The Union Budget 2026–27, presented by Finance Minister Nirmala Sitharaman, sets out a comprehensive and reform-driven policy framework aimed at strengthening India’s public finance architecture. Moving beyond the emphasis on short-term tax relief, the Budget focuses on creating a predictable, transparent, and sustainable taxation and fiscal management system aligned with the long-term vision of Viksit Bharat. Key elements of this approach include the introduction of a new Income-tax law, rationalisation of compliance timelines, and the promotion of trust-based taxation to enhance voluntary compliance. The Budget also outlines a clear roadmap for fiscal consolidation, balancing prudent deficit management with growth-oriented expenditure priorities.
Introduction of the Income-tax Act, 2025
A landmark reform reaffirmed in Budget 2026 is the implementation of the Income-tax Act, 2025, which will come into effect from 1 April 2026. This new legislation replaces the Income-tax Act, 1961, which had become highly complex due to frequent amendments and extensive litigation.
Rationalisation of Filing Dates and Procedural Flexibility
The timeline for filing revised returns has been extended from 31 December to 31 March, subject to payment of a nominal fee. This provides additional time for reconciliation and accurate reporting.
Further, individual taxpayers filing ITR-1 and ITR-2 will continue to file returns up to 31 July, while non-audit business cases and trusts are proposed to be allowed time till 31 August. These changes aim to reduce compliance pressure and improve voluntary adherence to tax laws.
Updated Returns, Immunity and Decriminalisation
Budget 2026 strengthens the trust-based taxation framework by expanding the scope of updated returns. Taxpayers are now permitted to update returns even after reassessment proceedings have commenced, on payment of an additional 10% tax over the applicable rate. This encourages self-correction while safeguarding revenue.
In addition, a framework for reduced penalties and immunity from prosecution has been proposed for certain cases of under-reporting, subject to prescribed conditions. Honest taxpayers willing to settle disputes can now close cases by paying an additional amount instead of a penalty. Further, certain procedural and technical defaults, including specified TDS-related non-compliances, have been proposed to be decriminalised.
TDS, TCS, and Compliance Simplification
| Category | Transaction | Earlier Provision | Revised Provision | Benefit / Impact |
| TDS | Supply of manpower services | Multiple rates causing ambiguity | Standardised at 1% or 2% | Reduced ambiguity and easier compliance |
| TDS
| Sale of immovable property by non-residents | Deduction and deposit using TAN | Deduction and deposit using resident buyer’s PAN | Simplified compliance for resident buyers |
| TCS | Overseas tour programme packages | 5% / 20%, with threshold | 2%, without any threshold | Lower tax burden and improved cash flows |
| TCS
| LRS – Education & medical purposes | 5% | 2% | Improved cash flows and ease of living |
Fiscal Federalism and Finance Commission Transfers
The Government has accepted the Finance Commission’s recommendation to retain the vertical share of tax devolution to States at 41%, ensuring adequate fiscal space for States.
Further, a provision of ₹1.4 lakh crore has been made for Finance Commission Grants to States for FY 2026–27, including grants for Rural Local Bodies, Urban Local Bodies, and Disaster Management. These transfers support grassroots governance, improve service delivery, and enhance ease of living at the local level.
Fiscal Discipline and Debt Consolidation Path
| Particulars | Details |
| Debt-to-GDP Target | 50% ± 1% by 2030 |
| Debt-to-GDP (FY 2026–27) | 55.6% |
| Debt-to-GDP (RE FY 2025–26) | 56.1% |
| Trend | Gradual improvement in debt position |
| Fiscal Deficit (RE FY 2025–26) | 4.4% of GDP |
| Fiscal Deficit (BE FY 2026–27) | 4.3% of GDP |
| Fiscal Strategy | Gradual fiscal correction |
| Impact
| Improves macroeconomic stability and investor confidence |
| Growth Outlook | Fiscal consolidation without compromising growth |
MAT and Corporate Tax Reforms
The Budget proposes that Minimum Alternate Tax (MAT) be treated as a final tax, providing certainty to taxpayers. Set-off of existing MAT credit is allowed up to one-fourth of the tax liability under the new regime. Additionally, non-residents paying tax on a presumptive basis are exempted from MAT, improving India’s investment attractiveness.
The introduction of the Income-tax Act, 2025, rationalised timelines, compliance relaxations, and decriminalisation measures, enhancing ease of doing business, while stable devolution to States, targeted grants, and fiscal consolidation support sustainable growth.
Stay tuned to taxreturnwala.com for all such updates. For any doubts and questions, please feel free to write to us with your doubts and concerns at info@taxreturnwala.com.