BUDGET-2026
PROPOSAL
FOR INCOME TAX
PART-1 Proposed Changes in Income Tax Law which Every one should know
1- *The
due date for filing the return of income is extended from 31 July to 31 August
for non-audit business cases and partners of non-audit firms.* for others the
due dates are same as earlier
2- ITR
can be revised upto 31st March from the end of the relevant tax year
on paying certain additional fees. However for revising ITR till 31st
December from the end of the relevant tax year there is no additional fees.
3- Changes in TCS Rates
Key TCS rate changes – snapshot
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Sl. No.
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Nature of transaction
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Earlier TCS position (up to 31‑03‑2026)
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New TCS position after Budget
2026 (proposed from 01‑04‑2026)
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1
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Sale of alcoholic liquor for human
consumption
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1% on sale value; no threshold.
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2% on sale value; no threshold
(rate rationalised upwards to a uniform 2%).
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2
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Sale of tendu leaves
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5% on sale value; no threshold.
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2% on sale value; no threshold
(substantial rate reduction).
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3
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Sale of scrap
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1% on sale value; no threshold.
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2% on sale value; no threshold
(brought to 2% uniform rate).
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4
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Sale of minerals (coal, lignite,
iron ore)
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1% on sale value; no threshold.
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2% on sale value; no threshold
(rate rationalised to 2%).
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5
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LRS remittances for education and
medical treatment (resident individual remitting abroad)
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5% on amount exceeding ₹7 lakh/₹10
lakh (practically 5% in most cases above threshold); concessional 0.5% for
certain education loans; higher operational complexity.
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2% on amount exceeding ₹10 lakh in
a year where purpose is education or medical treatment, under LRS; below ₹10
lakh – no TCS.
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6
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LRS remittances for other purposes
(investment, gifts, etc.)
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20% TCS on amount exceeding
specified threshold (₹7 lakh/₹10 lakh) for non‑education, non‑medical LRS
remittances (introduced via Finance Act 2023 and continued).
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No change – 20% TCS continues on
amounts exceeding prescribed threshold for other LRS purposes.
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7
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Overseas tour programme package
(travel, hotel, boarding, lodging as a package)
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5% up to ₹7–10 lakh per year; 20%
on amount above ₹7–10 lakh (post‑2023 regime), leading to very high TCS for
high‑value packages.
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Flat 2% on entire amount; no
threshold – applies from first rupee of overseas tour package.
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4-
*Allowing update itr in reassessment proceedings* - if an updated
return is filed after receiving Notice u/s 148 / u/s 280, it must be filed only
in the manner specified in the notice, no alternative route allowed.
Further, such updated return
will attract additional 10% tax over and above the additional tax + interest
payable under normal updated ITR
Relief: No penalty 270A / u/s
439 on income for which this additional tax is paid.
5-
No interest shall be charged under section 220 / u/s
411 in respect of any demand raised on account of penalty levied under section
270A / 439 up to the date of passing of
the order under section 250 / 359 (order of CITA)
6-
Immunity u/s 270AA / 440 from Penalty for misreporting
(200%) is
also allowed now on certain specified conditions. Earlier immunity was
available for Penalty for Underreporting (50%) only.
7-
*No Need to obtain TAN for TDS on sale of property sale
by NRI*The government has proposed that TDS on the sale of immovable
property by non-residents will now be deducted and deposited through resident
buyers using their PAN-based challan, eliminating the need for a TAN (temporary
accounting number) and simplifying compliance.
Amendment will be
effective from 01.10.2026.
8-
*One-time 6-month Foreign Asset Disclosure Window*
Undisclosed overseas
income/assets up to ₹1 crore → 30% tax + 30% penalty
Tax already paid, but disclosure
missed (assets up to ₹5 crore) → ₹1 lakh fixed penalty
9-
Employees’ contribution to PF, ESI and similar funds will be
allowed as a deduction if deposited on or before the income tax return filing
due date.
Due date of depositing employees contribution being amended as due date of
filing income tax return in place of due date as per respective Act.
