any income arising in India on account of providing capital goods, etc., for contract manufacturing of electronic goods up to Tax Year 2030-2031; and by way of procuring data centre services from a specified data centre up to the tax year ending on the 31 March 2047
– Item 13A is introduced in Schedule IV of the New Act – ‘Income not to be included in Total Income of Eligible Non-Residents, Foreign Companies and Other such persons’ – It is proposed to amend the Schedule IV to provide exemption to a foreign company for a period up to the tax year 2030-2031, on any income arising on account of providing capital goods, equipment or tooling to a contract manufacturer, being a company resident in India, who is located in a custom bonded area (warehouse referred to in Section 65 of the Customs Act, 1962) and produces electronic goods on behalf of such foreign company for a consideration – Item 13C introduced in the Table of Schedule IV of the New Act, is in respect of exemption of ‘Any income accruing or arising in India or deemed to accrue or arise in India by way of procuring data centre services from a specified data centre – Further, to encourage data centre services under proposed Rule 89 the data centre services provided by an entity a safe harbour margin of 15% on operating cost has been specified |
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| Schedule VI
Income Not to Be Included in Total Income of Certain Eligible Persons in International Financial Services Centre or Having Income therefrom
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– Schedule VI pertains to tax treatment of specified investment vehicles and similar arrangements
– This Schedule in Note 1 to the Table, clause (g), pertains to unit holding by Non-residents only – These amendments are substantially similar to provisions governing REITs / InvITs under the 1961 Act, particularly, Section 10 (23FBA) exemption for income of business trusts, Section 115UA – This Schedule has been amended to relax earlier requirement of complete non-resident ownership (other than sponsor or manager units) by allowing a resident holding of up to 5% of the total units amd where a non-resident unit holder subsequently becomes resident in any tax year subsequent to that tax year, subject to prescribed conditions – For Clause (ii), which provided a sunset year of 2025 is now extended to “2030”, thereby extending the availability of the benefit |
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| Schedule XI
RECOGNISED PROVIDENT FUNDS
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– Schedule XI of the Act deals with the provisions relating to Recognised Provident Funds, Approved Superannuation Funds and Approved Gratuity Funds, and also contains the power to make rules governing such funds
– In Part A, paragraph 4(c) of the Schedule XI, the provision provides that “the employer’s contributions to the employee’s account in any year shall not exceed the employee’s contribution in that year, and shall be credited to the employee’s account at intervals not exceeding one year”, is proposed to be omitted. The purpose of this amendment is to align the treatment of employer contributions with the unified aggregate monetary cap of INR 7.5 Lakh prescribed under Section 17(1)(h) of the Act and the Employees’ Provident Fund framework – It is proposed to amend Part A, paragraph 4(f) to clarify and restrict the eligibility for recognition of provident funds, so that only those funds which have been granted exemption under Section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 shall be eligible to apply for recognition under the Act – It is proposed to omit Paragraph 5(4), which empowers the approving authority to relax the conditions of Paragraph 4(c) in special cases. The purpose of the omission is intended to rationalise the provisions governing recognised provident funds by eliminating parity-based and percentage-based limits on employer contributions and since Paragraph 4(c) has already been omitted, Paragraph 5(4) becomes redundant – In Part A, paragraph 6, clause (a) and (b) are substituted. Clause (a), which relates to employer contributions exceeding 12% of the employee’s salary, has been omitted, while clause (b), dealing with interest credited in excess of government-prescribed rate, has been structurally changed – It is proposed to amendment Part C, paragraph 1. Clause (d), which provides “to limit the contributions to a recognised provident fund by employees who are shareholders in the company”, is proposed to be omitted. Further, in clause (e), the following clause shall be substituted: “(e) to regulate investment or deposit of the moneys of a recognised or an approved fund;” – These amendments shall take effect from the 1 day of April, 2026, and shall apply in relation to the tax year 2026-27 and subsequent tax years – The amendment aims to streamline the provision by simplifying compliance and focusing on rationalising and aligning income-tax provisions governing recognised provident funds with the prevailing EPF framework Accordingly, Employer’s contribution to provident funds is no longer required to match the employee’s contribution. Further, the percentage based restriction on employer contribution of 12% of employee’s salary has been removed. The employer’s contribution is now governed only by an absolute aggregate monetary ceiling of INR 7.5 lakh per annum |
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| MINERALS
[Schedule XII]
[Seventh Schedule– Old Act]
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– Schedule XII provides a list of minerals and groups of associated minerals, in respect of which specified deduction is applicable in accordance with the provisions of the said Section
– In Schedule XII to the Income-tax Act, in Part A, after serial number 27, following shall be inserted, namely:– 28. Beryllium bearing minerals 29. Glauconite 30. Graphite 31. Indium bearing minerals 32. Lithium bearing minerals 33. Niobium bearing minerals 34. Potash 35. Rhenium bearing minerals 36. Tantalum bearing minerals |
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| VTPA Comments | – The list of minerals have been expanded to incentivise the prospecting and exploration of the critical minerals to make the expenditure on such minerals also eligible for deduction as per the provisions of Section 51 of the New Act (Amortisation of expenditure for prospecting certain minerals) | ||||||||||||
| INSURANCE BUSINESS
[Schedule XIV] [Section 44
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– Schedule XIV provides the method of computation of profits and gains from insurance business. Part A deals with life insurance business, Part B deals with other insurance business, and Part C provides that the remaining provisions that shall apply to insurance business
– In Part B, Paragraph 4(1)(a) of Schedule XIV, which relates to the computation of profits and gains of other insurance business and provides that any expenditure inadmissible under Section 28 to 54 shall be added back, a structural change has been made by substituting the words “this rule” with “this paragraph” – In Part B, Paragraph 4 of Schedule XIV, it is proposed to insert a new sub-paragraph (3) so as to rationalise the provision. This sub paragraph provides that the amount disallowed from deduction under sub-clause (i) or (ii) of Section 35(b) and has been added back under this Schedule, paragraph (1)(a), shall be allowed as a deduction in a subsequent tax year in which it is actually paid – This amendment will take effect from 1 April, 2026 and will, accordingly, apply in relation to the tax year 2026-27 and subsequent tax years |
BLACK MONEY (UNDISCLOSED FOREIGN INCOME AND ASSETS) AND IMPOSITION OF TAX ACT, 2015
| BLACK MONEY ACT
Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 |
Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026
– The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 was enacted to address the issue of undisclosed foreign income and assets held by resident taxpayers – It has been observed that non-compliance is particularly prevalent in cases involving legacy or inadvertent non-disclosures for small taxpayers, including holdings arising from foreign employment benefits such as ESOPs or Restricted Stock Units (RSUs), dormant or low-value foreign bank accounts of former students, savings or insurance policies of returning non-residents, and assets held by individuals on overseas deputation – Further, information received under the Automatic Exchange of Information framework indicates non-disclosure of foreign financial assets by a significant number of PAN holders – In order to facilitate voluntary compliance and enable resolution of such legacy cases of small taxpayers, it is proposed to introduce a time-bound scheme for declaration of foreign assets and foreign-sourced income, with payment of tax or fee based on the nature and source of acquisition and grant of limited immunity from penalty and prosecution under the Black Money Act in respect of matters covered by the declaration – Cases involving prosecution or proceeds of crime are proposed to be excluded from the scheme – The proposed scheme shall form part of the Finance Bill, 2026 and shall come into force from the date to be notified by the Central Government |
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