Budget Update
CA Raj Chawla
Quotes of the day:
1. A bird sitting on a tree is never afraid of the branch breaking, because her trust is not in the branch but in her own wings.
2. If you are depressed you are living in the PAST. If you are anxious, you are living in the FUTURE. If you are at peace, you are living in the PRESENT. Be Positive and keep smiling always.
Budget Update:
1. The Finance Bill, 2026 introduces a comprehensive suite of amendments to the Income-tax Act, 2025, the Income-tax Act, 1961, and various indirect tax statutes. The primary objectives of these provisions are to enhance the "Ease of Living," attract global investment into critical sectors like Artificial Intelligence (AI) and data centers, and significantly decriminalize tax-related offenses.
2. Budget Takeaways:
Decriminalisation: A systemic shift from "rigorous" to "simple" imprisonment for tax offenses, with full decriminalization for tax evasion amounts below ₹10 lakh (replaced by fines) and limited immunity for minor foreign asset non-disclosures.
3. Small Taxpayer Relief: Introduction of the Foreign Assets of Small Taxpayers - Disclosure Scheme, 2026 (FAST-DS 2026) to resolve legacy non-disclosure issues for small holdings like ESOPs and dormant foreign bank accounts.
4. Investment Incentives: Extension of tax holidays for units in International Financial Services Centres (IFSC) to 20 years and BCD exemptions for critical minerals and data center services.
5. Compliance Rationalization: Extension of return filing due dates for non-audit cases to August 31 and increasing the window for revised returns to 12 months.
6. Corporate Taxation: Reduction of the Minimum Alternate Tax (MAT) rate to 14% and the transition of MAT credits to the new tax regime.
7. Share Market Regulation: Calibrated increase in Securities Transaction Tax (STT) for futures and options to curb disproportionate speculation.
I. Rates of Income Tax (Financial Year 2026-2027): The Bill maintains the core tax rate structure established in previous years while consolidating the default status of the new tax regime. Individual and HUF Rates (Default Regime - Section 202)
8. For individuals, HUFs, AOPs, and AJPs, the following default rates apply for the tax year 2026-27:
· Total Income Rate of Tax
· Up to ₹4,00,000 Nil
· ₹4,00,001 to ₹8,00,000 5%
· ₹8,00,001 to ₹12,00,000 10%
· ₹12,00,001 to ₹16,00,000 15%
· ₹16,00,001 to ₹20,00,000 20%
· ₹20,00,001 to ₹24,00,000 25%
· Above ₹24,00,000 30%
9. Surcharge and Cess
10. Surcharge Caps: The rate of surcharge on dividend income and capital gains (Sections 196, 197, 198) is capped at 15%.
· High Income Surcharge: For those in the default regime, the maximum surcharge is restricted to 25% even if income exceeds ₹5 crore (effectively removing the 37% bracket for these assessees).
· Health and Education Cess: Remains at 4%.
II. Ease of Living and Compliance Simplification
11. The Bill proposes several measures to reduce the compliance burden on taxpayers and provide relief in specific hardship cases.
12. Filing Timelines and Procedures
13. Due Date Extension: For assessees in business or profession not requiring audits and for trusts, the filing due date is extended from July 31 to August 31.
14. Revised Returns: The time limit to file a revised return is increased from 9 months to 12 months from the end of the relevant tax year.
15. Updated Returns: Taxpayers are now permitted to file updated returns even to reduce the amount of loss claimed in a previous return. Additionally, updated returns may be filed following a reassessment notice (Section 280), provided an additional tax of 10% is paid.
· Hardship Relief
· Motor Vehicle Accident Compensation:
· Interest income on compensation awarded by the Motor Accidents Claims Tribunal is now fully exempt for individuals.
· No TDS will be deducted on such interest payments, regardless of the amount.
16. Disability Pension: Exemption for disability pension is codified for Armed Forces and Paramilitary personnel who are "invalided out" due to service-attributable disabilities.
17. Administrative Streamlining
18. Electronic Certificates: Payees can now apply for lower or nil TDS certificates (Section 395) electronically.
19. TAN Relaxation: Resident individuals/HUFs purchasing immovable property from non-residents are no longer required to obtain a Tax Deduction and Collection Account Number (TAN).
20. Depository Declarations: Investors can file "No Deduction" declarations (Form 15G/H) directly with depositories rather than multiple individual entities.
21. III. Rationalization of Penalty and Prosecution
22. A central theme of the 2026 Bill is the decriminalization of tax laws to ensure punishments are proportionate to the offenses.
23. Principles of Decriminalization
24. Nature of Imprisonment: Transitioning from Rigorous Imprisonment" to "Simple Imprisonment across most sections (473 to 485).
25. Duration Caps: Maximum punishment generally reduced from 7 years to 2 years (3 years for subsequent offenses).
26. Monetary Thresholds:
27. Tax < ₹10 lakh: Punishment is limited to a fine only.
28. ₹10 lakh to ₹50 lakh: Simple imprisonment up to 6 months and/or fine.
Ø ₹50 lakh: Simple imprisonment up to 2 years and/or fine.
29. Black Money Act: Prosecution will not apply for non-disclosure of foreign assets (excluding real estate) if the aggregate value is below ₹20 lakh.
