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

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 focus on tax certainty, simplified compliance, and reduced litigation. Instead of altering income tax slabs, the Budget introduces structural reforms impacting capital transactions, MAT, international taxation, penalties, and dispute resolution.

A landmark proposal is the introduction of the New Income Tax Act, 2026, expected to be implemented from 1 April 2026, with the objective of simplifying tax law, reducing interpretational disputes, and improving administration.

1. Personal Taxation Reforms

No Change in Income Tax Slabs

Income tax slab rates remain unchanged, ensuring stability and predictability in personal tax planning.

Sovereign Gold Bonds – Exemption Restricted

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

Practical Insight: Investors purchasing SGBs from the secondary market 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 income

Compulsory Land Acquisition

Compensation received for compulsory acquisition of land under the Land Acquisition Act, 2013, for acquisitions made 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, consideration received on buy-back of shares will be taxed under the Capital Gains head instead of dividend income.

Type Promoter – Domestic Co. Promoter – Others 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 change requires companies and promoters to re-evaluate capital distribution and exit strategies.

3. MAT Reforms – MAT Becomes Final Tax

  • MAT rate reduced from 15% to 14%
  • MAT paid from 1 April 2026 will become final tax
  • No fresh MAT credit shall be allowed

Utilisation of Existing MAT Credit

  • Allowed only upon transition to the new tax regime
  • Utilisation capped at 25% of annual tax liability

4. TDS & TCS Changes

Lower / Nil TDS Certificate – Digital

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

TCS Rationalisation

Transaction Old Rate New Rate
LRS – Education / Medical above ₹10 lakh 5% 2%
Overseas Tour Package 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 deducting TDS on purchase of property from NRIs.

5. GIFT IFSC & Transfer Pricing Reforms

Extended Tax Holiday

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

Transfer Pricing – Safe Harbour

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

6. Returns, Assessment & Litigation Relief

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

7. International Tax Exemptions

  • Foreign individuals under notified schemes – 5-year tax 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
  • Transfer pricing report delay – graded fees up to ₹1 lakh

Prosecution Reforms

  • Simple imprisonment replaces rigorous imprisonment
  • Maximum imprisonment capped at 2 years
  • Tax evasion up to ₹10 lakh – only monetary fine

Black Money Act – Disclosure Scheme

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

Final Thoughts

Union Budget 2026 is less about tax rate changes and more about certainty, predictability, and reduced litigation. Taxpayers and businesses that realign early will benefit the most.

Stay informed. Stay compliant. Plan ahead.

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