Welcome Changes in Union Budget 2026 related to Income Tax

Budget 2026 introduces wide-ranging taxpayer-friendly reforms aimed at reducing litigation, easing compliance, and rationalising taxes. Key reliefs include slashing the tax on unexplained income under section 115BBE from 60% to 30%, lowering the pre-deposit for appeal stays to 10%, extending return filing deadlines, and allowing employer deductions for delayed PF/ESI payments if deposited by the return due date. Several incomes are exempted, including interest on motor accident compensation and compensation for compulsory land acquisition. Procedural simplifications allow electronic applications for lower or NIL TDS/TCS, single demat-based declarations for no-TDS, longer windows for revised and updated returns (even during reassessment with safeguards), and rationalised penalties converted into graded fees. Corporate taxation sees rate cuts for foreign companies, MAT reduction, and clearer MAT credit set-offs. TCS/TDS rates are eased for overseas tours, education, medical remittances, and manpower services. A time-bound disclosure scheme for small foreign asset lapses, decriminalisation of select TDS defaults, streamlined penalty imposition, and calibrated prosecution thresholds collectively promote voluntary compliance and certainty.

1. The Tax Rate on Unexplained Income, Credit, Investment , Expenditure etc., (which is taxed under section 1155BBE, which was introduced for deposits made during the demonetisation period) is reduced to 30% from 60%, which is a very great relief for the assesseess because the taxing sections from 68 to 69D were used indiscriminately.

2. For filing appeals it is now sufficient to pay 10% of the demand and apply for stay of collection of the taxes, instead of the existing 20% of the demand.

3. The due date for filing return of income in the case of non-audit business assessees and trusts has been extended from 31st July to 31st August, whereas the due date for salaried cases remains as 31^st

4. Employer will be allowed deduction if the employee contribution towards PF. ESI etc., is deposited on or before the income-tax return filing due date, irrespective of the due date under the respective welfare laws, which was hitherto disallowed if the same is not paid on the respective due dates. At present the belated payment of such sums are not allowable even if paid before filing the Return of Income.

5. Interest received on the compensation awarded under the Motor Vehicles Act 1988 will be exempt from tax, which was hitherto taxed and TDS was also made if the same is in excess of Rs. 50,000/-.

6. A resident individual or a Hindu Undivided Family shall not be required to obtain TAN for deducting tax at source in respect of consideration paid on transfer of any immovable property if the buyer is a non-resident.

7. Extension of the time limit is given for filing a revised return from 9 months to 12 months from the end of the relevant tax year. This additional time will give taxpayers a fair opportunity to revise their return, especially in cases where the belated return is filed close to the due date. A nominal fee under Section 428(b) will be levied if a revised return is filed after 9 months but within the 12-month extended period.

8. A taxpayer is allowed to file an updated return even if the claimed loss is reduced, provided the original return, belated return and revised return are filed within the specified due date.

9. Taxpayers will be allowed to file an updated return even after reassessment proceedings have started and a notice under Section 280 has been issued. Updated return must be filed within the period specified in the notice. Once filed, no other return can be submitted in response to the same notice. Filing such an updated return requires payment of additional 10% tax on the aggregate of tax and interest. Income on which the additional tax is paid will not attract penalties under Section 439. The amendment reduces litigation, encourages voluntary compliance, and provides certainty and fairness to taxpayers.

10. Application for Lower or NIL TDS/TCS can be made electronically using Electronic Verification Code (EVC)

11. Taxing the consideration received on buy-back under the head “Capital Gains” has been introduced instead of treating it as dividend income. In the case of individual promoters, the effective tax liability on gains arising from buy-back shall be 30 per cent and in the case of promoter companies that are domestic companies, the effective tax liability on such gains shall be 22 per cent.

12. Eligible investors can now file a single declaration (Erstwhile Form 15G/H) for no TDS with the depository instead of submitting separate declarations to each payer of dividend, interest on securities, or mutual fund income. The depository will share the declaration with the respective income-paying entity. This facility is available only for listed securities or units held in demat form. Further, the reporting timeline for such declarations by payers to the Income-tax Department has been revised from monthly to quarterly, reducing compliance burden for all parties.

13. Exemption is given for the income arising from an award or agreement made on account of compulsory acquisition of land.

14. Penalty for under-reporting or misreporting of income will be imposed directly in the assessment order itself, instead of initiating separate penalty proceedings later. The requirement of issuing a separate show-cause notice and passing an independent penalty order will be dispensed with for such cases. Interest for non-payment of demand will be charged only after disposal of appeal by CIT(A) or ITAT, as applicable.

15. “Fees” instead of Penalties:

16. Immunity from penalty or prosecution under section 440/270AA of the Act, where under-reporting of income is a consequence of misreporting will be given, provided the prescribed conditions are fulfilled. In such cases, immunity will be available on payment of additional income-tax at 100% (Section 270AA) or 120% (Section 440) of the tax payable, as applicable.

17. A time-bound disclosure scheme (FAST-DS 2026) is introduced to allow small taxpayers to voluntarily declare undisclosed foreign assets or foreign income arising from past or inadvertent non-compliance. The scheme covers cases such as foreign ESOPs/RSUs, dormant overseas bank accounts, and foreign savings or insurance. Eligible taxpayers may regularise such disclosures on payment of prescribed tax or fee and will receive limited immunity from penalty and prosecution under the Black Money Act, excluding cases involving prosecution or proceeds of crime.

18. Relaxation will be given in the prosecution provisions under the Black Money Act to provide relief in cases of minor and inadvertent non-disclosure of foreign assets where the aggregate value of foreign assets (other than immovable property) does not exceed Rs.20 lakh. (Retrospective from 01.10.2024)

19. Rate of Income tax for companies other than domestic companies is changed from 40% to 35% on income other than income chargeable at special rates.

20. MAT rate has been reduced from 15% to 14%. MAT be made as final tax in the old regime. Set off of MAT credit may be allowed in the new tax regime for domestic companies to the extent of 25% of the tax liability. In case of foreign company, set off is proposed to be allowed to the extent of the difference between the tax on the total income and MAT for the year in which normal tax is more than MAT.

21. Rationalisation of TCS rates as follows:

a. TCS on overseas tour program packages has been reduced from 5%/20% to 2% without any threshold.

b. TCS under liberalised remittance scheme for education or medical treatment purposes has been reduced from 5% to 2%

22. TDS on supply of manpower services has been specifically included under the ambit of work and accordingly TDS at 1% or 2% as the case may be applies for “Payment to Contractors/Sub-Contractors”.

Prosecution Proceedings: