Finance Minister Nirmala Sitharaman presented the Union Budget 2026 on 1 February 2026, marking a significant milestone in India's taxation journey. While taxpayers anticipated major slab changes, the Budget focused on simplification, compliance ease, and implementing the historic Income Tax Act 2025. For salaried individuals, business owners, and investors, understanding these changes is crucial for effective tax planning for Financial Year 2026-27.
- Income tax slabs remain unchanged for FY 2026-27; new tax regime continues as default with ₹12 lakh tax-free income threshold
- Income Tax Act 2025 becomes effective from 1 April 2026, replacing the 1961 Act with simplified 536 sections
- ITR filing deadline extended to 31 August for non-audit business taxpayers; revised return deadline extended to 12 months
- MAT rate reduced to 14%; companies opting for concessional regime can now utilize accumulated MAT credit up to 25% annually
Income Tax Slabs FY 2026-27: No Changes for Individuals
Contrary to widespread speculation, Budget 2026 has not introduced any changes to income tax slabs for FY 2026-27, meaning existing tax slabs and rates remain applicable under both new and old tax regimes. The new tax regime continues to remain the default tax regime for all taxpayers.
Under the new tax regime for FY 2026-27, the slab structure remains:
- Up to ₹4,00,000: Nil
- ₹4,00,001 to ₹8,00,000: 5%
- ₹8,00,001 to ₹12,00,000: 10%
- ₹12,00,001 to ₹16,00,000: 15%
- ₹16,00,001 to ₹20,00,000: 20%
- ₹20,00,001 to ₹24,00,000: 25%
- Above ₹24,00,000: 30%
Section 87A Rebate: Zero Tax Up to ₹12 Lakh
The enhanced tax rebate under Section 87A, increased from ₹25,000 to ₹60,000 in Budget 2025, continues in Budget 2026. Combined with the ₹75,000 standard deduction for salaried individuals, final tax liability for salaried individuals earning up to ₹12.75 lakh is zero under the new tax regime.
Example: If your gross salary is ₹12.75 lakh, after claiming ₹75,000 standard deduction, your taxable income becomes ₹12 lakh. Tax liability of ₹60,000 is fully offset by the Section 87A rebate, resulting in zero tax payable. Calculate your precise tax liability using our Income Tax Calculator.
Income Tax Act 2025: Revolutionary Simplification from 1 April 2026
The Income Tax Act 2025 replaces the six-decade-old Income Tax Act 1961 with effect from 1 April 2026, reducing provisions from 819 sections in 23 chapters to 536 sections within a revised set of 23 chapters. This marks India's most comprehensive direct tax reform in over 60 years.
Key Features of Income Tax Act 2025
- Simplified Language: Removal of redundant provisions and simplified language aims to ensure easier compliance and reduce legal disputes
- Tax Year Concept: The 'Assessment Year' concept is dispensed with and replaced by 'Tax Year' terminology, applying prospectively from FY 2026-27
- Transition Provisions: Transition measures enable availability of tax credits, carry forward of losses and unabsorbed depreciation across years even after the 1961 Act is repealed
- Modernized Forms: Simplified income tax forms and rules under the new Act are proposed effective 1 April 2026 to ease compliance for individuals and small businesses
The Income Tax Rules 2026 replace the Income Tax Rules 1962 effective from 1 April 2026, updating exemption limits on allowances, revising PAN quoting thresholds, and introducing new income tax forms.
Extended Compliance Deadlines: Major Relief for Taxpayers
Budget 2026 provides significant relief through extended filing deadlines, acknowledging the practical challenges taxpayers face.
ITR Filing Deadlines for FY 2026-27
| Taxpayer Category | Old Deadline | New Deadline (Budget 2026) |
|---|---|---|
| Individuals filing ITR-1 and ITR-2 | 31 July | 31 July (unchanged) |
| Non-audit business taxpayers (ITR-3 onwards) | 31 July | 31 August |
| Revised Return filing | 9 months from end of TY | 12 months from end of TY |
| Late revised return fee (income up to ₹5 lakh) | N/A | ₹1,000 (after 9 months) |
| Late revised return fee (income above ₹5 lakh) | N/A | ₹5,000 (after 9 months) |
The due date for individuals and HUF having profits and gains from business or profession would be extended to 31 August from 31 July, except for accounts requiring audit. Time limit for filing revised return increases to 12 months from 9 months from the end of the tax year.
Need to verify your TDS deductions before filing? Use our Form 26AS / TDS Fetch Tool for instant access to your tax credit information.
TCS Rate Rationalization: Reduced Burden on Education and Medical Remittances
Effective from 1 October 2026, the TCS rate for remittance under the Liberalized Remittance Scheme (LRS) towards education and medical purposes has been reduced to 2% from 5%, and TCS rate on overseas tour program packages reduced to 2% from 5%/20%.
Revised TCS Rates from April 2026
- LRS for Education & Medical: Reduced from 5% to 2%
- Overseas Tour Packages: Flat 2% (previously 5%/20% based on amount)
- Sale of Scrap: Increased from 1% to 2%
- Sale of Minerals: Increased from 1% to 2%
- Sale of Alcoholic Liquor: Increased from 1% to 2%
- Tendu Leaves: Reduced from 5% to 2%
These changes aim to ease the financial burden on students studying abroad and individuals seeking overseas medical treatment, while rationalizing rates across different transaction categories.
Corporate Tax Amendments: MAT Reform and Incentives
Budget 2026 introduces substantial changes to corporate taxation, particularly in the Minimum Alternate Tax (MAT) framework.
