Union Budget 2026 Proposals
In-depth analysis of the tax landscape changes, compliance requirements, and business implications.
Direct Tax Proposals
Tax Rates
Individual Assessees – New Regime
| Slab Rates | FY 2025-26 and FY 2026-27 |
|---|---|
| Up to 4,00,000 | Nil |
| From 400,001 to 800,000 | 5% |
| From 800,001 to 1,200,000*** | 10% |
| From 1,200,001 to 1,600,000 | 15% |
| From 1,600,001 to 2,000,000 | 20% |
| From 2,000,001 to 2,400,000 | 25% |
| Above 2,400,000 | 30% |
Individual Assessees – Old Regime
Except Senior Citizens
| Up to 250,000 | Nil |
| 250,001 - 500,000* | 5% |
| 500,001 - 1,000,000 | 20% |
| Above 1,000,000 | 30% |
Seniors (60 - 80 years)
| 0 - 300,000 | Nil |
| 300,001 - 500,000* | 5% |
| 500,001 - 1,000,000 | 20% |
| 1,000,000+ | 30% |
Super Senior Citizens (80+ years)
| 0 - 500,000 | Nil |
| 500,001 - 1,000,000 | 20% |
| 1,000,000+ | 30% |
Note: Senior Citizens can also choose the new regime if beneficial.
Surcharge for Individuals
| Total Income | Old Regime | New Regime |
|---|---|---|
| < 50 Lacs | 0% | 0% |
| 50L - 100L | 10% | 10% |
| 100L - 200L | 15% | 15% |
| 200L - 500L | 25% | 25% |
| > 500L | 37% | 25% |
Corporate Taxation
Domestic Companies
| Turnover < 400cr (FY22-23/FY23-24) | 25% |
| Turnover > 400cr (FY22-23/FY23-24) | 30% |
Surcharge (Domestic)
| Income > 1cr but < 10cr | 7% |
| Income > 10cr | 12% |
Special Rates for Domestic Companies
| New Mfg (Incorp > Oct 2019, no exemptions) | 15% |
| All Domestic (Subject to no exemptions) | 22% |
Foreign Companies
Standard tax rate stands at 40%.
Surcharge for Foreign Companies
Income 1cr - 10cr
2%
Income > 10cr
5%
*Surcharge also applies to MAT and Dividend Distribution Tax.
Partnership Firms and LLPs
- Flat tax rate of 30% to be continued.
- Surcharge of 12% if total income exceeds Rs. 100 lacs.
Changes impacting Individual Taxpayers
Foreign Assets of Small Taxpayers Disclosure Scheme, 2026
A voluntary compliance window announced to regularise undisclosed foreign assets and income.
Value < ₹1 crore. Tax payable at 60%
(30% tax on FMV/income + 30% additional tax)
Value < ₹5 crore. Flat fee of ₹1 Lakh
Applicable if income was originally disclosed.
Complete Immunity: Declarations receive full immunity from penalty and prosecution under the Black Money Act.
Valuation Date: Fair Market Value (FMV) to be determined as on 31 March 2026.
Relief for Small Holdings: Foreign assets < ₹20 Lakh exempt from prosecution. (Retrospective from 1 Oct 2024).
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2
Buyback No Longer Treated as Dividend
Proceeds now taxed under capital gains instead of dividend. Promoters/HoldCos taxed at 22-33%. [Section 2 & 69]
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3
Restriction on Interest Deduction
The 20% deduction of dividend income towards interest expenditure has been removed. [Section 93]
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4
Sovereign Gold Bonds – Exemption Restricted
Exemption on redemption available only to original subscribers. [Section 70]
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5
TDS Relief on Accident Compensation
Interest component of MACT compensation exempt from TDS. [Section 393]
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6
Rationalisation of TCS Rates
Unified rate of 2% for multiple TCS transactions (Travel, Students, Medical). [Section 394]
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7
Digital Processing of Lower Deduction Certificates
Applications for nil/lower TDS certificates can be filed and processed electronically. [Section 395]
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8
TAN Exemption for Specified Transactions
TAN requirement removed for Resident assesses for purchase of immovable property/VDA from NRIs. [Section 397]
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9
Statutory Recognition of Welfare Exemptions
Disability pension and compulsory land acquisition compensation exempt. [Schedule III]
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10
Tax Rate on Unexplained Cash Credits Reduced
Tax reduced from 60% to 30%. [Section 195]
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11
Taxation of Interest on High-Value PF
Methodology clarified for taxable interest on PF contributions exceeding limits. [Schedule XI]
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12
STT Increase
Security Transaction Tax increased on sale of futures and options.
