The Finance Bill, 2026 introduces a series of structural and procedural changes aimed at balancing revenue considerations with taxpayer-friendly reforms. With the simultaneous operation of the outgoing Income-tax Act, 1961 and the new Income-tax Act, 2025, the proposals for Assessment Year 2026–27 mark a significant transition phase in India’s direct tax framework. This article highlights the key direct tax proposals, focusing on rate structures, compliance simplification, penalty rationalisation, and major amendments impacting individuals, businesses, and corporates.
1. Overview of Income-tax Rates for Assessment Year 2026–27
The Finance Bill, 2026, uniquely specifies income-tax rates under two parallel legislations for the assessment year beginning 01.04.2026, namely the outgoing Income-tax Act, 1961, and the new Income-tax Act, 2025.
For individual taxpayers, the basic exemption limits remain unchanged and consistent across both Acts, as summarised below:
| Assessee Category | Maximum Tax-Exempt Income |
| Individuals (other than those specified below), HUF, AOP/BOI, etc. | ₹ 2,50,000 |
| Resident Senior Citizens (60 to 80 years) | ₹ 3,00,000 |
| Resident Super Senior Citizens (80 years and above) | ₹ 5,00,000 |
| Assessee under the new tax regime (Section 115BAC(1A) / Section 202) | ₹ 4,00,000 |
Further, the Health and Education Cess on income-tax remains unchanged. As specified in the Bill, it shall continue to be levied at 4% of the income-tax and applicable surcharge.
2. A Detailed Breakdown of Surcharge Rates
Taxpayers must remain cognisant that the existing surcharge structure has been continued, significantly impacting the effective tax rate for high-income earners. The Bill continues the levy of surcharge on income-tax for various categories of taxpayers whose income exceeds prescribed thresholds. The rates, consistent across both the 1961 Act and the 2025 Act, are summarised below.
Part A: Individuals, HUF, AOP, BOI and Artificial Juridical Persons
(Not opting for the new tax regime under Section 115BAC(1A) of the 1961 Act or Section 202 of the 2025 Act)
| Total Income Slab | Rate of Surcharge |
| Exceeds ₹ 50 lakh but does not exceed ₹ 1 crore | 10% |
| Exceeds ₹ 1 crore but does not exceed ₹ 2 crore | 15% |
| Exceeds ₹ 2 crore but does not exceed ₹ 5 crore | 25% |
| Exceeds ₹ 5 crore | 37% |
Note: The surcharge on income-tax in respect of dividend income and specified capital gains shall not exceed 15%.
Part B: Other Assessee Categories
| Assessee Category | Total Income Threshold | Rate of Surcharge |
| Firms and Local Authorities | Exceeds ₹ 1 crore | 12% |
| Domestic Companies (not opting under Sections 115BAA / 115BAB) | Exceeds ₹ 1 crore but does not exceed ₹ 10 crore | 7% |
| Domestic Companies (not opting under Sections 115BAA / 115BAB) | Exceeds ₹ 10 crore | 12% |
| Other Companies | Exceeds ₹ 1 crore but does not exceed ₹ 10 crore | 2% |
| Other Companies | Exceeds ₹ 10 crore | 5% |
3. Major Reforms for “Ease of Living” and Compliance
A significant thrust of this year’s proposals is on simplifying tax compliance and reducing the burden on individual and small taxpayers, in line with the Government’s stated Ease of Living agenda. Key reforms include:
• Staggered ITR Filing Due Dates
The proposal to stagger ITR filing due dates is a pragmatic response to the peak-season pressure on tax professionals and the Department’s IT infrastructure. While the due date for individuals filing ITR-1 and ITR-2 remains 31st July, the due date for non-audit business cases and trusts has been extended to 31st August.
• Extended Timeline for Revised Returns
Taxpayers may now file a revised return up to 31st March of the year following the relevant assessment year. A nominal fee shall be levied for revisions filed after 31st December:
- ₹ 1,000 where total income does not exceed ₹ 5 lakh
- ₹ 5,000 in other cases
• Change in TCS rate
The change in TCS is as follows
| Type of Transaction | Old TCS Rate | Proposed TCS Rate |
| Sale of overseas tour programme package | 5% (up to ₹10 lakh) and 20% (above ₹10 lakh) | 2% (no threshold) |
| LRS for education or medical treatment | 5% | 2% |
| Tendu Leaves | 5% | 2% |
| Alcoholic Liquor for Human Consumption | 1% | 2% |
| Scarp | 1% | 2% |
| Minerals (Coal, Lignite, Iron Ore) | 1% | 2% |
Note: These rates apply where aggregate LRS remittances exceed ₹ 10 lakh in a financial year.
