Budget 2026 Key Highlights:
Income tax slab, new ITR forms, filing due dates, stock buyback taxation; penalty on crypto-related income tax reporting and more
Feb 1, 2026
Synopsis
Budget 2026 brings key changes for taxpayers. The income tax return correction window extends to March 31. TDS and TCS rules are simplified, easing compliance and cash flow. Litigation and penalties are softened with reduced pre-deposits. Corporate tax sees MAT reduction and STT increases. A foreign asset disclosure window offers a compliance route for small taxpayers.
As Finance Minister Nirmala Sitharaman presented Budget 2026 in Parliament today (Sunday, February 1, 2026), there were many changes such as new income tax return (ITR) forms, revised ITR deadlines and share buyback tax rule changes for all types of shareholders as capital gains that can impact taxpayers. Here, we take you through the key highlights of Budget 2026-
1. New Income Tax Act from April 1, 2026
The rollout of the new Income Tax Act from April 1, 2026, with simplified forms and rules signals a major push toward simplification and taxpayer ease, Kaur explains. Redesigned forms and clearer compliance procedures could reduce administrative burden and improve voluntary compliance. As proposed previously, the Income Tax Act had become complicated through years of amendments. Simplification of Income Tax Act was a long-pending need for masses.
Amit Gupta, Partner at Saraf and Partners, says some taxpayers were expecting a postponement of the New Income Tax 2025 implementation citing the lack of timeline for preparation especially in absence of underlying rules. On this, the FM stated the new Act would come into effect as planned from April 1, 2026. Rules and revamped Forms will be rolled out soon enabling people to prepare in advance.
2. Revised ITR filing deadline extended
Nangia & Co LLP says the Income tax return (ITR) correction window has been extended up to March 31 (earlier it effectively ended by December 31. This recognises a basic reality - taxpayers do make errors, and a longer correction window reduces avoidable litigation. Alongside this, the filing calendar is being made more workable by staggering due dates - individuals in ITR-1/2 remain July 31, but non-audit business cases/trusts are proposed to get time till August 31, which should reduce last-minute errors.
3. Rule-based automated certificates and centralised Form 15G/H submission
Manmeet Kaur, Partner at Karanjawala & Co. says the transition to rule-based automated certificates and centralised Form 15G/H submission via depositories represents a positive step for small-scale financial planning. By replacing discretionary manual approvals with a transparent, tech-led framework, the Budget simplifies paperwork and proactively unlocks household liquidity that would otherwise be trapped in the tax-refund cycle, thereby improving the net efficiency of domestic savings.
4. TDS and TCS – Major ease-of-doing business & cashflow relief
As per Nangia & Co LLP, if there is one area where the Budget 2026 is clearly trying to reduce compliance friction, it is TDS/TCS. A big middle-class relief is that TCS on overseas tour packages is reduced to 2% (without threshold conditions). Similarly, under LRS, TCS for education and medical remittances is reduced from 5% to 2% - a welcome step because these are genuine remittances, not speculative transfers, and high TCS was mainly causing cashflow blockage.
On the TDS side, a long-standing ambiguity is being addressed by explicitly treating manpower supply as “contract work”, which reduces disputes on whether TDS should be deducted as contractor payments or professional fees. Another meaningful reform is that lower/nil TDS certificates are being shifted to a rule-based automated process - this is important because it reduces discretion, delays and follow-ups.
A very practical NRI-focused reform is that in property purchases from non-residents, TDS can be deposited via PAN-based challan without needing TAN - this will remove a major procedural bottleneck in NRI property transactions.
5. Key change in taxation of SGB purchased from secondary market
Neeraj Agarwala, Partner, Nangia & Co LLP, says as per the proposals in the Finance Bill, 2026, the tax exemption on redemption of Sovereign Gold Bonds (SGBs) at maturity will continue to be available only in cases where the bonds are subscribed at the time of initial issuance by the government.
This change primarily impacts investors who purchase SGBs from the secondary market, including individuals who buy these bonds for liquidity or price arbitrage rather than subscribing at the original issuance stage. As these investors are not the original subscribers to the bonds, the difference between, the acquisition price and the redemption value will now be taxable in their hands at the time of maturity.
The intent of this amendment appears to be to align the tax benefit strictly with the original investment scheme and prevent unintended extension of exemption to secondary market transactions, while preserving the incentive for long-term investors participating in the initial issuance.
6. New stock buyback taxation framework
Kaur opines the Budget’s buyback taxation framework aligns shareholder returns with capital gains treatment while imposing higher rates on promoters, with 22% for corporate promoters and 30% for others. This discourages excessive promoter-driven buybacks for tax arbitrage while maintaining fairness for ordinary investors. It could also improve corporate governance by incentivising productive use of cash over return-of-capital schemes.
