Budget 2026: Key Updates & Strategic Insights

Overview

The Union Budget for FY 2026-27, presented by the Hon’ble Finance Minister, Ms. Nirmala Sitharaman, in Parliament on 1 February 2026, was positioned as a continuation of the Government’s emphasis on economic stability, fiscal discipline, and long-term growth. Anchored around three guiding ‘Kartavya’ pillars, the Budget signals a clear intent to build a competitive, investment-friendly, and future-ready economy.

The Budget proposes wide-ranging reforms across taxation and policy frameworks, with a strong focus on simplification, rationalisation, certainty, and ease of doing business. The direct tax proposals seek to address long-standing structural issues, encourage investment, and facilitate a smoother transition to the evolving tax regime.

Set out below are the key direct tax proposals and announcements under Union Budget 2026. All references to sections herein are with respect to the provisions of the Income-tax Act, 2025 (“the Act”), unless otherwise stated.

Key Direct Tax Proposals

A. Taxpayer Reliefs

1. Buy back of shares (Effective from 1 April 2026)

• Under the existing provisions of the Act, the consideration received by a shareholder on buy- back of shares was treated as dividend income under Section 2(40)(f) of the Act and taxed accordingly. The cost of acquisition of shares extinguished on buy-back was not allowed as a deduction against such income and was recognised separately as a capital loss under Section 69.
• It has been proposed to tax buy-back consideration as capital gains instead of dividend income, allowing taxation only on net gains after deducting cost of acquisition.
• Further, in case the shareholder is a promoter, an additional income-tax is proposed to be levied over and above normal capital gains tax, resulting in an effective tax liability of 22% for promoter domestic companies and 30% for other than promoter domestic companies.
• For listed companies, the term “promoter” shall have the meaning assigned under Regulation 2(k) of the SEBI (Buy-Back of Securities) Regulations, 2018, while for unlisted companies, it shall mean a promoter as defined under Section 2(69) of the Companies Act, 2013, or any person holding more than 10% shareholding, directly or indirectly.

2. Rationalisation of Minimum Alternate Tax (“MAT”) (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to rationalise the MAT regime by reducing the MAT rate to 14% (currently 15%) of book profits and to treat the MAT under the old tax regime as final tax with no fresh MAT credit.
• It further proposes to allow a set-off of existing MAT credit as on 31 March 2026 only under the new tax regime, to the extent of 25% of the tax liability for domestic companies. The balance credit would be allowed to be carried forward and set off up to 15th year immediately succeeding the tax year in which the tax credit first became allowable.
• In the case of foreign companies, set off is proposed to be allowed to the extent of the difference between the tax on the total income and the minimum alternate tax, for the tax year in which normal tax is more than MAT.

3. Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026 (Effective date yet to be notified)

• The Finance Bill, 2026 proposes the introduction of the Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026 (“FAST-DS 2026”), a one-time, time-bound compliance mechanism to disclose undisclosed foreign income or assets and obtain immunity from further tax, penalty, and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
• The Scheme is intended to cover cases involving legacy or inadvertent non-disclosures for taxpayers, including holdings arising from foreign employment benefits such as ESOPs or RSUs, dormant or low-value foreign bank accounts of former students, savings or insurance policies of returning non-residents, and assets held by individuals on overseas deputation.
• The Scheme is applicable to:
  • resident taxpayers; and
  • certain non-residents/ not ordinarily residents (who were residents when the foreign income accrued or the asset was acquired).
• The Scheme covers undisclosed foreign income and undisclosed foreign assets up to 31 March 2026, where such income or assets were not disclosed in the return of income, were not assessed, or had otherwise escaped assessment under the Black Money Act.
• Amount declared by the declarant under the Scheme:

• On valid declaration and payment, the disclosed income or asset shall not be taxed again, and taxpayers shall receive immunity from further tax, penalty, and prosecution.

