Union Budget: New Income Tax Act from April 1; income tax rates and slabs unchanged
Sitharaman recalled that a comprehensive review of the Income Tax Act, 1961, was announced in July 2024 and completed in record time
By - Sistla Dakshina Murthy
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New Delhi: Finance Minister Nirmala Sitharaman on Sunday announced that the new Income Tax Act, passed in 2025, will come into force from April 1, while keeping income tax rates and slabs unchanged in the Union Budget 2026–27.
The focus, she said, is on simplifying tax compliance and improving ease of living for ordinary taxpayers.
ITR forms redesigned
Presenting the Budget in Parliament, the Finance Minister said income tax return (ITR) forms have been redesigned to ensure that citizens can comply without difficulty.
Sitharaman recalled that a comprehensive review of the Income Tax Act, 1961, was announced in July 2024 and completed in record time.
“The Income Tax Act 2025 will come into effect from April 1. The forms have been redesigned such that ordinary citizens can comply without difficulty,” she said.
The government will allow sufficient time for taxpayers to transition to the new law.
No change in tax rates and slabs
The Finance Minister kept income tax rates and slabs unchanged, following the major tax reforms introduced last year. While there was no direct tax relief through lower rates, several measures were announced to reduce procedural burden and improve cash flows for taxpayers.
Extended and staggered ITR filing deadlines
To ease compliance, the Budget proposed staggered timelines for filing returns:
ITR-1 and ITR-2: Deadline remains July 31
Non-audit business cases and trusts: Extended till August 31
Revised returns: Time limit extended from December 31 to March 31, with payment of a nominal fee
Key tax exemptions in accident claims and investments from NRIs
The Budget introduced several targeted exemptions:
- Interest awarded by Motor Accident Claims Tribunals to individuals will be exempt from income tax, and the related TDS requirement will be removed.
- Non-resident Indians (NRIs) supplying capital goods to Indian companies will get income tax exemption for five years.
- A tax holiday until 2047 was announced for foreign cloud service companies using data centres in India.
Relief through lower TCS on overseas spending
In a move aimed at easing cash-flow pressures, the Finance Minister announced sharp cuts in Tax Collected at Source (TCS):
- Overseas tour packages: TCS reduced from 5 per cent and 20 per cent to 2 per cent, with no minimum amount condition
- Education and medical expenses under the Liberalised Remittance Scheme (LRS): TCS reduced from 5 per cent to 2 per cent
Easier compliance for small taxpayers
To benefit small taxpayers, the Budget proposed a rule-based automated system for obtaining lower or nil TDS certificates, removing the need to approach the assessing officer.
Taxpayers holding securities in multiple companies will also be allowed to submit Form 15G or Form 15H to depositories, which will forward the forms directly to the respective companies.
Clarification on TDS for services
To remove ambiguity, the government proposed to explicitly include the supply of manpower services under payment to contractors for TDS purposes.
As a result, TDS on such services will be limited to 1 per cent or 2 per cent.
Changes in securities transaction tax
On the capital markets front, the Budget proposed a higher Securities Transaction Tax (STT):
Futures: Increased from 0.02 per cent to 0.05 per cent
Options: Increased from 0.01 per cent to 0.15 per cent
Overall, while Union Budget 2026–27 did not alter income tax rates, it focused on simplifying laws, easing compliance and offering targeted relief through exemptions and lower transaction taxes.
