Union Budget 2026-27 Income Tax Changes: Expectations were sky-high from Budget 2026 when it came to income tax slabs, standard deduction, and relief under the new tax regime. Many salaried taxpayers and middle-class families were hoping for tweaks in tax rates or fresh deductions under both the old tax regime and new tax regime. However, Finance Minister Nirmala Sitharaman chose a different route.
Instead of changing slabs, the government focused on overhauling the income tax law, simplifying ITR filing, easing compliance, reducing litigation, and fixing long-pending procedural issues.
From the rollout of the Income Tax Act, 2025 to extended deadlines, foreign asset disclosures, and changes impacting investors, here are the top 10 income tax announcements in Budget 2026, with a clear focus on what matters most to income taxpayers.
Top 10 Income Tax announcements in Budget 2026
Income Tax Act, 2025 to roll out from April 1
This is the biggest reform for taxpayers. The Income Tax Act, 2025 will replace the six-decade-old 1961 law from April 1.
-No change in tax rates — the law is revenue neutral
-Sections and text reduced by nearly 50%
-Ambiguities removed to cut down tax disputes and litigation
-ITR forms redesigned to make filing easier for ordinary taxpayers
200 pc penalty for misrreporting of income
One of the key tax rule changes announced in today’s Budget relates to penalties for underreporting of income, with a clear distinction now drawn between genuine mistakes and deliberate misreporting. If underreporting happens due to errors, omissions or oversight, the penalty will be 50% of the tax amount payable on such income.
However, in cases where underreporting is a result of misreporting of income—such as providing wrong or faulty information, or misrepresenting the nature or source of income—the penalty will be much harsher at 200% of the tax amount. The move aims to deter intentional tax evasion while offering some relief to taxpayers who make honest mistakes.
Simplified ITR forms to be notified shortly
The Finance Minister said new income tax rules and return forms will be notified soon.
Forms redesigned for easy compliance
Adequate time will be given to taxpayers to understand the changes
A major relief for first-time filers and small taxpayers
Revised ITR filing deadline extended to March 31
The government proposed extending the deadline for filing revised income tax returns.
Earlier deadline: December 31
New proposed deadline: March 31 (with a nominal fee)
This gives taxpayers more breathing room to fix mistakes and report missed income.
TDS refund allowed even after ITR deadline
Under the income tax law, to be implemented from April 1, taxpayers can claim TDS refunds even if the ITR is filed late. No penal charges for delayed filing just to claim refunds. This is a big relief for salaried employees who miss deadlines but have excess TDS deducted.
No interest on penalty amount during appeal period
Taxpayers will not be charged interest on penalty amounts for the period when their case is pending before the first appellate authority.
Applies irrespective of the appeal outcome
Reduces financial stress during long-drawn tax disputes
Six-month foreign asset disclosure scheme for small taxpayers
A special 6-month foreign asset disclosure window has been announced.
Aimed at students, tech professionals, and relocated NRIs
Helps small taxpayers clean up past non-disclosures without harsh consequences
MAT exemption for certain non-residents; rate cut proposed
The Budget proposed:
MAT exemption for non-residents paying tax on a presumptive basis
MAT to be treated as final tax
MAT rate reduced to 14% from 15%
This brings certainty and reduces disputes for businesses and foreign taxpayers.
Key tax exemptions and TCS relief
Several smaller but meaningful reliefs were announced:
Motor Accident Claims Tribunal awards exempt from income tax
TCS under LRS for education and medical purposes cut from 5% to 2%
TCS on overseas tour packages reduced to 2%
Higher taxes for market transactions and buybacks
Changes that impact investors and traders:
STT on futures raised to 0.05% from 0.02%
STT on options increased to 0.15% from 0.1%
Buyback proceeds to be taxed as capital gains for all shareholders
Summing up…
While Budget 2026 did not touch income tax slabs under either the old or new tax regime, it marked a structural reset of the income tax system. For taxpayers, the big story is simpler laws, easier filing, fewer disputes, and more time to comply — even if direct rate relief remains elusive for now.