Direct Tax Alert January 2026
- No changes have been proposed to the personal tax rates under the old or new tax regime or to the rates of surcharge and education cess by Finance Bill 2026. The tax rates and slabs under the new tax regime of Section 202 of the ITA 2025 (corresponding to Section 115BAC of the ITA 1961) shall be as follows:
| Total Income | Tax Rates for Tax Year 2026-27 |
| Upto Rs. 4,00,000 | NIL |
| From Rs. 4,00,000 to Rs. 8,00,000 | 5% |
| From Rs. 8,00,000 to Rs. 12,00,000 | 10% |
| From Rs. 12,00,000 to Rs. 16,00,000 | 15% |
| From Rs. 16,00,000 to Rs. 20,00,000 | 20% |
| From Rs. 20,00,000 to Rs. 24,00,000 | 25% |
| Above Rs. 24,00,000 | 30% |
- The table below shows the proposed changes to Tax Collected at Source (TCS) rates under the existing provisions of Section 394(1) of the Income Tax Act, 2025 (corresponding to Section 206C of the Income Tax Act, 1961), by the Finance Bill 2026 compared to the existing rates, applicable w.e.f. 1st April, 2026.
| Nature of Receipts | Existing Rate | Proposed Rate |
| Sale of alcoholic liquor for human consumption | 1% | 2% |
| Sale of Tendu Leaves | 5% | 2% |
| Sale of Scrap | 1% | 2% |
| Sale of minerals (coal, lignite or iron ore) | 1% | 2% |
| Remittance under LRS for education or medical treatment exceeding Rs. 10 lakh | 5% | 2% |
| Sale of overseas tour programme package | 5% upto Rs. 10 Lakh / 20% above Rs.10 Lakh | 2% [No Threshold] |
Important Judicial Precedents
- SLP dismissed; mere Insight portal info on cash deposits, without supporting material, can’t justify reopening of assessment
[2026] 182 taxmann.com 373 (SC) Income-tax Officer vs. O3 Developers (P.) Ltd
SLP dismissed against order of High Court that where Assessing Officer issued reopening notice on ground that an information was made available on insight portal that assessee had received cash deposits in his bank account, however, income of assessee did not commensurate such huge cash deposits, since no evidence was referred while recording reasons vis-a-vis alleged bogus accommodation entry obtained by assessee, reopening notice only to make fishing and roving inquiry on basis of information in insight portal was to be quashed.
- Sec. 264 revision is available even if error in ITR was committed by assessee itself: HC
[2026] 182 taxmann.com 209 (Bombay-HC) Swaminarayan Mandir Trust vs. Commissioner of Income-tax (Exemptions)
Where assessee-trust was denied exemption under section 11 due to inadvertent and bona fide punching errors in return processed under section 143(1), assessee had discretion to invoke revision under section 264 instead of appeal under section 246A, and Commissioner was obliged to consider revision and grant relief even where errors were committed by assessee itself in return of income.
- Reassessment quashed as all transactions were duly disclosed and no reason to believe was recorded by AO: HC
[2025] 181 taxmann.com 662 (Gujarat-HC) R.D. Diamond vs. Income-tax Officer
Where Assessing Officer issued reopening notice on ground that assessee had entered into bogus transactions of purchase and sales which escaped assessment, since assessee maintained regular books of account and got them audited every year within time and uploaded them on IT portal and all transactions of assessee were duly reflected in profit and loss account and further, assessee had dealt with information supplied to it by revenue and had meticulously satisfied data by comparing it with books of account, impugned reopening was unjustified.
- Exemption u/s 54 cannot be denied merely because registration or completion of construction is delayed:ITAT
[2025] 181 taxmann.com 941 (Chennai – Trib.) Indihaf Jamal Mohamed vs. Income-tax Officer
For purposes of section 54, once assessee invests capital gains in purchase or construction of a residential property within stipulated period, exemption cannot be denied merely because registration or completion of construction is delayed, since provision is beneficial in nature and intended to promote investment in housing.
- AO can’t recover tax demand from assessee if employer failed to deposit TDS on salary: ITAT
[2026] 182 taxmann.com 191 (Patna – Trib.) Ashish Ranjan vs. Income-tax Officer
Where assessee-employee received salary after deduction of TDS by employer, but employer went into liquidation and failed to deposit same in Government account resulting in a demand due to mismatch in Form 26AS, once tax was deducted at source, assessee could not be held liable for shortfall and revenue was required to seek recovery from employer and not from assessee.
- ESOP expense reimbursed to parent co. not liable to TDS u/s 195: ITAT
[2026] 182 taxmann.com 119 (Bangalore – Trib.) Instakart Services (P.) Ltd. vs. ACIT
Where assessee incurred expenditure on account of cross-charge of ESOP cost relating to employees of assessee company under Flipkart Stock Option Scheme 2012 (FSOP 2012) and made payment of ESOP cross-charge to its non-resident holding company without deducting tax under section 195, since payment made by assessee to parent company was not in nature of payment for receipt of any services but was in nature of reimbursement of ESOP expenditure availed by employee of assessee company, assessee was not required to deduct tax as per section 195.
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