Budget 2026–27 Announces Major Direct Tax Reforms, New Income Tax Act from April 2026

The Union Budget 2026–27, presented in Parliament by Finance Minister Nirmala Sitharaman, introduced a series of direct tax reforms aimed at simplifying the tax system and improving compliance. The Finance Minister said the proposals reflect the government’s duty (Kartavya) to continue structural reforms.

A key announcement was that the Income Tax Act, 2025 will come into force from April 1, 2026. The government will soon notify simplified income tax rules and redesigned forms to make filing easier for ordinary taxpayers. Adequate time will be given to citizens to understand the new system.

To make tax administration easier, the Budget proposed the formation of a joint committee of the Ministry of Corporate Affairs and the Central Board of Direct Taxes (CBDT). The committee will work on merging Income Computation and Disclosure Standards (ICDS) with Indian Accounting Standards (IndAS). From the tax year 2027–28, separate ICDS-based accounting will no longer be required. The definition of “accountant” under Safe Harbour Rules will also be revised to support the growth of Indian accounting and advisory firms.

The Budget also announced changes in the taxation of share buybacks. Buybacks will now be taxed as capital gains for all shareholders. To prevent misuse, promoters will pay an additional tax, resulting in an effective tax rate of 22 per cent for corporate promoters and 30 per cent for non-corporate promoters.

Several changes were made to Tax Collected at Source (TCS). The TCS rate on scrap and minerals has been reduced to 2 per cent, while the rate on tendu leaves has been cut from 5 per cent to 2 per cent. Under the Liberalised Remittance Scheme, TCS on remittances exceeding ₹10 lakh has been lowered to 2 per cent for education and medical treatment. For other purposes, the TCS rate will be 20 per cent.

The Budget proposed an increase in Securities Transaction Tax (STT). The STT on futures will rise from 0.02 per cent to 0.05 per cent. For options, the tax on premium and exercise of options will be increased to 0.15 per cent.

Changes were also announced to the Minimum Alternate Tax (MAT) system. Companies will be allowed to use brought-forward MAT credit only under the new tax regime, encouraging a shift to the simplified system. From April 1, 2026, MAT will become a final tax, with the rate reduced from 15 per cent to 14 per cent. MAT credit accumulated up to March 31, 2026, will continue to be available for limited set-off.

Overall, the direct tax measures in Budget 2026–27 aim to create a simpler, clearer and more efficient tax framework for individuals and businesses.

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