Finance Bill 2026 – Income Tax
Amendments made by the Finance Bill 2026 to the Income Tax Act, 2025 (‘the Act’) as well as Income Tax, 1961 are summarized hereunder:
Rates of Income Tax:
- Personal Tax Rates/ Slabs:
- There is no change in the existing slab rates for the Tax Year 2026-27 applicable for all categories of individuals, HUF, AOP, BOI opting for old tax regime under section 202(4) of the Act which is mentioned below:
| CATEGORY OF TAX PAYERS | INCOME | EXISTING TAX SLAB |
| INDIVIDUALS | Up to Rs.2,50,000 | Nil |
| Rs. 2,50,001 to 5,00,000 | 5% | |
| Rs. 5,00,001 to 10,00,000 | 20% | |
| Above Rs. 10,00,001 | 30% | |
| SENIOR CITIZENS | Up to Rs.3,00,000 | Nil |
| Rs. 3,00,001 to 5,00,000 | 5% | |
| Rs. 5,00,001 to 10,00,000 | 20% | |
| Above Rs. 10,00,001 | 30% | |
| VERY SENIOR CITIZENS | Up to Rs.5,00,000 | Nil |
| Rs. 5,00,001 to 10,00,000 | 20% | |
| Above Rs. 10,00,001 | 30% |
- There is no change in the slab rate for all categories of individuals, HUF, AOP, BOI under new tax regime (i.e. default tax regime) as per section 202 of the Income Tax Act, 2025 which is applicable for Tax Year 2026-27 as mentioned in the chart below:
| INCOME AS PER FINANCE BILL,2026 | RATE |
| Up to Rs.4,00,000 | Nil |
| Rs. 4,00,001 to 8,00,000 | 5% |
| Rs. 8,00,001 to 12,00,000 | 10% |
| Rs. 12,00,001 to 16,00,000 | 15% |
| Rs. 16,00,001 to 20,00,000 | 20% |
| Rs. 20,00,001 to 24,00,000 | 25% |
| Above Rs. 24,00,000 | 30% |
- Cess: The existing rate applicable of Cess @ 4% (E.C 1% + SHEC 2%+ HC 1%) remains unchanged for the Tax Year 2026-27.
- Surcharge: The surcharge rate for both resident and non- residents remained unchanged as mentioned below:
| Sl. No. | Income Range | Rate of Surcharge
(% on income tax) |
| 1 | Exceeding 50 lakhs but upto 1 crore | 10% |
| 2 | Exceeding 1 crore but upto 2 crores | 15% |
| 3 | Exceeding 2 crores [Excluding dividend & income chargeable under section 196 ,197 and 198 of the Act] *but not exceeding 5 crores | 25% |
| 4 | Exceeding 5 crores [Excluding dividend & income chargeable under section 196,197 and 198 of the Act] | 37%( restricted to 25% in case of new tax regime) |
| 5 | Exceeding 2 crores [ including dividend & income chargeable under section 196, 197 and 198 of the Act ] | 15% |
- Co-operative Societies:
| S. No. | INCOME | TAX RATE |
| 1. | Upto Rs. 10,000 | 10% |
| 2. | Between 10,000 to 20,000 | 20% |
| 3. | Exceeding 20,000 | 30% |
There is no change in existing rate of tax as mentioned above.
Surcharge is 7% if the Income is in excess of Rs. 1 crore to less than Rs. 10 crore.
Surcharge is 12% if the Income is in excess of Rs. 10 crore.
Further, a cooperative society resident in India has option to pay tax at 22% and surcharge thereon @ 10% on such tax as per the provisions of section 203 of the Act 2025.
- Firms:
In the case of firms, the rate of income-tax is 30% as specified in Paragraph C of Part III of the First Schedule to the Bill. This rate will continue to be the same as for Tax Year 2026-27. There is no amendment for the above in Finance Bill 2026.