30. Conversion of Penalties to Fees
31. Technical delays are being moved from the penalty regime (subject to AO discretion) to a mandatory fee regime to reduce litigation:
32. Audit Failures (Section 446): Replaced by a graded fee of ₹75,000 to ₹1,50,000 based on delay.
33. Transfer Pricing Reports (Section 447): Converted to a graded fee of ₹50,000 to ₹1,00,000.
34. IV. Attracting Global Business and Investment
35. The Bill introduces targeted tax exemptions to position India as a global hub for AI, data services, and high-tech manufacturing.
36. Data Centers and AI
37. Foreign Company Exemption: Foreign companies are exempt from tax on income arising from procuring data centre services from specified Indian data centre's until March 31, 2047.
38. Reseller Requirement: To qualify, services provided to Indian users by the foreign company must be routed through an Indian reseller.
39. High-Tech Manufacturing and Minerals
40. Electronic Goods: Foreign companies providing capital equipment or tooling to Indian contract manufacturers in custom bonded areas are exempt from tax on that income until Tax Year 2030-31.
41. Critical Minerals: The list of minerals eligible for prospecting expenditure deductions (Section 51) is expanded to include critical minerals to incentivize exploration.
42. International Financial Services Centre (IFSC)
43. Enhanced Tax Holiday: The 100% deduction period for IFSC units is doubled from 10 years to 20 years (out of a 25-year window).
44. Post-Exemption Rate: After the holiday expires, business income from IFSC units will be taxed at a concessional rate of 15%.
45. V. Corporate Tax and Financial Markets
46. Rationalisation of MAT (Section 206)
47. Rate Reduction: The MAT rate for companies is reduced from 15% to 14%.
48. Credit Transition: MAT is proposed as a final tax in the old regime. However, existing MAT credits can be set off in the new tax regime (capped at 25% of tax liability for domestic companies).
49. Share Buybacks
50. Capital Gains Treatment: Consideration received from share buybacks will now be taxed as Capital Gains rather than Dividend Income.
51. Promoter Tax: To address corporate decision-making influence, promoters will face an effective tax liability of 30% on buyback gains.
52. Securities Transaction Tax (STT) Increases
53. To curb excessive speculation in the derivatives market, STT rates are revised upward:
54. Sale of Option: Increased from 0.1% to 0.15% of premium.
55. Sale of Future: Increased from 0.02% to 0.05% of traded price.
56. Tax Collected at Source (TCS) changes:
57. Overseas tour packages:
58. TCS on sale of overseas tour programme packages has been reduced to a flat 2%, replacing the earlier two-tier structure of 5% (for low value) and 20% (for higher value).
59. Remittances under the Liberalis ed Remittance Scheme (LRS):
60. TCS on outward remittances for education and medical purposes has been cut from 5% to 2%, which should ease cash-flow pressure on families sending money abroad for studies or medical treatment.
61. Rationalisation of TCS framework
62. The Budget rationalises TCS provisions in the new Income-tax Act, 2025 (effective from 1 April 2026), aiming to simplify compliance by reducing multiplicity of rates and locking up of funds across different categories of transactions.
63. VI. Indirect Tax Amendments
64. Customs Act and Tariff
65. Jurisdictional Expansion: The Customs Act is extended beyond territorial waters to regulate fishing activities by Indian-flagged vessels.
66. Umbrella Protection: Basic Customs Duty (BCD) on umbrellas is increased to 20% or ₹60 per piece to support the MSME sector.
67. Critical Minerals Exemption: 25 groups of critical minerals are exempted from BCD.
68. Personal Imports: BCD on dutiable goods imported for personal use (Heading 9804) is reduced from 20% to 10%, though the Social Welfare Surcharge (SWS) will now apply.
69. Excise Duty
70. Tobacco NCCD: The National Calamity Contingent Duty (NCCD) on chewing tobacco and jarda is revised from 25% to 60% (though effective rates may be maintained at 25% via notification).
71. Green Energy: Biogas/Compressed Biogas (CBG) contained in blended CNG is excluded from the transaction value for excise duty computation to promote renewable fuels.
72. GST Amendments
Post-Sale Discounts: Requirement to link post-sale discounts to a specific agreement is removed.
73. Refunds: Provisional refund provisions are extended to cases of "inverted duty structure," and the threshold for refund claims on exported goods is removed.
74. Intermediary Services: Omission of Section 13(8)(b) of the IGST Act to align the "place of supply" for intermediary services with default provisions.
75. VII. Special Schemes and Clarifications
76. FAST-DS 2026
77. The Foreign Assets of Small Taxpayers - Disclosure Scheme, 2026 provides a time-bound window for residents to declare undisclosed foreign-sourced income or assets (like ESOPs, RSUs, or old bank accounts from overseas deputations). Declarant benefits include immunity from penalty and prosecution under the Black Money Act, provided the assets do not involve proceeds of crime.
78. Judicial Clarifications
79. The Bill introduces retrospective clarifications to settle ongoing litigation:
80. Section 148 Notices: Clarifies that the Assessing Officer (not NaFAC) has the jurisdiction to issue reassessment notices.
81. DIN Validity: Assessments will not be invalidated due to minor technical errors in computer-generated Document Identification Numbers (DIN), provided the DIN is referenced in the order.
82. TPO 60-Day Rule: Clarifies that the 60-day limit for Transfer Pricing Officer orders includes the date of limitation.
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With best regards
CA (Dr) Raj Chawla
B.Com (Hons), FCA, FCS, FCMA, LLB
MIMA, DISA, MICA, Phd, ASA (Aust), CMP (USA)
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