Union Budget 2026: Decoding the Direct Tax Blueprint for a New Era

1. The Income Tax Act, 2025, will take effect from April 1, 2026. Rules and forms will be notified soon.
2. No changes in the tax rates for individual, corporate, or cooperative taxpayers, either under the old regime or new regime, for the financial year 2026-27.
3. Interest awarded to an individual or legal heir under the Motor Vehicles Act, 1988, is exempt from tax, and no TDS shall apply on such interest.
4. A resident individual or HUF is not required to obtain a TAN to deduct tax at source in respect of purchase of immovable property from an NRI (applicable from October 1, 2026).
5. Supply of manpower is proposed to be included within the scope of ‘work’. Accordingly, TDS shall be deducted at 1 per cent in case of individual or HUF, and 2 per cent in other cases.
6. Extension of time from 9 months to 12 months from the end of the tax year for filing the revised return.
7. Consideration of shares buy-back will be taxable as capital gain and not as dividend income. Effective tax rate will be 30 per cent for promoters and 22 per cent for promoter companies.
8. MAT is reduced from 15 per cent to 14 per cent, with a major change that for companies opting for the old regime of tax, MAT credit will cease to be carried forward. The outstanding MAT will be treated as final tax.
But if companies move to a new regime, the MAT credit can be adjusted over the next 15 years, never exceeding 25 per cent of the tax liability in any single year.
9. Capital gains tax exemption for the sale of all series of Sovereign Gold Bonds if held through the life of the issuance of the SGBs.
10. TCS for foreign tour packages and for education loan remittance reduced from 5 per cent (and 20 per cent) to 2 per cent without any limit within the LRS limit. However, the high and unfair 20 per cent TCS for other payments over Rs 10 lakh continues.
Uniform rate of TCS at 2 per cent to be applied on alcoholic liquor, scrap, minerals, tendu leaf, etc.
11. Deduction for contribution to the employee welfare funds (PF, EPF, ESIC, etc.) to be allowed if paid by due date of filing the Return of Income, which is effective from tax year 2026-27.
12. Tax exemption on compensation for compulsory acquisition of land under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, effective from tax year 2026-27.
13. There is a reduction in payment of disputed demand from 20 per cent to 10 per cent in order to secure a stay of recovery during pendency of appeals.
14. The due date for filing the return of income is extended from July 31 to August 31 for non-audit business cases and partners of non-audit firms.
15. Investors earning dividends or interest from multiple securities or units may submit a declaration for non-deduction of TDS to the depository instead of multiple payers.
16. Section 263 [Sec. 139 of ITA, 1961] permits taxpayers to file updated returns even after receipt of reassessment notice under section 280 [Sec. 148 of ITA, 1961], subject to payment of an additional 10 per cent tax and interest payable.
17. The Foreign Assets of Small Taxpayers - Disclosure Scheme, 2026 (FAST-DS 2026), is introduced to enable small taxpayers to voluntarily disclose legacy foreign assets, such as ESOPs or dormant Bank accounts, upon payment of a prescribed tax or fee.
18. Basic tax rate on unexplained income, credit, investment, expenditure, etc., is reduced from 60 per cent to 30 per cent.
19. Securities Transaction Tax (STT) is increased on derivative transactions.
20. Registered Non-Profit Organisation (NPO) can file belated return without losing exemption.
21. Rationalisation of penalty into mandatory fees for procedural default, i.e., for failure to get the accounts audited, Rs 75,000 for default up to one month and thereafter Rs 1,50,000. Similarly, non-filing of reports within due dates will attract a fee of Rs 50,000 up to one month and thereafter Rs 1,00,000.