Surcharge is 12% if the Income is in excess of Rs. 1 crore.
- Local Authorities:
In the case of Local authorities, the rate of income-tax is 30% as specified in Paragraph D of Part III of the First Schedule to the Bill. This rate will continue to be the same as for the Tax Year 2026-27. There is no amendment for the above in Finance Bill 2026.
Surcharge is 12% if the Income is in excess of Rs. 1 crore.
- Companies:
In the case of companies, the rate of income-tax is same as specified in Paragraph E of Part III of the first schedule to the bill.
| S. No. | Category of Companies | Total Turnover /Gross Receipt Tax year 2024-25 | Rate |
| 1. | Domestic Company | Upto 400 crores | 25% |
| Exceeding 400 Crores | 30% | ||
| 2. | Other than Domestic Company | 35% | |
It is further elaborated as under:
| Company | Normal rates | Section 200 | Section 201 |
| Domestic, Turnover < 400cr | 25% | 22% | 15% |
| Domestic, Turnover > 400cr | 30% | 22% | 15% |
Surcharge:
| Company | Turnover | Surcharge |
| Domestic (Not-opted for section 200 and 201 of the Act) | Exceeds 1 crore | 7% |
| Exceeds 10 crore | 12% | |
| Domestic (Opted for section 200 and 201 of the Act) | 10% | |
| Foreign Companies | Exceeds 1 crore | 2% |
| Exceeds 10 crore | 5% |
Health and Educational cess: 4% of Income tax plus surcharge and Marginal relief is provided in all cases.
- Rationalization of Minimum Alternate Tax provisions
It is proposed to rationalise the provisions of MAT under section 206, as such any MAT paid under the old regime will become final tax. However, the MAT rate is proposed to be reduced from existing rate of 15% to 14% of Book Profit.
Set-off of existing MAT credit will be permitted only under the new tax regime:
- For domestic companies: limited to 25% of current tax liability.
- For foreign companies: limited to the difference between normal tax and MAT in years where normal tax exceeds MAT.
- Rates of TDS/TCS:
- TDS:
There is no change in the threshold limit and rates of TDS.
However, in order to provide clarity with regard to the deduction of tax at source in case of supply of manpower, it is proposed to include it under the ambit of “work” in section 402(47). Therefore, TDS on supply of manpower will be subject to TDS either of at 1% or 2% as applicable. (w.e.f 01.04.2026).
- TCS:
Rates of TCS are proposed to be rationalized as under (w.e.f 01.04.2026):
| Sl. No | Nature of receipt | Current Rate | Proposed Rate |
| 1. | Sale of alcoholic liquor for human consumption. | 1%. | 2%. |
| 2. | Sale of tendu leaves. | 5%. | 2%. |
| 3. | Sale of scrap. | 1%. | 2%. |
| 4. | Sale of minerals, being coal or lignite or iron ore. | 1%. | 2%. |
| 5. | Remittance under the Liberalised Remittance Scheme of an amount or aggregate of the amounts exceeding 10 lakh rupees— | (a) 5% for purposes of education or medical treatment;
(b) 20% for purposes other than education or medical treatment. |
(a) 2% for purposes of education or medical treatment;
(b) 20% for purposes other than education or medical treatment |
| 6. | Sale of “overseas tour programme package” including expenses for travel or hotel stay or boarding or lodging or any such similar or related expenditure. | (a) 5% of amount or aggregate of amounts up to ten lakh rupees; (b) 20% of amount or aggregate of amounts exceeding ten lakh rupees. | 2% |
- Rationalizing due dates for filing of return of Income:
To ease compliance for non-audit business/profession taxpayers, partners of non-audit firms, their eligible spouses, and trusts, the due date is proposed to be extended from 31 July to 31 August, while the due date for individuals filing ITR-1 and ITR-2 will continue to remain 31 July.