MAT Rate Reduction and Credit Utilization
The MAT rate has been reduced from 15% to 14% for all companies, though the concessional 9% MAT rate for eligible IFSC units remains unchanged. More significantly, for domestic companies continuing under the existing tax regime, MAT becomes a final tax with no new MAT credit and no utilization of existing MAT credit going forward.
However, companies opting for the concessional 22% tax regime are permitted to utilize accumulated MAT credit, subject to a cap of 25% of normal tax liability for the relevant tax year, with any unutilized MAT credit carried forward for 15 years.
Tax Holidays and Incentives
The tax holiday period for IFSC units has been increased to 20 consecutive years from 10 years, and a concessional rate of 15% has been introduced on business income during the non-holiday tax period.
The turnover threshold for eligible startups to claim income tax holiday has been increased from ₹100 crore to ₹300 crore, aligned with the DPIIT notification dated 4 February 2026.
Securities Transaction Tax (STT) Hike: Impact on F&O Traders
STT on futures has been raised to 0.05% from 0.02%, and STT on options transactions has been raised to 0.15% from 0.1%/0.125%. These increases are designed to moderate excessive speculative activity in derivatives markets while keeping cash equity delivery trades unchanged.
For equity investors and traders, this means higher transaction costs for F&O trading. If you're actively trading in stocks, use our Stock Profit Calculator to factor in the new STT rates and optimize your trading strategy.
Buyback Taxation: Shift to Capital Gains Treatment
With effect from 1 April 2026, amounts received from buyback of shares will be taxed as capital gains, with effective tax rates of 30% for individual promoters and 22% when promoters are companies. For promoters, an additional buyback tax is levied, making the effective tax outgo 22% for corporate promoters and 30% for non-corporate promoters.
Planning to sell equity or mutual fund units? Calculate your LTCG and STCG liability using our Capital Gain Calculator.
NRI-Friendly Measures: Simplified TDS on Property Transactions
Resident individuals or HUF are no longer required to obtain a TAN for deducting tax at source on immovable property transfers to non-resident sellers; the buyer can deduct tax using their PAN, effective 1 October 2026.
Additionally, a one-time Foreign Assets Small Taxpayers Disclosure Scheme (FAST-DS 2026) has been proposed to encourage disclosure of foreign assets/foreign-source income with limited immunity from penalty and prosecution, with effective date to be announced.
HRA Exemption Expansion: Four New Cities Added
The Income Tax Rules 2026 have extended 50% HRA exemption to include Bengaluru, Pune, Hyderabad, and Ahmedabad, meaning taxpayers in 8 cities can now benefit from 50% HRA exemption. This applies only under the old tax regime.
If you're claiming HRA exemption, calculate your eligible amount using our HRA Calculator to maximize your tax savings.
Penalty Rationalization and Compliance Simplification
To simplify compliance and reduce litigation, penalties for procedural non-compliance are being replaced with fixed graded fees effective 1 April 2026, with penalty for under-reporting imposed directly in composite orders, and unexplained income tax rates rationalized from 60% to 30%.
These measures reflect the government's shift toward a facilitative, trust-driven tax administration from an enforcement-heavy regime.
Conclusion
Union Budget 2026 represents a watershed moment in India's taxation history with the implementation of Income Tax Act 2025 from 1 April 2026. While tax slabs remain unchanged, the focus on simplification, extended deadlines, rationalized TCS rates, and MAT reforms creates a more taxpayer-friendly environment. Whether you're a salaried individual benefiting from zero tax up to ₹12.75 lakh, a business owner navigating the new MAT provisions, or an investor adjusting to higher STT on derivatives, understanding these changes is crucial for effective financial planning.
Stay compliant and optimize your tax liability with TaxFetch's comprehensive suite of tax tools – from income tax calculators to automated TDS fetching and capital gains computation. Navigate FY 2026-27 with confidence!
Frequently Asked Questions (FAQs)
Are there any changes to income tax slabs in Budget 2026?
No, Budget 2026 has not introduced any changes to income tax slabs. The tax structure for Assessment Year 2026-27 remains unchanged from the previous year. Under the new tax regime, income up to ₹4 lakh remains tax-free, with progressive rates from 5% to 30%. With Section 87A rebate, individuals with taxable income up to ₹12 lakh pay zero tax.
When does the new Income Tax Act 2025 become effective?
The Income Tax Act 2025 comes into effect from 1 April 2026 and applies to Tax Year 2026-27 onwards. It replaces the Income Tax Act 1961, reducing provisions from 819 sections to 536 sections. The new Act introduces simplified language, modernized compliance procedures, and the 'Tax Year' terminology replacing 'Assessment Year' going forward.
What are the key TCS rate changes announced in Budget 2026?
Budget 2026 has rationalized TCS rates effective from 1 April 2026. TCS on LRS remittances for education and medical purposes has been reduced from 5% to 2%. TCS on overseas tour packages has been reduced to a flat 2% from the earlier dual rate of 5%/20%. However, TCS on sale of scrap, minerals, and alcoholic liquor has been increased from 1% to 2%.
What is the new ITR filing deadline for business taxpayers in Budget 2026?
Budget 2026 has extended the ITR filing deadline for non-audit business taxpayers from 31 July to 31 August. This applies to individuals and HUFs with business or professional income whose accounts do not require audit. The deadline for ITR-1 and ITR-2 filers continues to remain 31 July. The time limit for filing revised returns has been extended from 9 months to 12 months.
What are the major MAT changes for companies in Budget 2026?
Budget 2026 has introduced significant MAT amendments effective from 1 April 2026. The MAT rate has been reduced from 15% to 14% for companies under the old regime. For companies opting for the concessional 22% tax regime, MAT becomes a final tax with no new MAT credit accumulation. However, existing MAT credit can be utilized up to 25% of normal tax liability and carried forward for 15 years.