Union Budget 2026: Key Direct Tax Reforms and Compliance Simplifications
The Union Budget 2026 introduces transformative changes to India’s direct tax landscape, with the New Income Tax Act, 2025 effective from April 1, 2026. These reforms focus on easing compliance, reducing TCS/TDS burdens, and streamlining penalties while promoting fairness for taxpayers.[1][3]
1. Launch of New Income Tax Act and Filing Simplifications
The cornerstone of Budget 2026 is the rollout of the **New Income Tax Act, 2025**, replacing the outdated framework from April 1, 2026. Simplified rules and redesigned ITR forms will be notified soon, prioritizing ease for ordinary citizens.[3][5]
Extended Deadlines and Staggered Filings
- ITR-1 and ITR-2 filing deadline remains July 31, but revisions extended to March 31 annually with a nominal fee.[1]
- Staggered filing timelines to avoid peak congestion.[3][5]
- Post-assessment return updates allowed with 10% additional tax.[1]
These measures cut compliance hassles and provide flexibility to correct errors.[1][5]
2. TCS and TDS Rationalizations for Better Cash Flows
Budget 2026 slashes TCS rates and simplifies TDS to improve liquidity, especially for individuals and small businesses.[1][5]
Key TCS Reductions
- Foreign tour packages: Flat 2% TCS (previously 5%/20%, no threshold).[1][5]
- LRS for education/medical: Reduced from 5% to 2%.[1][5]
TDS Enhancements
- Manpower services TDS at 1-2% only.[3][5][7]
- CDSL/NSDL accept Form 15G/15H for small investors, preventing excess TDS on dividends/interest.[1]
- Automated lower/nil TDS certificates for small taxpayers, no AO applications needed.[5]
Motor Accident Claims Tribunal (MACT) interest is now fully tax-exempt with no TDS, resolving long-standing ambiguities.[1]
3. Penalty Reforms, Dispute Resolution, and Corporate Changes
A lighter touch on penalties integrates proceedings for quicker resolutions, alongside corporate tax tweaks.[2][3][5]
Compliance and Litigation Relief
- Integrated assessment + penalty orders; multiplicity of proceedings reduced.[3][5]
- Pre-deposit for demand stay lowered to 10% from 20%.[1]
- Non-production of books and minor offences decriminalized, replaced by fines.[1]
- One-time foreign asset disclosure: Category A (up to ₹1 crore) at 60% tax; Category B (up to ₹5 crore) with ₹1 lakh fee; immunity from prosecution.[1]
Corporate Tax Highlights
- MAT as final tax from April 1, 2026, at 14% (down from 15%); brought-forward credits usable.[2]
- Buyback taxation as capital gains for all; additional tax on promoters (22-30% effective).[2]
- No slab changes; standard deduction at ₹75,000 under new regime.[2][4]
These reforms, totaling nearly 90 amendments, balance revenue with taxpayer relief ahead of the new Act.[2] Non-residents on presumptive tax exempt from MAT, and IndAS tweaks planned for 2027-28.[3]
Taxpayers should review these changes for FY 2026-27 planning. Despite no slab revisions, procedural ease will significantly reduce burdens.[1][2]