These amendments will apply from 1 April 2026 (tax year 2026–27 onwards). The summary of applicable due dates of filing of ITR’s of different categories of assessee are tabulated as under:
| Sl. No. | Person | Conditions | Due Date |
| 1 | Assessee, including the partners of the firm or the spouse of such partner (if section 10 applies to such spouse). | Where the provisions of section 172 apply | 30th November. (No Change) |
| 2 |
|
Where the provisions of section 172 do not apply | 31st October.
(No Change) |
| 3 |
|
As Above | 31st August. |
| 4 | Any other assessee | — | 31st July. |
- Extending the period of filing Revised ITR:
It is proposed to extend the time limit for filing a revised return from 9 months to 12 months from the end of the relevant tax year, so that taxpayers who file belated returns near the deadline can still revise them. A fee is also proposed for revised returns filed after nine months. Therefore, Revised ITR can also be filed between the period from January to 31st March with additional fees as against existing provisions allowing to revise ITR till 31st December.
- Changes in the Scope of filing Updated ITR:
It is proposed to allow filing of an updated return in cases of loss declared in Original ITR and in case the taxpayers opt to reduce loss by filing updated ITR. Earlier no Updated ITR can be filed in case of reduction of loss and non-payment of additional tax.
Also, it is proposed to allow filing of Updated ITR even after a reassessment notice under section 280, within the period specified in the notice, precluding filing in any other manner. Section 267 will be amended to increase the additional tax payable by 10% in such cases, and no penalty under section 439 will apply on the income for which this additional tax is paid. Similar amendments are proposed in the Income-tax Act, 1961 to allow updated returns in response to section 148 notices.
- Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026 (FAST-DS 2026):
It is proposed to introduce “The Foreign Assets of Small Taxpayers Disclosure Scheme, 2026”, thereby granting small Tax Payers with legacy or inadvertent disclosures, including foreign employment benefits (ESOPs/RSUs), low-value bank accounts, insurance policies, or assets held during overseas deputation to disclosed Foreign Assets and income, pay tax/fee, and receive limited immunity from penalty and prosecution, excluding cases involving criminal prosecution or proceeds of crime.
- Rationalizing the due date to credit employee contribution by the employer to claim such contribution as deduction:
Section 29 of the Act is proposed to be amended thereby allowing deduction for employee welfare contributions received by an employer deposited before the due date of filing of ITR u/s. 263(1) as against the existing provision of allowing deduction only in case of deposits made within time specified under relevant Act.
- Exemption on interest income under the Motor Vehicles Act, 1988 and deduction of TDS thereon:
It is proposed to amend the provisions of Section 11 of the Income-tax Act, 2025 granting exemption to specified persons thereby exempting interest income awarded to accident victims or their legal heirs for death, disability, or bodily injury.
Also the provisions of section 393(4) of the Act, is proposed to be amended and no TDS shall be deductible on such interest paid to an individual, regardless of amount.
- No need to obtain tax deduction and collection account number (TAN) by a resident individual or HUF, for sale of immovable property belonging to non –resident:
It is proposed to exempt resident individuals and HUFs from obtaining TAN for TDS on purchase of immovable property from non-resident under section 393(2). Currently, buyers of immovable property from non-residents must obtain TAN to deduct TDS, creating compliance burden for one-time transactions.
This amendment will apply from 1 October 2026.
- Amendment Relating to Advance Pricing Agreements
It is proposed to amend Section 169, provides that where income is modified as a result of an APA, not only the APA applicant but also any affected associated enterprise may file a return or modified return, strictly in accordance with the APA. Such return or modified return must be filed within three months from the end of the month in which the APA is entered into.
- Key Tax Proposals to Attract Global Business & Investment
The Finance Bill proposes several measures, effective from 1 April 2026 (Tax Year 2026-27 onwards), to attract global business and investment, which are as under:
- Foreign companies will be exempt from tax on income arising in India from procuring data centre services from notified Indian data centres (owned and operated by Indian companies) up to 31 March 2047, subject to conditions including routing services to Indian users through an Indian reseller.