SC order on checkmate
services put to rest
10- *Late fees of
delay in filing of Tax Audit Report - Sec 428- Even a single day delay in
filing Tax Audit report will now attract late fee of Rs. 75,000 and delay of
more than 1 Month will attract Rs.1,50,000 as Late Fees.*
11- *No Tax benefit
from maturity benefit on sovereign gold bonds -SGBs Except if you buy
directly from RBI at original issue and hold till maturity.*
Buying SGBs from the secondary
market = NO capital gains exemption.
12- *Tax rate under
section 195 of I Tax Act-2025 (same as section 115BBE of I tax Act-1961 on
unexplained credit , Investment Section
68, 69) being reduced to 30% as against
60%* No such reduction in tax rate
given for section 115BBE under I. Tax Act-1961.
13- Further now the
penalty 443 / 271AAC (which was 10% of the Income tax on addition u/s 115BBE)
has been removed meaning
there by now penalty u/s 439 /270A i.e. 200% of the income tax will be levied
in such cases.
14- Allowability of
filing ITR-U in case of Loss Return - where Losses in ITR-U are
less than Losses claimed in Previous ITR:
It is proposed to
amend section 263(6) of the Act, so as to allow filing of updated return in
such cases where taxpayer reduces the amount of loss in comparison to the
amount of loss claimed in the return of loss furnished within the due date
specified under sub-section (1).
the above amendments
in the Income-tax Act, 2025 shall come into force from the 1st day of April,
2026.
15- *Changes in Buyback
Tax- Now to be treated as Capital Gains – Earlier it was treated as dividend*
If you are a
non-promoter, you can now offset the purchase price as a capital loss as
buyback is now capital gains - effective tax rate at 20% short term and 12.5%
long term.
However, Individual Promoters
will have to pay Tax on CG @ 30%
Domestic Company
Promoters will have to pay Tax on CG @ 22%
PART-2
Other Procedural Changes for Professionals
16- Section 144C being
amended retrospectively to extend limitation under section 153. Roccca Bathroom
judgement will now get overruled with
this retrospective amendment.
17- JAO vs FAO
controversy will also get settle in favour of Revenue with retrospective amendment by
inserting section 147A so as to override the notification issued under section
151A
18- Reduction in deposit
to get stay of Income Tax demand Recovery during Appeal
In the Budget speech the FM has
proposed quantum of pre-payment is being reduced from 20 percent to 10 percent
and will continue to be calculated only on core tax demand.
19-
Key MAT-related proposals in Budget 2026 (Finance Bill
2026) in brief are:
- MAT rate reduced from 15% to 14% on book profits,
applicable from tax year 2026‑27 onwards.
- MAT is proposed to become a final tax;
no fresh MAT credit will accrue on MAT paid for periods starting 1 April
2026.
- Brought‑forward MAT credit accumulated up to 31
March 2026 will continue, but:
- It can be set off only where the company opts
for the concessional/new domestic corporate tax regime.
- Set‑off in any year is capped at 25% of that
year’s tax liability under the new regime; balance credit continues
within the existing 15‑year carry‑forward limit.
- Certain non‑residents taxed on presumptive basis
are proposed to be fully exempted from MAT.
- Specified businesses are proposed to be excluded
from the applicability of MAT via amendment of the relevant clause in
section 206 of the new Act (as per the draft language)
20-
Income‑tax assessments and related orders will not be
treated as invalid merely because of technical mistakes in quoting or printing
the Document Identification Number (DIN), so long as a valid, computer‑generated
DIN exists and the order is referable to that DIN in any manner. A new validation
provision (inserted as section 292BA in the Income‑tax Act, 1961 and mirrored
in the new Income‑tax Act, 2025) deems such orders to be valid notwithstanding
defects, omissions, or errors in mentioning the DIN (for example, not printed
on every page, minor mismatch in format), thereby nullifying court rulings that
had quashed assessments purely on such DIN technicalities and reducing
litigation on this issue, with retrospective effect.