4. Amendment in the provision relating to merger of non-profit organisations (“NPOs”) (Effective from 1 April 2026)

• Existing provisions of Section 352(4) of The Act inter alia provides that the specified person shall be liable to pay the tax on accreted income where it has merged with any other entity other than a registered non-profit organisation having the same or similar objects.
• The Finance Bill, 2026 proposes to insert a new Section 354A to provide that where a registered NPO merges with another registered NPO, the provisions of Section 352 (tax on accreted income) shall not apply, provided:
  • the other registered NPO has same or similar objects; and
  • the merger fulfils such prescribed conditions.
• Further, corresponding amendments are also proposed in Section 352(4) to specifically provide that accreted income tax shall apply where the merger is with:
  a. any entity other than a registered NPO;
  b. a registered NPO having same/similar objects, but the merger does not fulfil the prescribed conditions; or
  c. a registered NPO which does not have same/similar objects.
• Accreted income means the amount by which the aggregate fair market value of the total assets of the specified person, as on the specified date, exceeds the total liability of such specified person, computed in accordance with the method of valuation, as may be prescribed.

5. Reliefs to Cooperative Societies (Effective from 1 April 2026)

Deductions in respect of dividends received and distributed by certain cooperative societies

• Deduction under Section 149(2)(d) of the Act, previously available only in the old tax regime for dividends/interest from other cooperative societies, will now be allowed in the new tax regime as well, to the extent such dividends are distributed to its members.
• Further, notified federal cooperatives will also get a deduction for dividends received from companies for 3 years (up to FY 2028-29) under both the old and new tax regimes, limited to investments made till 31 January 2026 which are further distributed to its members.

Extended deductions for Primary Cooperative Societies

• Under the existing provisions of the Act, primary co-operative societies are eligible for specific deductions in respect of income arising from activities such as supplying milk, oilseeds, fruits, or vegetables raised or grown by its members to a federal co-operative society, engaged in the same business or to the Government or a local authority; or to a Government company or a corporation engaged in the same business.
• The Finance Bill, 2026 proposes to extend this deduction to include cattle feed and cotton seeds within its ambit.

Addition in the definition of Cooperative Society

• Co-operative societies registered under the Multi-State Cooperative Societies Act, 2002 will now be included in the definition of “co-operative society” under the Act.

B. Transfer Pricing Proposals

1. Safe Harbour Rules¹

• In the context of safe harbour provisions, the software development services, information technology enabled services, knowledge process outsourcing services and contract research and development related to software development services would be consolidated under a single category of “Information Technology Services” and subject to a common safe harbour margin of 15.5% on cost.
• The maximum threshold for availing safe harbour provisions increased from INR 300 crores to INR 2000 crores, with an option to apply it for a continuous period of five years, through an automated, rule based approval process.
• A safe harbour margin of 15% on cost would be introduced for resident companies providing data centre services to a foreign related entity, which in turn provides cloud services to customers outside India.

2. Advance Pricing Agreements (“APA”) (Effective from 1 April 2026)

• The existing provisions of Section 168(1) allow filing of a modified return of income only by the person who has entered into advance pricing agreement (APA) with the Board.
• The provisions do not allow for modifying the return of income or filing of return of income by the associated enterprise whose income and tax liability is correspondingly modified consequent to the APA.
• In order to rationalise the aforesaid provision, it is proposed to provide that where an income is modified as a result of advance pricing agreement entered into with any person then such person shall or any other person being an associated enterprise may furnish a return or a modified return, as the case may be, in accordance with and limited to the agreement.
• Such return or modified return shall be filed within a period of three months from the end of the month in which the said agreement was entered into:
  • in respect of tax years covered by such agreement
  • where such agreement is entered on or after 1st April, 2026, in respect of tax year beginning from 1st April, 2026 and subsequent tax years.

C. Global Business and Investment Incentives

1. Cloud based services exemption to foreign company (Effective from 1 April 2026)

• The Finance Bill, 2026 introduces a significant tax exemption for data centre services (i.e. cloud based services) as part of a broader strategy to establish India as a global technological hub and attract large-scale international investment. This measure is specifically designed to promote an Artificial Intelligence (AI) data centre framework within the country.
• The Finance Bill, 2026 proposes that a foreign company will be exempt from tax on any income accruing or arising in India from procuring data centre services from a specified data centre.
  • Specified Data Centres: To qualify, the data centre must be set up under an approved scheme, notified by the Ministry of Electronics and Information Technology, and be owned and operated by an Indian company.
  • Restrictions on Foreign Entities: The exempt foreign company must not own or operate any of the physical infrastructure or resources of the specified data centre.
  • Reseller Requirement: For any services provided to users located within India, the foreign company must route all sales through an Indian reseller entity.
  • Long-term Horizon: This exemption is intended to provide long-term fiscal certainty, remaining available until the tax year ending on 31st March 2047.

