Highlights of the Direct Tax Proposals (Budget 2026)
1. Structural Reforms & Compliance
• The New Income Tax Act, 2025: Set to take effect from April 1, 2026. New rules and forms will be notified shortly.
• Revised Return Timelines: The deadline for revising income tax returns is extended from December 31 to March 31 (subject to a nominal fee).
• Updated Returns: Taxpayers are now permitted to update their Return of Income (ROI) even after reassessment proceedings have been initiated.
• Integration of Proceedings: Assessment and penalty proceedings will be integrated into a common order to streamline the process.
• Accountant Definition: The definition of ‘accountants’ is being rationalized for better clarity under the Act.
2. Reduced Tax Collected at Source (TCS)
• Overseas Travel: TCS on overseas tour packages is reduced to 2% with no upper cap.
• Education & Medical: TCS for education and medical purposes is also reduced to 2%.
• Small Taxpayer Ease: A new mechanism allows small taxpayers to obtain NIL deduction certificates more easily, bypassing the need to apply directly to the Assessing Officer (AO).
3. Litigation, Penalties & Decriminalization
• Dispute Reduction: Significant measures introduced to reduce litigation and rationalize prosecution.
• Decriminalization: Several minor and technical offences are being decriminalized, converting penalties into fees or fines only.
• Judicial Discretion: Courts are empowered to convert simple imprisonment sentences into fines.
• Appeals: The quantum of pre-payment required for filing appeals is reduced from 20% to 10%.
4. Corporate & International Taxation
• Cloud Services: A ‘Tax Holiday’ is proposed for foreign companies providing cloud services until 2047.
• Safe Harbor Rules: Thresholds are being enhanced. A common safe harbor margin of 15.5% for IT/ITeS and 15% for Data Centers is proposed, with automated approvals valid for 5 years.
• MAT Changes: No MAT credit accumulation after April 1, 2026; however, the MAT rate is reduced from 15% to 14%.
• Accounting Standards: ICDS will be integrated into IND-AS; a joint MCA-CBDT committee will oversee this transition.
• Advance Pricing Agreements (APA): Unilateral APAs for IT companies will be fast-tracked.
5. Capital Markets & Specific Exemptions
• Buy-backs: All share buy-backs will now be taxed as Capital Gains, with promoters liable for additional tax.
• STT Increase: Securities Transaction Tax (STT) on futures is increased to 0.05%, with an overall hike for the F&O segment.
• Foreign Assets: A one-time 6-month disclosure scheme for foreign assets is introduced for specific categories. Immunity for non-disclosure of assets below ₹20 lakhs is provided effective Oct 1, 2024.
• Specific Exemptions: * Interest from Motor Accident Tribunals is now exempt.
• 3-year dividend income exemption for cooperatives.
• Exemptions for certain non-resident experts.
