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The Union Budget 2026-27 has introduced a significant legislative shift with the announcement of the Income Tax Act, 2025, which will replace the six-decade-old Income Tax Act of 1961. This new legislation will take effect from 1 April 2026.
Finance Minister Nirmala Sitharaman, in her ninth consecutive budget presentation confirmed that the government completed the drafting of the new tax code in record time. The primary goal of the new Act is to reduce the complexity of the existing tax framework, making it easier for citizens to understand and comply.
The new Act focuses on clarity and brevity. It reduces the total number of sections from over 800 to approximately 536 sections. By cutting down the word count by nearly 50%, the government intends to minimize ambiguities that often lead to legal disputes between taxpayers and authorities.
Key structural changes
One of the most notable changes is the introduction of a unified "Tax Year" framework. This removes the long-standing distinction between the "Assessment Year" and the "Previous Year," which often confused taxpayers. Starting April 2026, the tax system will operate on a single 12-month cycle from April 1 to March 31.
The Ministry of Finance will notify the simplified Income Tax Rules and redesigned forms shortly. These forms aim to allow ordinary citizens to file their returns without professional assistance.
Revised Deadlines and Compliance Relief
The budget introduces more flexible timelines for tax filings and corrections:
Extended ITR Revisions: Taxpayers can now revise their returns until March 31 (the end of the financial year) upon payment of a nominal fee. Previously, this window closed on December 31.
Staggered Filing Deadlines:
July 31: Remains the deadline for individuals filing ITR-1 and ITR-2.
August 31: Proposed new deadline for non-audit business cases and trusts.
TDS Refund Ease: Taxpayers can now claim TDS refunds even if they file their returns after the deadline, without facing penal charges.
Personal finance and market adjustments
While the fundamental income tax slabs remain unchanged from the previous year, several targeted adjustments provide relief or update tax costs in specific sectors.
| Provision | Previous Rate | New Rate (Budget 2026) |
| TCS on Overseas Tour Packages | 5% / 20% | 2% (No threshold) |
| TCS on LRS (Education/Medical) | 5% | 2% |
| STT on Futures | 0.02% | 0.05% |
| STT on Options | 0.1% | 0.15% |
| Final MAT Rate | 15% | 14% |
Specific relief measures
Motor Accident Claims: Interest awarded by the Motor Accident Claims Tribunal is now exempt from income tax, and the associated TDS is removed.
Buyback Taxation: Income from share buybacks will now be taxed as Capital Gains in the hands of all shareholders. Promoters will face an additional tax to prevent arbitrage, making their effective rate 22% for corporates and 30% for non-corporates.
Foreign Asset Disclosure: Small taxpayers, including students and tech professionals who lived abroad, get a one-time six-month window to disclose foreign assets below a certain size without facing harsh penalties.
Corporate and sectoral changes
The government is phasing out the Minimum Alternate Tax (MAT). From 1 April 2026, further MAT accumulation will stop, and it will become a final tax at a reduced rate of 14%. And, to encourage the shift to the new regime, companies can only set off existing MAT credit if they move to the new tax regime.
Additionally, the government announced a tax holiday until 2047 for foreign cloud service providers that use Indian data centres to serve global customers.