21-
Decriminalisation – TDS situations
Budget 2026 partially decriminalises
certain TDS‑related offences and rationalises prosecution across the Act,
including TDS defaults, by shifting focus from imprisonment to monetary fines
and graded, lower punishment based on tax quantum.
Core decriminalisation – TDS
situations
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Aspect
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Earlier position (up to FY 2025‑26)
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New position after Budget 2026
(proposed, from 1‑4‑2026)
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TDS where payment is wholly/partly
in kind and tax not ensured from deductee
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Failure to ensure payment of TDS
in such cases attracted prosecution (rigorous imprisonment and fine) under
the relevant TDS prosecution section of the Act (current section 276B
analogue), even for purely technical lapses.
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Offence of failure to ensure TDS
payment where consideration is paid in kind is proposed to be fully
decriminalised; only monetary consequences (interest/fee/penalty as
prescribed separately) will apply, with no criminal prosecution for this
technical default.
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Non‑production of books of account
/ documents during TDS enquiries (e.g., survey, verification of deductions)
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Non‑production could trigger
prosecution under general prosecution provisions, in addition to best‑judgment
assessments and penalties.
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Offence of non‑production of
books/documents is proposed to be completely decriminalised; only
monetary fine (civil penalty) may be imposed, and no imprisonment is
envisaged for this default.
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“Minor” / technical TDS‑TCS
defaults (e.g., certain procedural failures without significant tax loss)
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Could technically attract
prosecution with rigorous imprisonment (up to 7 years in some cases) plus
fine, though often compounded in practice.
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Such minor offences are proposed
to be converted to fine‑only cases; imprisonment is removed, so
these will attract only monetary fines graded by quantum and nature of
default.
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Rationalisation of prosecution
framework (including TDS)
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Parameter
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Earlier regime for TDS‑type
offences
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New regime after Budget 2026 (for
TDS & other offences)
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Nature of imprisonment
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Many sections provided
for rigorous imprisonment with minimum terms and higher maxima (up
to 7 years for some offences involving TDS/TCS/wilful evasion).
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All remaining tax offences,
including serious TDS defaults, will now carry
only simple imprisonment; rigorous imprisonment is removed.
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Maximum imprisonment
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For some prosecution sections
(including failure to pay TDS to credit of Central Government in time),
maximum term could go up to 7 years depending on facts.
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Maximum punishment (except for
specified repeat offences) is reduced to 2 years; where the existing
maximum was 2 years, it is cut down to 6 months and the minimum
term is removed.
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Mandatory imprisonment / minimum
term
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Several provisions prescribed a
mandatory minimum imprisonment (e.g., not less than 3 months) along with
fine, limiting judicial discretion in TDS cases.
|
Mandatory minimum imprisonment is
largely removed; in many cases, courts may impose fine with or
without imprisonment, with enhanced discretion and focus on tax quantum
and intent.
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Basis for grading punishment
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Statutory language was offence‑specific
and not always explicitly linked to tax quantum; similar lapses could face
different ranges.
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Prosecutions (including for
serious TDS defaults) will be graded by amount of tax evaded/withheld,
with slabs where low‑amount cases attract fine only, moderate cases simple
imprisonment up to 6 months, and higher cases up to 2 years.
|
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Court power to convert
imprisonment into fine
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Not expressly available in many
sections; once imprisonment applied, scope to substitute with fine was
limited.
|
Courts are expressly empowered
to convert even simple imprisonment into fine for less serious
cases, adding another layer of de‑facto decriminalisation for borderline TDS
defaults.
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Practical takeaways for TDS defaults
- Purely technical lapses like non‑production of
books/documents or failure to ensure TDS payment where consideration is in
kind move out of the prosecution net and into monetary‑penalty territory
only.
- Serious TDS failures (e.g., non‑deposit of
TDS/TCS with substantial tax involved) remain prosecutable, but
with simple imprisonment, lower maximum terms, and fines graded
by