• Change TCS for Goods
• Tax Exemption for MACT Interest
In a compassionate measure, any interest awarded by a Motor Accident Claims Tribunal (MACT) to an individual shall be fully exempt from income-tax, and no tax shall be deducted at source on such payments.
4. Foreign Assets of Small Taxpayers Disclosure Scheme (FAST-DS), 2026
Chapter IV of the Finance Bill introduces a time-bound compliance window for small taxpayers with undisclosed foreign assets or income. The FAST-DS, 2026, provides a simplified path to compliance for two categories:
| Category | Description | Limit | Tax / Fee | Immunity |
| A | Overseas income or asset not disclosed | Up to ₹ 1 crore | 30% tax + 30% additional tax (in lieu of penalty) | Immunity from prosecution |
| B | Income disclosed and tax paid, but asset not declared | Up to ₹ 5 crore | Flat fee of ₹ 1 lakh | Immunity from penalty and prosecution |
5. Rationalisation of the Penalty and Prosecution Framework
These amendments mark a decisive shift from a punitive to a reformative compliance model. Key reforms include:
• Integrated Assessment and Penalty Order
As per proposed Section 274(4), penalty proceedings under Section 270A shall now be integrated with the assessment or reassessment order, eliminating separate penalty proceedings.
• Immunity Extended to Misreporting Cases
The scope of Section 270AA is expanded. Immunity may now be granted even in cases of misreporting, subject to payment of 100% of tax as additional income-tax, over and above tax and interest.
• Decriminalisation and Reduction of Punishments
Several offences, such as non-production of books of account, are proposed to be decriminalised. Where imprisonment is retained (e.g., Sections 276B and 276C), it is proposed to be simple imprisonment, with significantly reduced maximum terms.
• Updated Returns During Reassessment
Taxpayers may now file an updated return even after reassessment proceedings are initiated, upon payment of an additional 10% tax, offering a powerful mechanism for dispute resolution.
6. Key Amendments for Businesses and Corporates
• Revised Taxation of Share Buybacks
Consideration received on share buybacks is proposed to be taxed as capital gains in the hands of shareholders. To curb promoter-level tax arbitrage, an additional buyback tax is proposed, resulting in an effective tax rate of 22% for corporate promoters and 30% for non-corporate promoters.
• Minimum Alternate Tax (MAT) Reforms
MAT is proposed to be converted into a final tax at a reduced rate of 14% (earlier 15%). Set-off of brought-forward MAT credit (as on 01.04.2026) shall be restricted to 25% of tax liability under the new regime in any year, necessitating a strategic reassessment by capital-intensive companies.
7. Coordinated Boost to the Cooperative Sector
Key measures include:
- Extension of deductions to the supply of cattle feed and cotton seed
- Deduction for inter-cooperative society dividend income
- Three-year dividend exemption for notified national co-operative federations
8. Other Significant Direct Tax Proposals
• Securities Transaction Tax (STT)
- Futures: increased to 0.05% (from 0.02%)
- Options: increased to 0.15% (from 0.10% / 0.125%)
• Sovereign Gold Bonds (SGBs)
Capital gains exemption shall now apply only to original subscribers holding SGBs till maturity.
• ICDS and Ind AS Alignment
A joint MCA–CBDT committee will integrate ICDS requirements into Ind AS, with separate ICDS accounting proposed to be withdrawn from FY 2027–28.
• TDS on Immovable Property (Non-Resident Seller)
Resident individuals and HUFs may now deduct and deposit TDS using a PAN-based challan, eliminating the requirement to obtain a TAN for a single transaction.
• Lower / Nil Deduction Certificates
The process is proposed to be fully automated through a rule-based online system. Depositories will be enabled to accept a single Form 15G / 15H for securities held across multiple companies, avoiding repetitive submissions and excess TDS.
• TDS on Manpower Supply
A clarification provides that TDS shall be:
- 1% where payment is made to an individual or HUF
- 2% in all other cases
This removes earlier ambiguity regarding applicable rates.
Further updates and detailed analysis on other important proposals under Budget 2026, including indirect taxes and sector-specific measures, will be shared separately through the link provided below. Readers are advised to consult their tax professional for a detailed analysis of the specific impact of these proposals on their individual facts and circumstances.