Union Budget 2026 – Direct Tax Changes Explained | Your CA Guide

Union Budget 2026 – Direct Tax Changes Explained

What Taxpayers, Businesses & CFOs Should Actually Do Now

Author: CA. Manthan Gandhi | Your CA Guide 📚📖

Union Budget 2026 reinforces the Government’s long-term approach towards certainty, simplified compliance, and reduced litigation. Rather than headline-driven tax rate changes, this Budget focuses on structural reforms impacting capital transactions, international taxation, penalties, and dispute resolution.

A major announcement is the proposed New Income Tax Act, 2026, expected to come into force from 1 April 2026, aimed at simplifying tax law, reducing interpretational disputes, and improving administration.

1. Personal Taxation Reforms

No Change in Income Tax Slabs

Personal income tax slab rates remain unchanged, ensuring predictability and continuity in individual tax planning.

Sovereign Gold Bonds – Exemption Restricted

Capital gains exemption on redemption of Sovereign Gold Bonds (SGBs) is now available only to the original individual subscriber who purchased the bonds at issuance and held them till maturity.

Practical Insight: Secondary market buyers will now be liable to capital gains tax.

Motor Accident Compensation – Fully Exempt

  • Interest on compensation under the Motor Vehicles Act, 1988 is fully tax-exempt
  • No TDS shall apply on such interest

Compulsory Land Acquisition

Compensation received for compulsory acquisition of land under the Land Acquisition Act, 2013, for acquisitions on or after 1 April 2026, is fully exempt from income tax.

2. Buy-Back of Shares – Shift to Capital Gains Regime

From FY 2026-27 onwards, buy-back consideration will be taxed under Capital Gains instead of dividend income.

Type Promoter – Domestic Co. Promoter – Other Non-Promoter
Listed – STCG 22% 30% 20%
Listed – LTCG 22% 30% 12.5%
Unlisted – STCG 22% Applicable slab Applicable slab
Unlisted – LTCG 22% 30% 12.5%

This reform requires companies to reassess capital distribution strategies, especially promoter-driven structures.

3. MAT Reforms – MAT Becomes Final Tax

  • MAT rate reduced from 15% to 14%
  • MAT paid from 1 April 2026 becomes final tax
  • No fresh MAT credit allowed

Utilisation of Existing MAT Credit

  • Allowed only upon transition to new regime
  • Capped at 25% of annual tax liability

4. TDS & TCS Changes

Lower / Nil TDS Certificate – Digital

Payees can now apply electronically for lower or nil TDS certificates, improving liquidity for MSMEs and professionals.

TCS Rationalisation

Transaction Old New
LRS – Education / Medical > ₹10L 5% 2%
Overseas Tour (any amount) Up to 20% 2%
Alcohol, Scrap, Coal, Iron Ore 1% 2%

No TAN for Property Purchase from NRI

From 1 October 2026, resident buyers will not be required to obtain TAN for TDS on property purchase from NRIs.

5. GIFT IFSC & Transfer Pricing Reforms

Extended Tax Holiday

  • IFSC Units: 20 out of 25 years
  • OBUs: 20 consecutive years
  • Post-holiday tax rate: 15%

Transfer Pricing – Safe Harbour

  • Single IT services category
  • Uniform margin: 15.5%
  • Threshold increased to ₹2,000 crore

6. Returns, Assessment & Litigation Relief

Category Due Date
Non-audit (No PGBP) 31 July
PGBP without audit 31 August
  • Single assessment + penalty order
  • No interest on penalty during CIT(A) appeal
  • Pre-deposit reduced to 10% of core tax

7. International Tax Exemptions

  • Foreign individuals under notified schemes – 5-year exemption
  • Foreign companies supplying electronic manufacturing equipment
  • Foreign companies procuring Indian data centre services (20 years)

8. Penalty, Prosecution & Black Money Relief

Penalty Rationalisation

  • Tax audit delay – graded fees up to ₹1.5 lakh
  • TP report delay – graded fees up to ₹1 lakh

