Union Budget 2026 - Income Tax in India - Key Highlights
The Union Budget 2026 introduces major reforms aimed at improving ease of business, lowering compliance burden, rationalizing penalties, improve taxpayer relief, and promoting manufacturing, MSMEs, IFSC entities, and technology sectors. Understanding these changes is essential for accurate tax filing, better planning, and financial optimization.
1. Extended Due Date for Filing Income Tax Returns
Section 139(1)
New Due Dates
| Category | Earlier | New |
|---|---|---|
| Individuals (ITR 1 & ITR 2) | 31 July | Unchanged |
| Individuals (Non-Audit) & Trust | 31 July | 31 August |
| Businesses (Audit) | 31 October | Unchanged |
2. Revised Return Filing — More Time Granted
Section 139(5)
Old Rule
Revised return allowed only till 31 December
New Rule (Budget 2026)
Revised return allowed up to 31 March of the Assessment Year
- Example: FY 2025-26 return can be revised till 31 March 2027
3. Updated Return (ITR-U) — Relaxed Conditions
Section 139(8A)
Earlier Restrictions
Not allowed if:
- Loss reduced
- Refund claimed
- Notice issued
Now Allowed Even If
- Loss is reduced
- Refund claim changes
- Notice under reassessment issued
Additional Tax
| Time of Filing | Additional Tax |
|---|---|
| Within 12 months | 25% |
| Within 24 months | 50% |
| Within 36 Months | 60% |
| Within 48 Months | 70% |
| If After notice u/s 280 | +10% of Aggregate Tax & Interest |
4. Major Relief on Tax Audit Delay — Penalty Replaced by Fee
Section 44AB & Section 271B (Amended)
Earlier Rule
- Penalty: 0.5% of turnover
- Maximum penalty: ₹1,50,000
New Rule (Effective FY 2026-27)
- Penalty abolished
- Fixed late-filing fee introduced instead
- Fee will depend on delay period
- No criminal exposure for technical delay
| Timeline | Late Fee |
|---|---|
| Delay up to One month | ₹75,000 |
| Delay beyond One Month | ₹1,50,000 |
5. Capital Gains Tax Impact on Individuals
Section 111A, 112, 115QA
Buy-Back of Shares
Buy-back income now taxed as capital gains, not dividend
Promoter tax:
- Domestic Corporate promoters: 22%
- Other individuals: 30%
6. Reduction in Tax on Unexplained Income
Section 68, 69, 115BBE
| Earlier | Now | |
|---|---|---|
| Tax Rate | 60% | 30% |
| Penalty | 10% | Omitted |
7. TDS & TCS Changes Affecting Individuals
Section 194C, 194Q, 206C
TDS Changes
- Manpower supply treated as contract work
- Motor Accident Tribunal interest TDS exempt
TCS Rate Updates
| Transaction | Old Rate | New Rate |
|---|---|---|
| Overseas Tour | 5% & 20% | 2% |
| Education / Medical LRS | 5% | 2% |
| Scrap Sale | 1% | 2% |
| Sale of minerals, being coal or lignite or iron ore | 1% | 2% |
| Alcohol Liquor for Human Consumption | 1% | 2% |
| Tendu Leaves | 5% | 2% |
8. Securities Transaction Tax (STT) Increase
Chapter VII
| Instrument | Old STT | New STT |
|---|---|---|
| Futures | 0.02% | 0.05% |
| Options | 0.1% | 0.15% |
9. Minimum Alternate Tax (MAT) Reforms
Section 115JB
Major Changes
| Particular | Earlier | Budget 2026 |
|---|---|---|
| MAT Rate | 15% | 14% |
| MAT Credit | Allowed | Final tax; no new credit |
| MAT on Non-Residents | Applicable | Not applicable in presumptive cases |
10. Corporate Tax Rates & IFSC Incentives
Section 115BAA / IFSC Amendments
Key Update
- Units in International Financial Services Centre (IFSC) will now be taxed at 15% after tax-holiday period (earlier 22% or 30%)
- Effective from AY 2026-27
11. Dividend & Mutual Fund Expense Deduction Removed
Section 57
- Interest deduction no longer allowed against dividend/mutual fund income from AY 2026-27
- Prevents excessive tax sheltering
12. Stay of Demand Reduced
Section 220(6)
- Stay allowed by paying 10% tax (earlier 20%)
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