Definitions and Infrastructure Scope

The Finance Bill, 2026 provides a detailed definition of the infrastructure covered by this exemption to ensure it encompasses modern technological needs:

• Data Centre Services: These include services provided via physical infrastructure, such as land, buildings, mechanical/electrical power equipment, cooling systems, and security.
• IT Infrastructure: The scope specifically includes servers, storage systems, networking equipment, security solutions, and associated software platforms, as well as the human resources provided in India.
• Data Centre definition: A dedicated secure space or centralised location where computing and networking equipment is concentrated for storing, processing, or distributing large amount of data.

2. Electronics Manufacturing (Effective from 1 April 2026)

Exemption to a foreign company supplying capital equipment

• The Finance Bill, 2026, has proposed tax exemption to promote manufacturing of electronic goods by a contract manufacturer and provide certainty on taxation of supply of capital equipment by a foreign company to such manufacturer.
• It is proposed to provide exemption to a foreign company for a period upto the tax year 2030-2031, on any income arising on account of providing capital goods, equipment or tooling to a contract manufacturer.
• Such a contract manufacturer shall be a company resident in India, who is located in a custom bonded area and produces electronic goods on behalf of such foreign company for a consideration.

Exclusion of specified business of Non-residents which are under presumptive taxation from the applicability of Minimum Alternate Tax

• To ensure uniform tax treatment among all the different specified businesses of non-residents opting for presumptive taxation, the Finance Bill, 2026 proposes to exclude two other specified businesses (business of operation of cruise ships and the business of providing services or technology for the setting up an electronics manufacturing facility in India to a resident company) from the applicability of MAT.

3. Allowing expenditure on prospecting of critical minerals as deduction (Effective from 1 April 2026)

• Section 51 of the Act provides for tax deductibility of expenses incurred by an Indian company or resident taxpayers (other than companies) engaged in any operations relating to prospecting or extraction or production of the certain minerals specified under the Act.
• This Section allows deduction, on deferred basis (over a span of 10 years from the year of commercial production of any specified mineral), in respect of expenses incurred wholly and exclusively on operations relating to prospecting or on the development of mine or other natural deposit of specified minerals incurred at any time during the year of commercial production and any one or more of the four years immediately preceding the year of commercial production.
• In order to incentivise the prospecting and exploration of the critical minerals, it is proposed to expand the list of eligible minerals under the Act, thereby making expenditure on prospecting and exploring of such critical minerals also eligible for deduction as per the provision of Section 51 of the Act.

4. Exemption to non-residents for rendering services under a notified Scheme in India (Effective from 1 April 2026)

• The existing provisions of Section 11 read with Schedule IV of the Act specifies the eligible income, which shall not be included in the total income of the eligible non-residents, foreign companies and other such persons.
• In order to provide tax certainty to a non-resident individual visiting India for rendering certain services in connection with any notified Scheme of the Central Government, it is proposed to amend the said Schedule.
• The Finance Bill, 2026 proposes to provide exemption to a non-resident individual for a period of five consecutive tax years immediately preceding the tax year during which he visits India for the first time for rendering specified services, on any income which accrues or arises outside India, and is not deemed to accrue or arise in India, for five consecutive tax years commencing from the first tax year during which he visits India.

5. Extension of Tax Deduction and Rationalization of Tax Rate for IFSC Units (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to extend the 100% deduction period for units in IFSC to 20 consecutive years out of 25 years (from 10 consecutive years out of 15 years previously), and for Offshore Banking Units to 20 consecutive years (from 10 consecutive years previously).
• It also proposes that the business income of these units from IFSC after the expiry of period of deduction will be taxed at rate of 15%.

D. Rationalisation of Tax, TDS and TCS provisions

1. No change in income tax slabs and rates applicable to individuals. No change in applicable tax rates for companies.

2. Clarification on TDS applicability on supply of manpower (Effective from 1 April 2026)

• To resolve ambiguity regarding the applicability of TDS provisions on payments towards supply of manpower, the Finance Bill, 2026 proposes to include supply of manpower within the definition of “work” under Section 402(47) of the Act, thereby bringing such payments within the ambit of “payment to contractors” for TDS purposes.
• Consequently, TDS on payments for supply of manpower will be 1% (where payee is an individual or HUF) and 2% in other cases.