Prosecution Reforms

  • Simple imprisonment replaces rigorous imprisonment
  • Maximum term capped at 2 years
  • Tax evasion ≤ ₹10 lakh – only fine

Black Money Act & Disclosure Scheme

Category Amount Payable Limit
Undisclosed foreign assets/income 30% tax + 100% fee ≤ ₹1 crore
Certain foreign assets ₹1 lakh fee ≤ ₹5 crore

9. Other Key Proposals

  • House property interest deduction capped at ₹2 lakh including pre-construction
  • Co-operative dividend deduction allowed under new regime
  • NPO commercial activity liberalisation and tax-free mergers
  • Tonnage tax aligned for inland vessels
  • STT increased on derivatives
  • SEZ export deduction allowed under new regime

Final Thoughts

Union Budget 2026 is about execution over announcements. Taxpayers who realign early will benefit most.

Stay informed. Stay compliant. Plan ahead.

Comments

Post a Comment

I would be very happy if you share your feedback and suggestions (if any) on my blogs.

Popular posts from this blog

Income Tax NUDGE Campaign Alert: ITR Flagged for 80G Donations, Exemptions or Mismatched Deductions — Revised Return Explained

Income Tax NUDGE Campaign: Why You Received the Message & What to Do Over the last few days, many taxpayers have received emails or SMS from the Income Tax Department under its data-driven NUDGE campaign , asking them to review certain deductions and exemption claims in their Income Tax Returns. If you’ve received this message, it usually means one thing: Your ITR has been flagged by risk analytics for potentially ineligible claims. 🔍 Why were you flagged? Some common high-risk patterns include: Donation claims to suspicious or non-compliant entities (including certain political parties and NGOs) under sections 80G / 80GGC Incorrect or invalid PAN of the donee quoted in the ITR Deductions and exemptions not matching data available with the department (Form 26AS, AIS/TIS, Form 16, third-party data, etc.) This is part of a wider clean-up drive against bogus claims and deductions using data analytics and information sharing. 🤝 What is the Department real...
Read more

What is Ethereum and Ethereum 2.0 | Your CA Guide

Image
What is Ethereum and Ethereum 2.0 | Your CA Guide   What is Ethereum? Ethereum is a stage controlled by blockchain innovation that is most popular for its native cryptocurrency, called ether, or ETH, or essentially ethereum. The appropriated idea of blockchain technology makes the Ethereum platform secure, and that security empowers ETH to gather esteem. It is a decentralized, open-source blockchain with smart contract functionality. Ether (ETH) is the native cryptocurrency of the platform. Ethereum is frequently alluded to as the second most popular cryptocurrency, after Bitcoin. In any case, in contrast to Bitcoin-and most other virtual currencies Ethereum is planned to be substantially more than essentially a mode of trade or a store of value. What is Ethereum? How does Ethereum works? Like all cryptocurrency, Ethereum works on the basis of a blockchain network. A blockchain is a decentralized, distributed public record where all transactions are confirmed, verified a...
Read more

Government Securities

What is investment in Government Securities (G-Secs)? Government securities are bonds, both short- and long- term, issued by the Government of India to raise funds for their expenditures. The government pays a specified coupon or interest rate on these bonds that may be payable annually or semi-annually or for any other specified frequency. The G-Secs which have a tenure less than a year are called treasury bills. The G-Secs, which mature after a year, are called bonds. G-Secs offer a whole host of advantages as an investment avenue. There is a Sovereign Guarantee. G-Secs are guaranteed by the Government of India. Hence, they carry almost zero credit risk. G-Secs allow you to lock in attractive interest rates for tenures ranging from 91 days to 40 years. Such long-term interest rate assurance is unparalleled because even banks FDs offer a maximum tenure of 10 years. G-Secs have no TDS (Tax Deducted at Source). Like bank FDs, there will be no tax deduction. Thus, you can pay taxes as ...
Read more