On Sunday 1st Feb., 2026, Hon’ble Finance Minister Smt Nirmala Sitharaman presented the Budget for the year 2026-2027. The 1st welcome proposal was the shift from the old Income Tax Act enacted in 1961 to the new Income Tax of 2025 which is now proposed to be brought into effect from 1st April, 2026. With this, there shall be a plethora of changes and the migration from the old Income Tax to the new Income Tax is going to be a brainstorming activity for all the Tax professionals. This Budget has also attempted to re-align provisions in the New Income Tax Act, 2025 with the erstwhile provisions of the Income Tax Act, 1961.
Coming to the budget, as usual the budget had to bear a huge burden of expectations from various industries in the form of incentives, expenditure allocation and benefits in taxation. The weight was particularly enhanced due to ongoing geopolitical tensions and the uncertainty of tariffs imposed by USA looming large on the industries. The budget partially succeeded in catering to the expectations but as they say the glass always remained half full. Some might see the glass half full and some might perceive it as half empty.
Notwithstanding, I have compiled a summary of the key changes proposed in the Finance Bill, 2026 vis-a-vis the existing counterparts. The summary is not comprehensive but gives a comparison of significant changes made in various provisions under Direct Tax, barring changes made in Assessment Proceedings Provisions. Further, the sections quoted in the file are the sections as per the new Income Tax Act, 2025
| Key Amendments in Finance Bill 2026 | |||
| Amendments | Existing Provision | Proposed Provision | Proposed date of amendment |
| Rationalising the due date to credit employee contribution by the employer to claim such contribution as deduction |
For the purposes of sub-clause (i), “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 under any Act, rule, order or notification issued under it or under any standing order, award, contract of service or otherwise and the provisions of section 37 shall not apply for determining the “due date” under this clause. Meaning : Due date was considered as due date defined in Provident Fund / ESIC Act which was 15th of each month |
It is proposed to amend section 29(1)(e) to provide that the due date for the said clause shall be the due date of filing of return of income under section 263(1) of the Act. Meaning : Due Date shall now be the date defined under Section 263(1) of the Income Tax Act i.e. 31/08/2025 for non audit cases and 31/10/2025 for Companies and audit cases |
01-04-2026 |
| Exemption on interest income under the Motor Vehicles Act, 1988 | NA | It is proposed to provide exemption to an individual or his legal heir, on any income in the nature of interest under the Motor Vehicles Act, 1988. |
01-04-2026 |
| No tax to be deducted at source in respect of interest on compensation amount awarded by Motor Accidents Claims Tribunal to an individual |
As per the provisions of section 393(4) [Table: Sl. No. 7, Column C (c)(iv)] of the Act, tax is not required to be deducted in respect of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal, if the amount or the aggregate of the amounts of such income does not exceed ₹ 50,000 during the tax year. |
It is proposed that no tax shall be deducted at source in respect of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal to an individual i.e. Threshold Limit abolished | 01-04-2026 |
| Relaxation from requirement to obtain tax deduction and collection account number (TAN) by a resident individual or HUF, where the seller of the immovable property is a non -resident | Presently, if a person buys an immovable property from a resident seller, the person is not required to obtain (TAN) to deduct tax at source. However, where seller of the immovable property is a non-resident, the buyer is required to obtain TAN to deduct tax at source. | It is proposed to amend section 397(1)(c) of the Act to provide that resident individual or Hindu undivided family, is not required to obtain TAN to deduct tax at source in respect of any consideration on transfer of any immovable property under section 393(2) Meaning : Even if the seller of the immovable property is a Non Resident, the buyer of the property need not obtain TAN |
01-10-2026 |
| Application of TDS on supply of manpower | Section 393(1) [Table: Sl. No. 6(i)] 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. 2. Section 393(1) [Table: Sl. No. 6(iii)] provides for the tax deduction at source in the case of fees paid for professional or technical services. It provides for rate of deduction of 2% in case of fees for technical services or royalty for sale, distribution or exhibition of cinematographic films or to the business engaged in operation of call centre and 10% in other cases. 3. Section 393(1)[Table: Sl. No. 6(ii)] provides for the tax deduction at source by individual and HUF in the case of payments made to contractors for carrying out any work (not covered under section 393(1)[Table: Sl. No. 6(i)], by way of commission or brokerage or by way of professional services (not covered under section 393(1) [Table: Sl. No. 6(iii)]). It provides for rate of deduction of 2% for such payments. |
It is proposed to cover Supply of Manpower Services under Sec. 194C only and not under 194J or 194H | 01-04-2026 |