Charitable Organisations
Exit Tax on Merger
Provisions apply where an exempt entity merges with a non-exempt entity, preventing tax-free exits. [Section 352]
Tax Neutral Merger of NGOs
No accreted income tax where both amalgamating entities are registered non-profits. [Section 354A]
Companies & Businesses
Alignment of Allowability
Employee contribution to PF/ESI allowed as deduction if deposited by due date of filing return. [Section 29]
MAT Rationalisation
MAT rate reduced to 14%. Existing MAT credit usage capped at 25% of tax liability and restricted to new regime. [Section 206]
Interest Computation & MAT Credit
MAT credit restriction of 25% applies while computing interest on self-assessment and advance tax. [Sec 265, 423–425]
Expanded Scope of ‘Work’ for TDS
Definition expanded to expressly include supply of manpower services. [Section 402]
Penalties into Fixed Fees
Audit-related penalties replaced with fees capped at ₹1.5L; TDS/TCS fees capped at ₹1L. [Sections 427–428]
Crypto Asset Reporting Failures
₹200/day penalty for failure to furnish VDA info; ₹50,000 for inaccurate reporting. [Section 446]
Penalty for Non-Furnishing of SFT
Penalty of ₹1,000 per day, capped at ₹1 lakh. [Section 454]
Tax Holiday for Foreign Data Centres
20-year tax holiday granted to promote India as a global data centre hub. [Schedule IV]
Incentives for Critical Mineral Exploration
Weighted deduction for prospecting/extraction of 60+ minerals including lithium. [Schedule XII]
Timing Relief for Insurance Companies
TDS default deduction allowed in year of actual payment instead of accrual. [Schedule XIV]
Transfer Pricing & International Taxation
Co-operative Societies
Changes impacting IFSC
20 Year Tax Holiday
Extended from 10 years, within a 25-year window. Applies to OBUs as well. [Section 147]
15% Concessional Tax
Post-deduction business income of IFSC units taxed at 15% from AY 2027–28.
Resident Continuity
NRIs becoming residents may continue under foreign asset taxation regime until conversion. [Sec 217–218]
Resident Holding Cap
Resident Indian participation in IFSC Specified Funds capped at 5% to preserve international character.
Return Filing & Assessment Procedures
Revised Filing Timelines
Non-audit assessees: Aug 31. Revised returns: Up to March 31. [Section 139]
Updated Return Extension
File within 48 months. Addl tax: 25% - 70% based on delay. Increased by 10% if post-notice. [Sec 267 New]
DRP Final Order
AO must pass within 1 month of receiving DRP directions. [Sec 275 New]
AO Jurisdiction
Reassessment handled by local AO, not NFAC. [Sec 279 New]
Assessment Time Limits
Timeline clarified up to draft order stage for DRP cases. [Sec 153]
Interest on Penalty
No interest levied on penalty while under appeal. [Sec 411 New]
Revised Return Fee
Additional fee of ₹1,000 (Income < 5L) or ₹5,000 (Income > 5L). [Sec 234-I]
DRC Power
Enhanced power to waive penalties before formal imposition. [Sec 379 New]
Immunity Expansion
Eligibility for immunity if 100% addl tax paid on misreported income and no appeal filed. [Sec 443]
Decriminalization
Simple imprisonment instead of rigorous. Max sentence reduced to 2–3 years. [Sec 473–485]
DIN Absence
Orders not invalid due to missing DIN if referenced. [Sec 522 New]
Search & Survey
Look-back reduced to 6 years. Non-cooperation penalty increased to ₹25,000.
GST Proposals
Post-Sale Discounts
Credit notes permitted without prior agreement. Recipient must reverse related ITC. [Section 15(3)]
Inverted Duty Refund
90% provisional refund extended to inverted duty structures. [Section 54(6)]
Export Refund Threshold
Removal of ₹1,000 minimum threshold for refunds. [Section 54(14)]
Advance Ruling Appeals
Interim authority enabled until National Appellate Authority is constituted. [Section 101A]
Intermediary Services
Place of supply shifted to recipient location. Supplier location applies if recipient unavailable.