Based on the Finance Minister’s budget speech, the Finance Bill 2026 is presented as a continuation of a 12-year economic strategy marked by stability, sustained growth, and fiscal discipline.
The proposals align with the government’s long-term vision of a developed India (‘Viksit Bharat’), striving to harmonize ambitious economic goals with inclusive development. The bill seeks to build on a base of structural reforms, fiscal discipline , and public investment to navigate a challenging global environment and boost domestic capabilities.
These reforms are not incremental adjustments or minor tweaks; they are rooted in a significant legislative overhaul—the new Income Tax Act, 2025, which is set to take effect on April 1, 2026, providing the modern legal framework necessary to realize the long-term economic ambitions.
Amendments impacting personal taxationThe personal taxation proposals in the Finance Bill 2026 are strategically important, reflecting the dual focus on enhancing the ‘Ease of Living’ for the common taxpayer and systematically reducing tax-related litigations. The government’s approach is to simplify compliance procedures, rationalize the penalty framework, and decriminalize minor tax offences, thereby fostering a more taxpayer-friendly environment.A. Enhancing ‘ease of living’ and simplifying complianceA series of measures have been proposed to reduce the compliance burden and streamline processes for individual taxpayers. These changes are designed to address practical difficulties and make tax administration more efficient and less intrusive.TCS rate reduction on overseas remittances: The rate of Tax Collected at Source (TCS) on the sale of overseas tour packages will be reduced to a flat 2% (from 5% and 20% currently). Similarly, for remittances under the Liberalized Remittance Scheme (LRS) for education and medical purposes, the TCS rate will be lowered to 2% (from 5%). It is important to note that the higher 20% TCS rate for LRS remittances for purposes other than education and medical treatment remains in effect for amounts over the specified threshold.TDS simplification for manpower services: To remove ambiguity, the supply of manpower services will now be classified under ‘payment to contractors’ for Tax Deducted at Source (TDS) purposes. This change results in a significantly lower TDS rate of 1% or 2%, compared to potentially higher rates under other categories.Automated lower/nil deduction certificates: Small taxpayers will benefit from a new rule-based automated process to obtain certificates for lower or nil tax deduction. This eliminates the need to file a formal application with an assessing officer, simplifying a key compliance step.Centralized filing of Forms 15G/15H: For investors holding securities in multiple companies, depositories will be enabled to accept Forms 15G/15H directly. The depository will then provide these forms to all relevant companies, removing the need for investors to file separate declarations with each entity.Extended deadline for revised returns: The deadline for filing a revised or belated income tax return is being extended from 31st December to 31st March of the following year. A nominal fee will be applicable for revisions made after the December deadline.Staggered tax return filing deadlines: The timeline for filing tax returns is being staggered. While individuals filing ITR-1 and ITR-2 will continue to have a due date of 31st July, the deadline for non-audit business cases and trusts will be extended to 31st August, providing them with additional time for compliance.Simplified TDS on property sale by non-residents: Resident individuals purchasing immovable property from a non-resident will no longer have to obtain a Tax Deduction and Collection Account Number (TAN). Instead, TDS can be deposited using their PAN-based challan, mirroring the process for transactions between two residents.Tax exemption for MACT interest: Any interest awarded by the Motor Accident Claims Tribunal (MACT) to a natural person on a compensation amount will be fully exempted from Income Tax, eliminating the TDS requirement on such interest payments.Tax exemption for global talent: To attract global experts, the Bill proposes to exempt the global (non-India sourced) income of a non-resident expert for a stay of up to five years, provided they are working under a notified government scheme.B. Rationalizing Penalties and Reducing LitigationThe Bill introduces significant reforms aimed at decriminalizing tax law, rationalizing penalties, and streamlining the dispute resolution process to reduce the burden of litigation on taxpayers.Integration of assessment and penalty proceedings: Assessment and penalty proceedings will be integrated into a common order. This change will help fast-track dispute settlement. To provide further relief, interest on the penalty amount will be kept in abeyance during the period of the first appeal, regardless of the outcome.Reduced pre-payment for appeals: The mandatory pre-payment required to file an appeal is being reduced from 20% to 10% of the core tax demand, lowering the financial barrier for taxpayers seeking to contest a tax assessment.Expanded scope for updated returns: Taxpayers will now be permitted to file an updated return even after reassessment proceedings have been initiated. This can be done by paying an additional tax of 10% over the applicable rate for that year, providing an avenue to correct disclosures and reduce litigation.Immunity for misreporting: The existing immunity framework, which applies to cases of under-reporting, is being extended to cover ‘misreporting’ of income. Taxpayers can avail of this immunity by paying 100% of the tax amount as an additional income tax, over and above the tax and interest due.Conversion of penalties to fees: Penalties for certain technical defaults are being converted into a daily fee, subject to a maximum ceiling. This applies to failures such as not getting accounts audited or not furnishing a transfer pricing audit report.Decriminalization and grading of offences: The prosecution framework is being significantly rationalized. While non-production of books of account will be decriminalized, remaining offences will be graded based on the quantum of tax evasion. All prosecutions will entail only simple (and not rigorous) imprisonment; the maximum term will be reduced to two years, with courts empowered to convert imprisonment into a fine for minor offences.C. The Foreign Assets of Small Taxpayers – Disclosure Scheme (FAST – DS), 2026A one-time disclosure scheme is being introduced for small taxpayers, such as students, young professionals, and relocated NRIs, to declare foreign assets and income below a specified threshold. This scheme provides an opportunity for compliance with immunity from prosecution.Category Undisclosed Income/Asset Limit Tax & Penalty Structure Immunity GrantedCategory (A): Non-disclosure of overseas income/assets. Up to ₹1 crore. Pay 30% of Fair Market Value as tax and an additional 30% as additional income tax. Immunity from prosecution.Category (B): Disclosure made but asset not declared. Asset value up to ₹5 crore. Pay a fee of ₹1 lakh. Immunity from both penalty and prosecution.D. Changes in investment-related taxationThe Finance Bill proposes specific amendments affecting investors, particularly in the context of share buybacks and securities transactions.
Taxation of share buybacks: The tax treatment of share buybacks is being modified. Proceeds from a buyback will now be taxed as ‘Capital Gains’ for all shareholders. To discourage tax arbitrage by promoters, an additional buyback tax will be levied, resulting in an effective tax rate of 22% for corporate promoters and 30% for non-corporate promoters on their gains.Increase in Securities Transaction Tax (STT): The STT rates for derivatives are being revised upwards. The rate for futures contracts will go up to 0.05% (from 0.02%), while the rate on options premium and the exercise of options will be increased to 0.15% (from 0.1% and 0.125% respectively). Conclusion: Synthesizing the vision of Finance Bill 2026The Finance Bill 2026 advances a clear, two-pronged strategy for tax reforms. On one hand, it seeks to significantly simplify tax compliance, reduce litigation, and enhance the ‘Ease of Living’ for individual taxpayers through a host of procedural and structural changes; on the other hand, it aims to create a globally competitive and attractive environment for corporations and strategic industries by offering targeted incentives, rationalizing tax rates, and streamlining administrative processes.
These proposals, built upon the new legislative foundation of the Income Tax Act of 2025, collectively represent a significant step toward achieving the government’s long-term economic vision. They are designed to foster a stable, predictable, and growth-oriented tax regime that supports the national objective of a developed India (‘Viksit Bharat’).
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