| Return filing due dates | (i) Assessee having income from profits and gains of business or profession whose accounts are not required to be audited under this Act or under any other law in force; (ii) Partner of a firm whose accounts are not required to be audited under this Act or under any other law in force or the spouse of such partner (if section 10 applies to such spouse). Meaning : All non Audit Assessees other than Companies – Due Date 31st July |
(i) Assessee having income from profits and gains of business or profession whose accounts are not required to be audited under this Act or under any other law in force; (ii) Partner of a firm whose accounts are not required to be audited under this Act or under any other law in force or the spouse of such partner (if section 10 applies to such spouse). Meaning : All non Audit Assessees other than Companies – Due Date 31st August |
01-04-2026 |
| Extending the period of filing revised return | Section 263(5) of the Act provides for the revised return of income. It allows a person who has already furnished a return under section 263(1) and (4) to file a revised return, if any omission or wrong statement is discovered in the original or belated return. Such revised return required to be furnished within nine months from the end of the relevant tax year or before completion of assessment, whichever is earlier. Meaning : Due Date of filing Revised Return is 31st December |
It is considered to increase the prescribed time limit for filing the revised return from existing 9 months to 12 months from the end of the relevant tax year. Further, a fee is also proposed under section 428(b), for revised returns which are filed beyond nine months from the end of relevant tax year. Meaning : Due Date of filing Revised Return is extended 31st March |
01-04-2026 |
| Scope of filing of updated return in the case of reduction of losses | Section 263(6) of the Act deals with the updated return of Income. It allows a taxpayer, whether or not a return was furnished earlier, to file an updated return within 48 months from the end of the financial year succeeding the relevant tax year. The said section further imposes certain restrictions on updating the return of Income. E.g. updated return cannot be a return of loss, cannot reduce tax liability, and cannot increase refund. Filing an updated return requires payment of additional income-tax, as prescribed, and it is not permitted in cases where assessment, reassessment, search, survey, or prosecution proceedings are pending or completed. Furthermore, section 263(6)(b) provides that taxpayer may file the updated return in such cases where original return filed under section 263(1) of the Act is a return of loss and updated return being filed thereafter, is a return of income. However, section 263(6)(c)(i) of the Act had created a restriction that updated return cannot be furnished in such cases where updated return is a return of loss for the said tax year. | It is proposed to amend section 263(6) of the Act, so as to allow filing of updated return in such cases where taxpayer reduces the amount of loss in comparison to the amount of loss claimed in the return of loss furnished within the due date specified under sub-section (1). | 01-04-2026 |
| Rationalisation of Penalties into Fee | Section 446 of the Act, provides penalty for failure to get accounts audited. It further provides that, if any person fails, without reasonable cause, to get his accounts audited in respect of any previous year or years relevant to an assessment year or to obtain a report of such audit as required under the aforesaid provision, the Assessing officer may direct that such person shall pay, by way of penalty, lesser of – i. 0.5% of the total sales, turnover or gross receipts, in the business, or the gross receipts in the profession, for such tax year or years, or ii. ₹ 150000. Further, section 447 provides penalty for failure to furnish report under section 172 of the Act, where section 172 relates to report from an accountant to be furnished by persons entering into international transaction or specified domestic transactions. Presently, a penalty of ₹ 1,00,000/- is levied for such failure. |
Penalty under section 446 for failure to get accounts audited is converted to a fee under proposed section of 428(c). Accordingly, Graded fee of Rs. 75,000 and 1,50,000 is proposed depending upon the period of delay. Penalty under section 447 for failure to furnish report under section 172 is converted to a fee under section 428(4). Graded fee of Rs. 50,000 and 1,00,000 is provided depending upon the period of delay. |
01-04-2026 |
| Rationalization of Minimum Alternate Tax provisions | The existing provisions under section 206 of the Income-tax Act, 2025 (the Act) provide for Minimum Alternate Tax (MAT) which is applicable for companies. This tax is charged on the Book profit of the assessee at the rate of 15% for corporates (other than units located in an International Financial Services Centre). In case the MAT is higher than the income-tax payable on the company’s total income computed under normal tax provisions, the assessee pays MAT. 2. When a company pays MAT when it is higher than regular tax, the excess amount paid is allowed as a tax credit. This credit can be carried forward up to 15 years and set off in future years where the company’s regular tax liability exceeds the MAT liability. The MAT regime is presently in place only for the old tax regime. |
