Budget 2026: No Changes In Income Tax Slab; New IT Act From April 1

Finance Minister Nirmala Sitharaman on Sunday announced that the review of the Income Tax Act, 1961, has been completed in record time, with the Income Tax Act, 2025, set to come into force from April 1, 2026. Simplified tax rules and redesigned forms will be notified shortly. This is aimed at enabling ordinary taxpayers to comply without professional assistance.

TCS Cuts, Exemptions and Compliance Relief

As part of ease-of-living measures, interest awarded by Motor Accident Claims Tribunals to individuals will be fully exempt from income tax.

The government proposed sharp reductions in Tax Collected at Source (TCS). TCS on overseas tour packages will be cut to 2% from the current 5% and 20%, without any minimum amount condition. Similarly, TCS under the Liberalised Remittance Scheme for education and medical expenses will be reduced from 5% to 2%.

Manpower supply services will be explicitly covered under contractor payments for TDS purposes, attracting TDS of 1% or 2%, removing ambiguity. A rule-based automated mechanism will be introduced to allow small taxpayers to obtain lower or nil TDS certificates without approaching assessing officers.

Filing Timelines Eased, Fewer Procedural Hurdles

The time limit for revising returns will be extended beyond December 31 with payment of a nominal fee. Filing timelines will be staggered, with ITR-1 and ITR-2 due by July 31, while non-audit business cases and trusts will get time till August 31.

For non-resident property transactions, TDS will be deposited through the resident buyer’s TAN-based challan, eliminating the need for a separate TAN.

One-time Foreign Asset Disclosure Scheme

To address compliance challenges faced by students, young professionals and relocated NRIs, a one-time six-month foreign asset disclosure scheme will be introduced.

• Category A: Undisclosed overseas income or assets up to ₹1 crore; tax of 30% plus 30% additional tax, with immunity from prosecution.
• Category B: Assets up to ₹5 crore; immunity from penalty and prosecution on payment of a ₹1 lakh fee.

Litigation, Penalties and Prosecution Rationalised

Assessment and penalty proceedings will be integrated into a single order, reducing multiplicity of litigation. Pre-deposit for appeals will be cut to 10% from 20% of core tax demand.

Several technical penalties will be converted into fees, while minor offences will attract fines only. Maximum imprisonment for remaining offences will be reduced to two years, with courts empowered to convert imprisonment into fines. Certain defaults, including non-production of documents and payments in kind, will be decriminalised.

Relief for Cooperatives

Tax benefits for cooperatives were expanded, including deductions for supply of cattle feed and cotton seed, exemption for inter-cooperative dividends under the new tax regime, and a three-year dividend exemption for notified national cooperative federations.