Budget 2026: New Income Tax Act From April 1, Slabs Unchanged

A New Era for Taxation in India

Finance Minister Nirmala Sitharaman presented the Union Budget for 2026-27 on February 1, 2026, marking her ninth consecutive budget. The centerpiece of this year's fiscal policy is the announcement that the new, simplified Income Tax Act, 2025, will come into effect from April 1, 2026. This landmark reform, which replaces the six-decade-old Income Tax Act of 1961, aims to simplify tax laws, reduce ambiguities, and ease compliance for all taxpayers. While this structural overhaul is the main highlight, individual taxpayers will note that the personal income tax slabs and rates remain unchanged for the financial year 2026-27.

The Income Tax Act, 2025: A Push for Simplicity

The comprehensive review of the Income Tax Act, 1961, announced in July 2024, was completed in record time. The resulting Income Tax Act, 2025, is designed to be more user-friendly. The Finance Minister stated that the new law reduces the volume of text and the number of sections by approximately 50%. A key simplification is the introduction of a single 'Tax Year' framework, which replaces the often confusing distinction between 'previous year' and 'assessment year'. The government will shortly notify simplified income tax rules and redesigned forms, which are intended to allow ordinary citizens to comply with tax laws without difficulty.

Stability in Personal Income Tax Slabs

Contrary to widespread expectations, the budget did not introduce any changes to the personal income tax slabs or rates for the upcoming financial year. The tax structures for both the old and new regimes, as revised in the Union Budget 2025, will continue to apply for income earned in FY 2026-27. This decision provides stability for taxpayers, who benefited from significant relief in the previous budget, where income up to ₹12 lakh became effectively tax-free for many under the new regime.

Tax Slabs for FY 2026-27 (Unchanged)

Key Proposals for Tax Compliance and Ease of Living

The budget introduced several measures aimed at improving the ease of compliance for taxpayers. The deadline for filing revised income tax returns has been extended from December 31 to March 31, albeit with a nominal fee. Furthermore, the timeline for filing returns has been staggered: while individuals filing ITR-1 and ITR-2 must still adhere to the July 31 deadline, non-audit business cases and trusts have been given an extension until August 31.

To provide relief, the Tax Collected at Source (TCS) rate on the sale of overseas tour packages has been reduced to a flat 2%, removing previous thresholds. Similarly, the TCS rate for remittances under the Liberalised Remittance Scheme (LRS) for education and medical purposes has been lowered from 5% to 2%.

Changes in Corporate and Transaction Taxes

Significant changes were announced for the Minimum Alternate Tax (MAT) regime. The MAT rate is being reduced from 15% to 14%. More importantly, from April 1, 2026, MAT will be treated as the final tax, and companies will no longer accumulate MAT credit. However, brought-forward MAT credit accumulated until March 30, 2026, will remain available for set-off. This move is intended to encourage more companies to shift to the new, lower-rate corporate tax regime.

On the transaction front, the Securities Transaction Tax (STT) on options premium has been raised from 0.1% to 0.15%, and on the exercise of options from 0.125% to 0.15%.

Rationalizing Penalties and Litigation

The budget proposes a tougher stance on non-compliance, with the penalty for misreporting of income set at 100% of the tax due. At the same time, it aims to reduce litigation by rationalizing the prosecution framework. Certain minor and technical offenses, such as non-production of books of accounts, are being decriminalized and will attract only a fine. This is part of a broader effort to reduce the multiplicity of proceedings and improve the ease of doing business.

Foreign Asset Disclosure and Support for IT Sector

A one-time, six-month foreign asset disclosure scheme has been introduced for small taxpayers like students, young professionals, and tech employees. This allows them to declare previously undisclosed foreign income or assets below a certain threshold by paying the applicable tax and an additional amount, thereby gaining immunity from prosecution. For the IT services sector, the revenue limit for availing safe harbor provisions has been substantially increased from ₹300 crore to ₹2,000 crore, providing greater certainty in transfer pricing matters.

Broader Economic Outlook

Beyond direct taxes, the Finance Minister outlined a positive economic outlook, projecting a fiscal deficit of 4.3% of GDP for FY27. The government continues its focus on capital expenditure, with the allocation for public capex proposed to be increased to ₹12.2 lakh crore for 2026-27 to sustain economic growth momentum.

Conclusion

Budget 2026 is defined by the strategic shift towards a simplified tax architecture with the new Income Tax Act. While it maintains the status quo on personal tax slabs, it introduces targeted changes to ease compliance, rationalize corporate taxes, and reduce litigation. The focus remains on creating a stable, predictable, and simplified tax environment to support India's long-term economic growth.