Union Budget 2026: New Income Tax Act Brings Simplification and Relief for Taxpayers
Historic Transition: Income Tax Act 1961 Replaced After 63 Years
Key Proposals: Easier Filing, Lower Penalties, and Digital Compliance
By Business Reporter
New Delhi: February 04, 2026:
The Union Budget 2026 marks a turning point in India’s tax history. Finance Minister Nirmala Sitharaman announced that from April 1, 2026, the Income Tax Act, 1961 will be replaced by the Income Tax Act, 2025. This landmark reform seeks to simplify tax laws, reduce compliance burdens, and build trust between taxpayers and authorities. For millions of Indians—whether salaried employees, small businesses, or investors—the changes promise a more transparent and fair system.
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Key Tax Proposals and Their Likely Impact
1. Simplified Return Filing Deadlines
- New deadlines: July 31 for salaried taxpayers, August 31 for non-audit businesses.
- Impact: Reduces confusion and aligns filing dates with taxpayer categories, ensuring smoother compliance.
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2. Extended Time for Revised and Updated Returns
- Taxpayers can now revise returns until March 31 instead of December 31.
- Impact: Provides more flexibility to correct errors, reducing litigation and penalties.
3. Updated Returns Even After Reassessment Notices
- Taxpayers can file updated returns post-reassessment with additional tax.
- Impact: Encourages voluntary disclosure and reduces fear of penalties.
4. Decriminalisation of Minor Offences
- Non-production of books and minor defaults now attract fines instead of imprisonment.
- Impact: Relief for small businesses and professionals, reducing harassment.
5. Reduced Imprisonment Terms
- Maximum imprisonment for tax offences cut from 7 years to 2 years.
- Impact: Signals a shift towards proportionate punishment and trust-based compliance.
6. Foreign Asset Disclosure Scheme (FAST-DS 2026)
- Immunity for small foreign assets below ₹20 lakh.
- Impact: Encourages disclosure of overseas holdings without fear of prosecution.
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7. Digital Transformation in TDS Compliance
- Electronic issuance of lower/nil TDS certificates.
- PAN-based compliance for property purchases.
- Impact: Eliminates paperwork, speeds up transactions, and reduces errors.
8. Relief for Accident Victims
- MACT interest exempted from TDS.
- Impact: Ensures full compensation reaches victims without tax deductions.
9. Form 15G/15H Simplification
- Single filing with depositories instead of multiple submissions.
- Impact: Saves time for senior citizens and small investors.
10. Tax Audit and Transfer Pricing Defaults
- Penalties converted into daily fees with maximum limits.
- Impact: Reduces harsh penalties, making compliance less intimidating.
11. Lower Pre-deposit for Appeals
- Reduced from 20% to 10% of disputed tax.
- Impact: Makes justice more accessible for taxpayers contesting demands.
12. Tax on Unexplained Income
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- Rate reduced from 60% to 30%, penalty merged with misreporting provisions.
- Impact: Encourages disclosure of hidden income while maintaining deterrence.
13. MAT as Final Tax
- MAT reduced to 14% and treated as final tax.
- Impact: Simplifies corporate taxation and removes credit carry-forward complexities.
14. Buyback Taxation Shift
- Buyback proceeds taxed as capital gains instead of dividends.
- Impact: Benefits investors by aligning taxation with market realities.
15. Dividend Income Deduction Withdrawn
- Interest deduction against dividend income disallowed.
- Impact: Increases tax liability for leveraged investors but simplifies rules.
Broader Implications
- For Salaried Individuals: Easier filing, extended timelines, and relief on PF contributions deposited late.
- For Businesses: Lower penalties, digital compliance, and MAT simplification reduce litigation risks.
- For Investors: Buyback gains taxed fairly, dividend rules clarified, and simplified reporting.
- For Society: Decriminalisation and reduced imprisonment terms foster trust and reduce fear of tax authorities.
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Conclusion
The Union Budget 2026 is not just about numbers—it is about trust, transparency, and simplification. By replacing the outdated Income Tax Act, 1961, India is moving towards a modern tax regime that balances compliance with fairness. While taxpayers must wait for final notifications, the intent is clear: a friendlier tax system that encourages voluntary compliance and reduces disputes.
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Also Read: Union Budget 2026: New Income Tax Act Brings Simplification and Relief for Taxpayers