It is proposed that the tax paid under provisions of MAT be made as final tax in the old regime and no new MAT credit may be allowed. Meaning : No credit will be allowed for excess amount paid under MAT over regular tax However, the tax rate of MAT has been reduced to 14% of book profit from the existing 15%. Further, set-off of MAT credit may be allowed only in the new tax regime for domestic companies to the extent of 25% of the tax liability. In the case of foreign companies, set off is proposed to be allowed to the extent of the difference between the tax on the total income and the minimum alternate tax, for the tax year in which normal tax is more than MAT. Meaning : In the case of Domestic Companies, MAT Credit brought forward from previous years can be set off to the extent of 25% of tax liability calculated under new regime in 1 tax year |
01-04-2026 |
| Rationalisation of TCS rates | TCS on sale of alcoholic liquor for human consumption – 1% TCS be collected on sale of tendu leaves – 5% |
TCS on sale of alcoholic liquor for human consumption – Increased from 1% to 2% TCS be collected on sale of tendu leaves – Reduced from 5% to 2% |
01-04-2026 |
| TCS on sale of scrap – 1% | TCS on sale of scrap – Increased from 1% to 2% | ||
| TCS on sale of minerals, being coal or lignite or iron ore – 1% | TCS on sale of minerals, being coal or lignite or iron ore – Increased from 1% to 2% | ||
| TCS under LRS if remittance is for the purposes of education or medical treatment and the remittance amount is more than ten lakh rupees. – 5% | TCS under LRS if remittance is for the purposes of education or medical treatment and the remittance amount is more than ten lakh rupees. – To be reduced from 5% to 2% | ||
| TCS under LRS on sale of overseas tour programme package including expenses for travel or hotel stay or boarding or lodging or any such similar or related expenditure – 5% of amount or aggregate of amounts up to ten lakh rupees and 20% of amount or aggregate of amounts exceeding ten lakh rupees. | TCS under LRS on sale of overseas tour programme package including expenses for travel or hotel stay or boarding or lodging or any such similar or related expenditure – To be reduced to 2% without threshold limit | ||
| Non-allowability of Interest as a deduction against Dividend Income | Section 93 of the Act provides for allowing certain deductions against Dividend income and income from units of mutual funds taxable under the head “Income from other sources”, i.e interest expenditure incurred for earning such income, subject to a ceiling of twenty per cent of the gross dividend or income from units of mutual funds. | It is proposed to amend section 93(2) to provide that no deduction shall be allowed in respect of any interest expenditure incurred for earning dividend income or income from units of mutual funds. | 01-04-2026 |
| Exemption for Sovereign Gold Bond | The provisions of section 70(1)(x) of the Act provide 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. | It is proposed to amend section 70(1)(x) to provide that the exemption shall be available only where the Sovereign Gold Bond is subscribed to by a subscriber at the time of original issue and is held continuously until redemption on maturity, for all Sovereign Gold Bonds issued by the Reserve Bank of India from time to time. | 01-04-2026 |
| Increase in tax rates of Securities Transaction Tax | STT on sale of an option in securities – 0.1 % | STT on sale of an option in securities – Increase from 0.1 % to 0.15 per cent of the option premium, on sale of an option where the option is exercised from 0.125 per cent to 0.15 per cent of the intrinsic price | 01-04-2026 |
| Sale of a future in securities – 0.02 % | Sale of a future in securities – Increase from 0.02 % to 0.05% | ||
| Taxation of buyback of shares | Under the existing provisions of the Income-tax Act, 2025, consideration received by a shareholder on buy-back of shares by a company is treated as dividend income under section 2(40)(f) of the Act and taxed accordingly, while the cost of acquisition of the shares extinguished on buy-back is recognised separately as a capital loss under section 69. | Consideration received on buy-back shall be chargeable to tax under the head “Capital gains” instead of being treated as dividend income. It is proposed that, in the case of promoters, the effective tax liability on gains arising from buy-back shall be thirty per cent, comprising tax payable at the applicable rates together with an additional tax. In case of promoter companies, the effective tax liability will be 22%. |
01-04-2026 |
| Sec 67 of Customs Act | The owner of any warehoused goods may remove them from one warehouse to another, subject to such conditions as may be prescribed | The proposed section seeks to do away with the requirement of prior permission of the proper officer under the said section for removal of warehoused goods from one custom bonded warehouse to another. | Date of assent of the Finance Bill, 2026 |
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