Budget 2026: Income-Tax Highlights at a Glance
Presented by Finance Minister Smt. Nirmala Sitharaman, the Union Budget 2026 does not tinker with income-tax slabs or basic rates. Instead, it focuses on structural reforms, compliance simplification, market-related taxation and targeted reliefs. Let us have a look at some of the key income-tax proposals every taxpayer, investor and businessman should note:
1. No Change in Income-Tax Slabs or Rates
Both Old Tax Regime and New Tax Regime continue exactly as applicable in FY 2025-26. Last year’s enhanced rebate (nil tax up to ₹12 lakh under NTR, subject to conditions) and standard deduction of ₹75,000 for salaried taxpayers remain untouched.
2. Revised Due Date for Filing Original Return:
Another important taxpayer-friendly move is the extension of the due date for filing the original income-tax return for individual/HUF having business income. Individual /HUF having business income and who are not required to get the books of accounts audited will be required to file the ITR by 31stAugust. The salaried taxpayers who are required to file income tax return in ITR – 1 & 2 will be required to file the income tax return up to 31st July only. All other dates have remained unchanged.
3. Special Rate Tax under Sections 68/69, etc. Rationalised:
A long-awaited relief comes in the form of reduction in the special tax rate applicable to unexplained income covered under sections 68, 69, 69A, 69B and 69C. Until now, such income was taxed at a steep effective rate of around 60% plus surcharge and cess. Budget 2026 proposes to rationalise this and bring such income under a flat 30% tax regime (plus applicable surcharge and cess). While unexplained income will still remain taxable, this move removes the excessively punitive character of earlier provisions and aligns taxation more reasonably with normal income slabs.
4. Penalty for Non-Audit Converted into Fee:
In another signifi cant procedural reform, the existing penalty for failure to get accounts audited has now been converted into a fixed “fee”. This shift from penalty to fee reflects the government’s broader philosophy of moving away from penalty to a fees. Earlier it was discretionary and no penalty was levied if there existed a reasonable cause. Now, it will be mandatory and no discretion would be there with the authorities. Taxpayers themselves would be required to pay it mandatorily.
5. Penalties to be Replaced by ‘Additional Amounts’ in Certain Defaults
For select procedural lapses, rigid penalties will be substituted by additional amounts, signalling a shift from punishment to compliance correction.
6. Share Buyback Taxation Completely Restructured:
Under the existing provisions of the Income-tax Act, 2025, consideration received by a shareholder on buy-back of shares by a company is treated as dividend income under section 2(40)(f) of the Act and taxed accordingly, while the cost of acquisition of the shares extinguished on buy-back is recognised separately as a capital loss under section 69. 2.
It is proposed to rationalise the taxation of share buy-backs by providing that consideration received on buy-back shall be chargeable to tax under the head “Capital gains” instead of being treated as dividend income. Further, having regard to the distinct position and influence of promoters in corporate decision-making, particularly in relation to buy-back transactions, it is proposed that, in the case of promoters, the effective tax liability on gains arising from buy-back shall be thirty per cent, comprising tax payable at the applicable rates together with an additional tax. In case of promoter companies, the effective tax liability will be 22%.
7. Minimum Alternate Tax (MAT) Made Final Tax with Lower Rate:
Budget 2026 proposes a major change in the Minimum Alternate Tax regime by making MAT a final tax, coupled with reduction in its rate to 14%. Simultaneously, the MAT credit mechanism is proposed to be discontinued. Companies will no longer need to carry forward MAT credits for years. MAT rate is also proposed to be reduced from 15% to 14%.
8. Extended Tax Holiday for IFSC / GIFT City Units:
Tax holiday period doubled to 20 years, followed by concessional taxation. Objective: attract global financial activity and deepen India’s international finance ecosystem.
9. Revised Income Tax Return:
The period for filing revised income tax return has been extended by 3 months from 31stDecember to 31st March. It may be noted that the period up to 31st March is only for revising the income tax return and not for belated return. Earlier, the only option after 31st December was filing an updated return with additional cost.
10. Updated Return:
Now, even if the reassessment proceeding has been initiated, taxpayers can file updated returns, albeit with some additional tax cost. Further, updated return can also be filed if earlier return was a return of loss and updated return has the effect of reducing such loss.
11. New Income-tax Law from 1st April 2026:
The existing Income-tax Act, 1961 will be replaced by the Income-tax Act, 2025 with effect from AY 2027-28.
Key objective: simpler drafting, fewer cross references, clearer provisions and reduced litigation. This is the biggest structural tax reform in decades.
12. Simplified ITR Forms & Rationalised Procedures:
Fresh ITR formats to be notified with simplified disclosures.
Various procedural provisions to be rationalised to reduce compliance burden and interpretation disputes.
In Summary:
Budget 2026 does not offer fresh slab relief like last year, but it consolidates gains already given. The emphasis this year is on a new simplified tax law, smoother compliance, tighter capital market taxation, closure of buyback loopholes, and system-driven enforcement. For honest taxpayers, relief continues. For aggressive planners, doors are quietly closing.
