Amidst hopes of tax relief the Finance Minister (FM) Nirmala Sitharaman stepped up today to present the 2026 Union giving way to an simplified Income Tax Act, 2025 with effect from 1 April 2026. The rules and forms shall be notified. This marks a long-awaited shift from complexity to clarity.

Tax return compliance procedure has been eased. The time limit to revise returns stands extended from 31 December to 31 March, albeit with a fee of up to ₹1,000 if total income is upto ₹5 lakh and ₹5,000 in other case. Filing deadlines remain unchanged for individuals using ITR-1 and ITR-2 (31 July), while non-audit businesses, individuals (professional income) who file ITR-3, and Trusts now get time until 31 August.

The Budget rationalises TDS and TCS provisions in ways that directly affect everyday taxpayers. TCS on education, medical remittances, and overseas tour packages (threshold of ₹10 lakh is removed) under LRS has been reduced to 2%. Depositories to accept Form 15G/15H directly from investors holding securities of multiple companies. A rule-based automated system is proposed to grant a lower or nil deduction certificate to eligible small taxpayers.

Following proposals shall reduce litigation and help build trust amongst taxpayers;

• A single order for assessment and penalty proceedings.
• Pre-deposit of tax demand for filing appeals reduced from 20% to 10%.
• Immunity from penalty and prosecution extended to misreporting cases on payment of 100% additional tax (over & above tax and interest).
• Immunity from prosecution for non-disclosure of foreign movable assets with aggregate value up to ₹20 lakh, with retrospective effect from 1 October 2024.

Below are some welcome rationalisation proposed to make things simple and straight;

• While computing dividend income and income from units of mutual fund, no deduction (interest, commission, etc.) shall be allowed.
• The buyback of shares is proposed to be taxed as capital gains instead of dividend income, however, promoters shall pay additional tax.
• A one-time foreign asset disclosure scheme for small taxpayers (students, young professionals, tech employees receiving ESOPs or RSUs from foreign employers, relocated NRIs) to disclose income/ assets below a certain size.

Overall, the direct tax proposals in the 2026 Budget simplifies the compliance, reduces legal complexity, and makes tax administration more transparent. This will certainly lead to an efficient tax administration creating a positive global image for India and attract fresh investments.

The above article has been authored by Ravi Jain, Partner at Vialto Partners, with contributions from Sarveshwar Lahoty, Associate Director and Sanjay Yadav, Manager at Vialto Partners.