Lokesh Shah, Partner, CMS INDUSLAW, taxation on buy-back of shares which was recast as dividend income with effect from October 1, 2024, is now proposed to be restructured once again in Budget 2026. The proposal seeks to tax buy-back proceeds as capital gains in the hands of non-promoter shareholders, restoring alignment with taxation principles generally applicable to investments. To avoid misuse or abuse of these provisions, the government proposes that promoters will be subject to an additional buy-back tax, signalling a differentiated and more targeted approach to tax buy-back.
7. Cryptocurrency-related income tax reporting
In a statement on the transaction of crypto-assets, Finance Minister has proposed a penalty for non-furnishing of statements or furnishing inaccurate information on cryptocurrency-related income tax reporting. To ensure compliance and deter non-reporting or incorrect reporting, the Union Budget 2026 proposes to introduce penalty provisions for the transaction of crypto assets.
A penalty of Rs 200 per day for the non-furnishing of statement and Rs 50,000 for furnishing inaccurate particulars and failure to correct such inaccuracy is proposed to be levied.
8. Easy litigation architecture
The litigation architecture is also being softened, Nangia & Co LLP explains. The Budget proposes to integrate assessment and penalty into a common order, which reduces parallel proceedings and procedural fatigue. A key fairness measure is that the pre-deposit for appeal is reduced from 20% to 10% (on core tax demand), which will help taxpayers contest genuine issues without excessive cashflow strain. It also encourages closure by allowing taxpayers to file an updated return even after reassessment has started; by paying additional tax - this is a practical approach to resolve matters faster.
Importantly, the Budget continues the decriminalisation direction: certain defaults are being decriminalised, minor offences can become fine-only, and prosecution severity is being reduced with a cap on imprisonment and greater judicial discretion. Overall, the tone is clearly shifting from “prosecution-first” to “compliance-first”.
9. One-time foreign asset disclosure window
Nangia & Co LLP says one of the most mature policy moves is the one-time foreign asset disclosure window (FAST-DS). This is aimed at small taxpayers such as students, young professionals, and returning NRIs who may have paid tax but missed disclosure requirements. The scheme offers a structured compliance exit route with immunity on payment/fee, and in my view it draws a sensible distinction between genuine compliance gaps and deliberate concealment. It should materially reduce future exposure under the Black Money law for genuine cases and bring more taxpayers into clean compliance.
10. Foreign asset disclosure for hidden overseas holdings
The 6-month foreign asset disclosure scheme is a targeted effort to broaden tax compliance and bring hidden overseas holdings into the legal framework, as per Kaur. It differentiates between smaller undeclared assets—up to Rs 1 crore, penalised at 30% of fair market value plus 30% of additional tax—and larger or partially disclosed assets, where penalties can go up to Rs 5 crore. This tiered approach balances enforcement with an opportunity for voluntary compliance. If implemented effectively, it could improve revenue mobilisation and deter future non-disclosure.
11. TDS on immovable property
Kaur opines The new provision for TDS on immovable property sales by non-residents simplifies compliance by allowing deduction and deposit through the resident buyer’s PAN, removing the need for a separate TAN. This streamlines administration, reduces paperwork, and lowers procedural barriers for both buyers and non-resident sellers. By making the process more user-friendly, it could encourage transparency in high-value property transactions.
12. Tax holiday for cloud service providers
The proposed tax holiday until 2047 for cloud service providers setting up Indian data centres and serving customers locally is a long-term incentive to build domestic digital infrastructure, Kaur reveals. This could attract global tech firms, enhance data localisation, and strengthen India’s cloud ecosystem. By linking the benefit to in-country operations and resale, the policy encourages both investment and operational footprint. Over time, it may boost technology adoption, create skilled jobs, and reduce reliance on foreign data infrastructure.
13. Replacing penalties with additional amounts
Kaur says replacing penalties with additional amounts for Tax Payers aims to create a more taxpayer-friendly regime that encourages compliance rather than deterring honest contributors, This approach could reduce disputes, improve voluntary tax filing, and enhance overall trust in the fiscal system. By focusing on proportional levies instead of punitive fines, the measure aligns with global best practices in tax administration.
On the other hand Introducing a 100% penalty on misreported income sends a strong deterrent signal against tax evasion and ensures stricter compliance. It reinforces the Budget’s broader move toward a fair and transparent tax regime, balancing incentives for honest reporting with consequences for deliberate misstatement. While it may improve revenue discipline, the severity also requires clear guidelines and dispute-resolution mechanisms to avoid penalising genuine errors.
14. Immunity from prosecution for non-disclosure of non-immovable foreign assets
Providing immunity from prosecution for non-disclosure of non-immovable foreign assets below Rs 20 lakh, retrospectively from October 1, 2024, encourages voluntary compliance and reduces the compliance burden on small holders, says Kaur. This aligns with the broader policy of easing procedural penalties while focusing enforcement on significant cases. It could improve trust in the tax system and bring minor undisclosed assets into the formal framework.
[The Economic Times]
