Key Income Tax Amendments Proposed in Budget 2026 (Applicable from Tax Year 2026-27)
Under the Income Tax Act, 2025 • By ANTM & Associates, Chartered Accountants
Budget 2026 proposes a wide set of Income Tax amendments under the Income Tax Act, 2025. Unless a specific date is mentioned, these apply from Tax Year 2026-27. Below is a structured, head-wise summary of the key changes for businesses, investors, and individual taxpayers.
Change in Taxes
1. Lower Tax on Unexplained Credits I Investments I Assets I Expenditure
The tax rate on unexplained credits, investments, assets, or expenditure is proposed to be reduced from
Effective tax rate now = 30% + surcharge (25%) = 37.5% + 4% education cess = 39%.
2. Minimum Alternate Tax (MAT) Credit under the Old Regime
MAT credit of the old tax regime cannot be carried forward under the new tax regime.
The MAT rate is reduced from 15% to 14%.
New MAT credit can be carried forward and set off up to a maximum of 25% In a single year against normal tax payable.
New MAT credit can be carried forward for 15 years.
3. MAT Not Applicable to Non-Resident Foreign Companies under Presumptive Taxation
MAT provisions will not apply to non-resident foreign companies taxed under presumptive taxation.
MAT was already inapplicable to non-resident foreign companies in the business Of:
Operation Of ships
Operation Of aircraft
Civil construction in connection with a turnkey power project
Prospecting, extraction, or production of mineral oils
The amendment extends the "No MAT" position to include:
Business Of operation Of cruise
Services I technology for an electronics manufacturing facility to a resident company
4. Increase in Securities Transaction Tax (STT)
Applicable on transactions with effect from 01.04.2026:
| Sr. No. | Instrument | Transaction Type | Basis | Existing Rate | Revised Rate |
|---|---|---|---|---|---|
| 1 | Options in securities | Sale of option | Option premium | 0.100% | 0.150% |
| 2 | Options in securities | Sale of option where option is exercised | Intrinsic price | 0.125% | 0.150% |
| 3 | Futures in securities | Sale of futures | Traded price | 0.020% | 0.050% |
Business Income
5. Employees' Share of Contribution to Welfare Funds — Extended Timeline
Before: The deduction for the employees' share of contribution to an approved welfare fund (PF, ES', etc.) was allowed only if paid by the due date under the respective law.
After: The deduction will be allowed if paid up to the due date of filing the return of income for the tax year.
6. TDS Disallowance Relief for Insurance Businesses (Other than Life Insurance)
Before: Expenditure disallowed for non-deduction I non-payment Of TDS in an insurance business (Other than life insurance) was not allowed even later, once TDS was deducted and paid.
After: Such expenditure will be allowable later, as and when the TDS is deducted and paid.
7. Extension of Deduction for Critical Minerals
The deduction for expenditure on prospecting and exploration is extended to cover additional critical minerals.
Capital Gains
Buy-Back of Shares — Now Taxed as Capital Gains
Before: Consideration received by a shareholder on buy-back Of shares was treated as dividend. It was not offered as sales consideration for capital gains, and the cost Of acquisition became a capital loss.
After: Consideration received on buy-back is now sales consideration for capital gains.
It is not treated as dividend.
The cost Of acquisition is allowed as a deduction against sales consideration.
Note: This is beneficial to shareholders. Earlier, the capital loss was not adjustable and the entire consideration was taxed as dividend
9. Capital Gains Exemption on Sovereign Gold Bonds
The exemption is available only on maturity to original allotted holders.
It is not available if the bond is sold to resellers.
It is not available to a resel ler even on maturity.
In short, the exemption applies only where the bond is held till maturity by the original allotted holder.
Income from Other Sources
10. No Deduction Against Dividend and Mutual Fund Income
(Applicable retrospectively from Tax Year 2025-26)
Before: Interest was allowable against dividend income and income from mutual fund units, up to 20% of the respective income. Commission or remuneration paid to a banker or any other person to realise dividend was also allowed
After: NO deduction for any expense is allowed against dividend income and income from mutual fund units
TDS/TCS
11. No TDS on Interest on Motor Accident Compensatio
Compensation received for an accident under the Motor Vehicles Act, 1988 remains not taxable as a capital receipt.
Before: Interest above Rs. 50,000 was taxable
After: Interest of any amount is not taxable.
12. Automated NIL I Lower TDS Certificates for Small Taxpayers
Earlier, applications for NIL or lower TDS had to be made to the Assessing Officer, who verified and granted them. The process is proposed to be automated — applications will be made online and verified by the system, with automatic grant or rejection based on the criteria.
13. No TAN Required for TDS on Property Purchased from Non-Residents
Earlier, a resident purchasing immovable property from a non-resident had to obtain a TAN to file the TDS form (Form 27QB), even with no other TDS obligation. Now, only PAN will be required — no TAN is needed to file the return.
14. Declaration for Non-Deduction of TDS — Directly to Depositories
The declaration for non-deduction of TDS on dividend, interest on securities, and mutual fund units can now be filed directly with the depositories, instead of with the various companies paying such income.
15. Manpower Supply Services — Now Subject to TDS on Contractual Payments
Earlier, there was litigation over whether manpower supply services fell under contractual payments, technical services, or neither. It is proposed to include manpower services within the definition of "Work," making such payments subject to TDS on contractual payments.
16. No TDS on Interest on Loans from Cooperative Banks
Earlier, TDS applied to interest on loans from cooperative banks (though not from banking companies). It is proposed that no TDS will apply to interest on loans availed from cooperative banks.
17. Rationalisation of TCS Rates
| Sr. No. | Nature of Receipt | Existing Rate | Proposed Rate |
|---|---|---|---|
| 1 | Sale of alcoholic liquor for human consumption | 1% | 2% |
| 2 | Sale of tendu leaves | 5% | 2% |
| 3 | Sale of scrap | 1% | 2% |
| 4 | Sale of minerals | 1% | 2% |
| 5 | Remittance under LRS for education or medical treatment exceeding Rs. 10 lakhs | 5% | 2% |
| 6 | Sale of overseas tour programme package | 5% up to Rs. 10 lakh; 20% above Rs. 10 lakh | 2% (no threshold) |
Return of Income
18. Revised Due Date — 31st duly to 31st August for Certain Assessees
(Applicable w.e.f. A.Y 2026-27, i.e„ P.Y. 2025-26, and Tax Year 2026-27 also)
| Sr. No. | Criteria | Current Due Date | Proposed Due Date | Change? |
|---|---|---|---|---|
| 1 | Audit under the Income Tax or any other law | 31st October | 31st October | No change |
| 2 | Business or profession income but no audit | 31st July | 31st August | Yes |
| 3 | No business or profession income | 31st July | 31st July | No |
| 4 | Transfer Pricing audit applicable | 30th November | 30th November | No |
| 5 | Partner of a firm/LLP without audit but always having business-head income | 31st July | 31st August | Yes |
| 6 | Partner of a firm/LLP with audit | 31st October | 31st October | No |
Disclaimer: The above reflects amendments proposed through Budget 2026 under the Income Tax Act, 2025, and is intended for general information. Provisions may change before enactment. For advice specific to your situation, please consult us directly.