- To incentivise exploration, the list of minerals eligible for deferred deduction of prospecting and exploration expenditure under section 51 will be expanded to include critical minerals.
- Income of foreign companies from supplying capital goods, equipment or tooling to Indian contract manufacturers of electronic goods located in custom bonded areas will be exempt from tax up to Tax Year 2030-31.
- Certain Non-Resident businesses opting for presumptive taxation—including cruise ship operations and electronics manufacturing support services—will be excluded from the applicability of Minimum Alternate Tax (MAT).
- Non-resident individuals rendering services in India under notified Government schemes will be exempt on foreign-sourced income for five consecutive tax years, subject to prescribed conditions.
- Tax incentives for IFSC units and Offshore Banking Units will be significantly enhanced by extending the tax holiday to 20 years, with a 15% tax rate on business income thereafter, along with rationalisation of provisions applicable to IFSC treasury centres.
These proposals aim to provide long-term tax certainty and strengthen India’s position as a global hub for data centres, manufacturing, IFSC operations and strategic mineral exploration.
- Clarification regarding jurisdiction to issue notice u/s 148 where income has escaped assessment and for carrying out pre-assessment procedure u/s 148A.
In order to end litigation on the jurisdictional issue of issuance of Notice u/s. 148A/148 and conflicting High Court decisions on whether NaFAC or its assessment units can exercise pre-assessment powers which is pending before the Supreme Court, it is proposed to make necessary amendment retrospectively from 1st April 2021 to expressly deem that the “Assessing Officer” for purposes of sections 148 and 148A shall always mean an officer other than NaFAC or its assessment units, alongside a corresponding prospective amendment in the Income-tax Act, 2025 effective from 1st April 2026 to minimize interpretational disputes and provide legal certainty.
- Assessments not to be invalid on ground of any mistake, defect or omission on account of computer-generated DIN, if such assessment is referenced by computer generated DIN in any manner.
In order to end litigation, to clarify legislative intent and align with the simplification objectives of the forthcoming Income-tax Act, 2025, it is proposed to amend section 292B to expressly provide that assessments shall not be invalid merely due to mistakes, defects or omissions in quoting DIN, so long as the assessment order is referenced by such DIN in any manner, and that minor defects in related notices or summons shall also not invalidate the assessment, with retrospective effect from 1 October 2019 for the 1961 Act and prospective effect from 1 April 2026 for the 2025 Act.
- Non-allowability of Interest as a deduction against Dividend Income
It is proposed to amend Section 93 of the Income tax Act, 2025; wherein 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” under the Income tax Act, 2025. Applicable w.e.f. 1st April, 2026.
- Increase in tax rates of Securities Transaction Tax:
Increase the rate of STT on sale of an ‘option’ in securities from 0.1% to 0.15% of the option premium, on sale of an option where the option is exercised from 0.125% to 0.15% of the intrinsic price, and on sale of a ‘future’ in securities from 0.02% to 0.05% of the traded price.
- Taxation of buyback of shares:
Earlier consideration received by a shareholder on buy-back of shares by a company is treated as dividend income under section 2(40)(f) of the Income Tax Act, 2025. Now, consideration received on buy-back shall be chargeable to tax under the head “Capital gains” instead of being treated as dividend income. Further, in the case of promoters, the effective tax liability on gains arising from buy-back shall be 30%, comprising tax payable at the applicable rates together with an additional tax. In case of promoter companies, the effective tax liability will be 22%.
- Relaxation of conditions for prosecution under the Black Money Act:
Amendment in Section 49 and section 50 of the Black Money Act is proposed to provide relief in cases of minor and inadvertent non-disclosures to align the prosecution provisions with the penalty framework, that these provisions shall not apply in respect of foreign assets, other than immovable property, where the aggregate value does not exceed Rs. 20 Lakhs. Applicable retrospectively w.e.f 1st October, 2024.
