India – Union Budget 2026: Key Personal Tax Proposals

Union Budget Overview

These changes, if enacted as such, would apply from 1 April 2026 or other specified dates:

• The new Income-tax Act, 2025 (the “Income-tax Act”) is proposed to come into force on 1 April 2026.
  
  
• Income tax slabs, rates, surcharge, and cess remain the same under the old and new tax regimes. The new tax regime continues to remain the default tax regime.
  
  
• Simplified income tax forms and rules under the new Income-tax Act are proposed to be effective 1 April 2026 to ease compliance for individuals and small businesses.
  
  
• The Union Budget proposes to exempt interest income received by an individual / legal heir, when the income pertains to compensation awarded by the Motor Accident Claims Tribunal (MACT) and is received under the Motor Vehicles Act, 1988. Consequently, no tax would be required to be deducted on such interest awarded by MACT to the individual / legal heir, irrespective of the threshold.
  
  
• Capital gains exemption on sovereign gold bonds (SGBs) would be available only if the investor subscribes at original issue and holds the bond continuously until redemption on maturity. Premature redemption, even after completion of the prescribed lock-in period, would not be eligible for exemption. The exemption would not apply to SGB acquired through transfer or purchase in the secondary market.
  
  
• Buyback proceeds would be taxed as capital gains instead of deemed dividends in the hands of individuals at applicable rate basis holding period, with higher effective tax rate for promoters and promoter companies (30 percent and 22 percent, respectively, plus applicable surcharge and cess).
  
  
• The Union Budget proposes that no deduction shall be allowed in respect of any interest expenditure incurred for earning dividend income or income from units of mutual funds taxable under the head “Income from other sources.”
  
  
• The Union Budget proposes to exempt any income that accrues or arises outside India for a period of five consecutive tax years, beginning from the first tax year during which the taxpayer visits India, provided:
  
  
  • such individual was a Non-Resident for five consecutive tax years immediately preceding the first year of his or her visit to India for rendering services in India;
    
    
  • such exemption is applicable only when services are rendered in India under any scheme notified by the Central Government (yet to be notified), subject to prescribed conditions.
     
• The Union Budget proposes to simplify compliance for small taxpayers by allowing them to electronically submit applications for obtaining certificates for lower or nil tax deduction vis-à-vis physical submission with an assessing officer. The application would be processed electronically and certificate issued digitally.
  
  
• To reduce the compliance burden of investors, the Union Budget proposes to allow filing of declaration for no deduction of tax to the Depository, which in turn shall provide such declaration to the person responsible for paying such income.
  
  
• The Union Budget proposes that resident individuals or Hindu Undivided Family (HUF) are not required to obtain a Tax Deduction and Collection Number (TAN) for deducting tax at source on any consideration for transfer of any immovable property to a seller who is a non-resident. In such cases, the buyer would deduct tax using his Permanent Account Number (PAN). These provisions, if enacted, would be effective 1 October 2026.

Due dates for filing tax returns

• Due date for individuals / HUF filing tax return in Form ITR-1 and Form ITR-2 continues to be 31 July.
  
  
• Due date would be extended to 31 August, from 31 July for individuals and HUF having profits and gains from a business or profession, partners of a firm, and trusts whose accounts are not required to be audited.
  
  
• Time limit for filing revised return would increase to 12 months from 9 months from the end of the tax year (TY).  However, a revised return filed after 9 months would attract a fee of INR 1,000 (if total taxable income does not exceed INR 500,000) or INR 5,000 in all other cases.
  
  
• These changes, if enacted, would be applicable for returns to be filed for TY 2025-26 and onwards.

Amendments in updated tax returns

• Taxpayers are now allowed to file an updated return to reduce the amount of loss claimed in an original return filed within the specified due date.
  
  
• Filing of updated return would also be permitted if reassessment proceedings have been initiated and a notice of reassessment has been issued, by paying additional taxes at 10 percent over and above the applicable tax rates for relevant TY. In such cases, the assessing officer will consider the said updated tax return for such proceedings. These changes, if enacted, would be applicable for TY 2025-26 and onwards.

The Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 (FAST-DS 2026)

• Small taxpayers would have a time-bound opportunity to declare undisclosed foreign assets or foreign-sourced income with the payment of specified tax or fee.
  
  
• The amount payable under the FAST-DS 2026 would be:

• These small taxpayers would receive limited immunity from penalty and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“Black Money Act”).
  
  
• The effective date of the FAST-DS 2026 scheme is to be announced by the Central Government.

The prosecution provisions under the Black Money Act would not apply to non-disclosure of assets, other than immovable property, if the aggregate value of those undisclosed assets does not exceed INR 20 lakh, aligning with existing threshold of penalty provisions.

Tax Collection at Source (TCS)  

With effect from 1 October 2026, the Union Budget proposes to:

• reduce the TCS rate for remittance under the Liberalized Remittance Scheme (LRS) towards education and medical purposes to 2 percent from 5 percent;
  
  
• reduce the TCS rate on the sale of overseas tour program packages to 2 percent from 5 percent / 20 percent irrespective of the amount involved.
  
  
• reduce the mandatory pre-deposit requirement for appeals to 10 percent from 20 percent of outstanding tax demand.

To simplify compliance and reduce litigation, penalties for procedural non‑compliance would be replaced with fixed graded fees effective 1 April 2026. Further, penalty for under‑reporting or misreporting of income would be imposed directly in the composite order to avoid multiple proceedings and reduce taxpayer uncertainty. Certain penalty limits would be increased and tax / penalty rates on unexplained income rationalized from 60 percent to 30 percent.

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