Direct Tax Proposals in Union Budget 2026 – A Transformational Shift in India’s Tax Framework
The Union Budget 2026 marks a historic milestone in India’s direct taxation landscape. The Government has unveiled a comprehensive, future-ready set of Direct Tax reforms aimed at simplifying tax laws, reducing litigation, easing compliance, and reinforcing India’s position as a preferred global investment destination.
These proposals signal a decisive transition from a punitive, process-driven regime to a trust-based, technology-enabled, and taxpayer-centric system, fully aligned with the national vision of Viksit Bharat @2047.
🔹 1. New Income Tax Act, 2025 – A Structural Reset
One of the most significant announcements in Budget 2026 is the replacement of the Income-tax Act, 1961 with the Income-tax Act, 2025, effective 1 April 2026.
Key Highlights:
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Substantially simpler and shorter legislation
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Written in plain, clear language to reduce interpretational disputes
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Fewer sections, chapters, and cross-references
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Designed for easy understanding by taxpayers and administrators
Simplified Income-tax Rules and redesigned ITR forms will be notified shortly, enabling ordinary taxpayers to comply without professional assistance.
🔹 2. Ease of Living – Major Reliefs for Individual Taxpayers
✅ Exemption for MACT Interest
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100% tax exemption on interest awarded by the Motor Accident Claims Tribunal (MACT)
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No TDS, irrespective of amount
✅ Rationalisation of TCS under LRS
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Overseas tour packages: TCS reduced to 2% (earlier 5% / 20%)
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Education & medical remittances: TCS reduced from 5% to 2%
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No minimum threshold condition
✅ Clarity on TDS for Manpower Supply
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Explicitly treated as contractor payment
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TDS capped at 1% / 2%, eliminating disputes
✅ Automated Lower / Nil TDS Certificates
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Small taxpayers can obtain certificates via automated, rule-based system
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No interaction with Assessing Officer
✅ Simplified Form 15G / 15H
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Centralised acceptance through depositories
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Single submission valid for multiple companies
🔹 3. Rationalised Return Filing Timelines
To reduce compliance pressure and last-minute errors:
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Revised / Belated returns allowed till 31 March (earlier 31 December) with nominal fee
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Staggered ITR Due Dates:
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ITR-1 & ITR-2 (Individuals): 31 July
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Non-audit business cases & trusts: 31 August
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🔹 4. Relief in Property Transactions with NRIs
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No TAN requirement for resident buyers purchasing property from NRIs
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TDS payment through PAN-based challan, similar to resident transactions
This change significantly reduces procedural complexity and compliance burden.
🔹 5. One-Time Foreign Asset Disclosure Scheme – FAST-DS 2026
To address genuine hardship cases, a 6-month one-time disclosure window has been introduced.
Category A
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Undisclosed foreign income/assets up to ₹1 crore
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Payment:
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30% tax
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30% additional tax (in lieu of penalty)
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Full immunity from prosecution
Category B
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Asset value up to ₹5 crore
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Payment of ₹1 lakh only
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Complete immunity from penalty & prosecution
📌 Retrospective immunity granted for non-immovable foreign assets up to ₹20 lakh.
🔹 6. Rationalisation of Penalty & Prosecution
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Single consolidated order for assessment & penalty
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No interest on penalty during first appeal
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Pre-deposit reduced to 10%, limited to core tax demand
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Updated return allowed even after reassessment, with additional 10% tax
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Technical penalties converted into fee-based defaults
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Decriminalisation of minor offences
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Graded punishment linked to quantum of tax evasion
🔹 7. Targeted Relief for Cooperative Societies
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Deduction extended to supply of cattle feed and cotton seed
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Inter-cooperative dividend deduction under new regime
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Three-year dividend exemption for notified national cooperative federations
🔹 8. IT Sector Boost & Transfer Pricing Certainty
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All IT & IT-enabled services grouped under “Information Technology Services”
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Uniform safe harbour margin: 15.5%
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Turnover threshold raised to ₹2,000 crore
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Automated safe harbour approvals valid for 5 years
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Fast-track unilateral APA with 2-year timeline
🔹 9. Attracting Global Business & Talent
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Tax holiday till 2047 for global cloud service providers using Indian data centres
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Safe harbour 15% cost margin for data-centre service entities
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5-year tax exemption for non-residents supplying capital goods in bonded zones
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Exemption of global income of foreign experts staying up to 5 years
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MAT exemption for non-residents under presumptive taxation
🔹 10. Tax Administration Reforms
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ICDS merged with Ind-AS from FY 2027-28
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Rationalised definition of “accountant” to support Indian firms globally
🔹 11. Other Key Direct Tax Measures
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Buyback taxation shifted to capital gains regime
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Reduced TCS on liquor, scrap, minerals & tendu leaves
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STT increased on futures & options
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MAT made final tax from 1 April 2026, rate reduced to 14%
🔚 Conclusion
The Direct Tax Proposals in Budget 2026 represent a decisive leap towards simplicity, certainty, and trust-based taxation. With a brand-new Income Tax Act, extensive compliance relief, rationalised penalties, and strong incentives for global investment, the reforms strike a fine balance between revenue mobilisation and taxpayer confidence, setting the foundation for sustained economic growth.
he Union Budget 2026 is not limited to the Budget Speech delivered in Parliament. To correctly understand the intent, scope, and legal impact of the Budget proposals, one must carefully examine the supporting budget documents released by the Government. These include the Budget Speech, Memorandum explaining the provisions of the Finance Bill, and the Finance Bill, 2026 itself. Each document serves a distinct purpose and together they provide clarity on policy announcements, tax amendments, and their practical implementation.
Click Here to get all Budget Documents
https://www.indiabudget.gov.in
📌 Disclaimer (Short & Reader-Friendly)
Disclaimer:
This article is for informational purposes only and should not be treated as tax or legal advice. Budget proposals are subject to legislative approval and subsequent notifications. Readers should consult a tax professional or refer to official sources before making any financial or compliance decisions.