- Rationalizing the period of block in case of other persons:
In case where undisclosed income pertaining to a third person relates only to a single tax year, the third person is nonetheless required to undergo the full block assessment procedure, resulting in an increased compliance burden on a person against whom no search or requisition was initiated. Accordingly, it is proposed to amend the section 295(2) of the Act so as to limit the period of block in case of third party. This amendment will take effect from the 1st April, 2026, for search or requisition is initiated or made as the case maybe, on or after 1st April, 2026.
- Time limit to complete block assessment to the initiation of search or requisition:
Section 296 of the Income Tax Act, 2025 amended in respect of Time limit for completing a block assessment or reassessment, where any search has been initiated or requisition is made in the case of any person and consequently, the period of 12 months is increased to 18 months to complete such assessment in case of such person. This amendment will take effect from the 1st day of April, 2026, for search or requisition is initiated or made as the case maybe, on or after 1st day of April, 2026.
- Rationalization of Penalties into Fee:
Various penalties under Income Tax Act, 2025 for late filing of various Forms rationalize into Fees tabulated as under :-
| Nature of Default | Omitted Penalty Provisions | Fees added in Provision | Proposed Fee applicable w.e.f 1.04.2026 |
| Failure to get accounts audited | Section 446
[0.5% of Turnover or max. 150000/-] |
Section 428(c) | Fees Rs.75,000 or Rs. 1,50,000 (Depending on the period of delay) |
| Failure to furnish report from an accountant (for international or specified domestic transactions) | Section 447
[Rs. 1,00,000] |
Section 428(4) | Fees Rs. 50,000 or Rs.1,00,000 (Depending on the period of delay) |
| Failure to furnish statement of financial transactions (SFT) or reportable account | Section 454(1)
[Rs. 1000 per day] |
Section 427(3) | Converted from a daily penalty (previously ₹500/day) to a mandatory fee. |
- Imposition of penalty for under-reporting or misreporting of income within Assessment Order:
- It is proposed to impose penalty for under-reporting or misreporting of income together with addition in common order for avoiding multiplicity of proceedings which in turn would reduce the compliance of the tax payers apart from providing consistency in levying of penalty.
- Section 220 is also proposed to be amended for charging of interest under section 220(2) only after passing of the order by CIT(A) or ITAT (for appeal against DRP orders), as case maybe.
- The amendments shall come into force in the Income-tax Act, 2025 from 1st day of April, 2026 and in the Income-tax Act, 1961 from the 1st day of March, 2026.
- Rationalization of tax rate under section 195 and penalty under section 443 in respect of certain Income:
Tax rate is reduced from 60% to 30% in respect of income referred to in section 102 to 106. Section 102 to 106 (unexplained credits, unexplained investment, unexplained asset, unexplained expenditure, etc.) and penalty rate on income determined by Assessing Officer which is in nature of income referred to in section 102 to 106 @ 100% for misreporting of income under section 439.
- Expanding the scope of immunity from penalty or prosecution under section 440 of the Act 2025 and Section 270AA of the Income Tax Act, 1961
- Presently, immunity under section 440 can only be granted in the cases of under reporting of income and not in the case of under-reporting of income in consequence of misreporting. Now as per the proposed amendment the provision of immunity is also extended to such cases where under-reporting of income is in consequence of misreporting. However, the taxpayer is required to pay an additional income-tax to the extent of 100% of the amount of tax payable on such income in lieu of the penalty. Applicable w.e.f. 1st April, 2026.
Similarly, amendments are proposed in Sections 270AA of the Income Tax Act 1961 w.e.f 1st March, 2026 providing immunity in case of under-reporting of income is in consequence of misreporting. However, the taxpayer is required to pay an additional income-tax to the extent of 100% of the amount of tax payable on such income in lieu of the penalty.