3. Rationalisation of TCS rates (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to rationalize the rates of TCS, as set out in the table below.

E. Compliance Reliefs

1. Extension of due date for filing income tax returns in non-audit cases (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to extend the due date for filing returns from 31 July to 31 August for assessees having income from profits and gains of business or profession whose accounts are not required to be audited, as well as partners of such firms (and their spouses, where Section 10 applies).
• Due dates for all other taxpayers, including individuals filing ITR-1 and ITR-2, remain unchanged.

2. Extension of time limit for filing revised return (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to extend the time limit for filing a revised return from 9 months to 12 months from the end of the relevant tax year, enabling taxpayers, especially those filing belated returns at the end of the timeline, to revise their returns.
• Further, a fee is also proposed for revised returns which are filed beyond nine months from the end of relevant tax year.

3. Expansion of scope for filing updated return (Effective from 1 April 2026)

Filing of updated return in the case of reduction of losses:

• The Finance Bill, 2026 proposes to relax the restriction under Section 263(6) of the Act and permit filing of an updated return even where the return continues to reflect a loss, provided the loss is reduced compared to the loss reported in the original return filed within the due date.
• This amendment expands the scope of updated returns beyond conversion of a loss return into income, allowing taxpayers to correct and reduce overstated losses.

Filing of updated return after issuance of notice of reassessment:

• The Finance Bill, 2026 proposes to allow filing of an updated return in response to a reassessment notice issued under Section 280 of the Act, within the time specified therein.
• In such cases, the additional income-tax payable shall be increased by a further sum of 10 % of the aggregate of tax and interest payable on account of furnishing the updated return.
• Further, where additional income-tax is paid as per proposed additional income-tax, the income on which such additional income-tax is paid shall not form the basis of imposition of penalty under Section 439 of the Act.

4. Electronic filing and issuance of Certificates for Lower or Nil TDS/TCS (Effective from 1 April 2026)

• To ease compliance for taxpayers, an electronic mechanism is proposed for filing applications for certificates for lower or nil deduction of income-tax before the prescribed Income-tax authority, replacing the existing manual process before the Assessing Officer.
• The prescribed authority may issue or reject the certificate electronically, subject to fulfilment of prescribed conditions and completeness of the application.

5. TAN requirement relaxed for purchase of property from Non-Residents (Effective from 1 October 2026)

• To reduce compliance burden, resident individuals and HUFs purchasing immovable property from a non-resident seller will not be required to obtain TAN for TDS deduction.

6. Single point filing of Nil TDS declarations via depositories (Effective from 1 April 2027)

• Investors holding listed securities or units in a depository and earning dividend, interest, or mutual fund income will be allowed to file a single declaration for non-deduction of TDS with the depository, which will forward it to the respective payers, thereby eliminating the need for multiple filings.
• The timeline for furnishing declarations to the Income-tax authority is proposed to be relaxed from monthly to quarterly for the payers.

F. Rationalising Penalty and Prosecution

1. Relaxation of conditions for prosecution under the Black Money Act (Effective retrospectively from 1 October 2024)

• In order to provide relief in cases of minor and inadvertent non-disclosures and to align the prosecution provisions with the penalty framework under The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (“the Black Money Act”), the Finance Bill, 2026 proposes to amend Sections 49 and 50 of the Black Money Act to provide that these provisions shall not apply in respect of foreign assets, other than immovable property, where the aggregate value does not exceed twenty lakh rupees.

2. Prosecution Framework Rationalized (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to amend Section 473 to 485 and 494 of the Act in light of continued exercise of decriminalisation and to make the punishment for the offences mentioned in these sections proportionate to the crimes.
• The principles that are followed in the proposed decriminalization exercise are as follows:
  • The nature of punishment is changed from rigorous imprisonment to simple imprisonment wherever prescribed in the sections mentioned above.
  • Maximum punishment is proposed to be limited to 2 years from its current 7 year and for the subsequent offences, it is reduced to 3 years from its current 7 years.
  • Wherever punishment of offences is prescribed based on certain grading of amount of tax evaded, new grading of offences and its corresponding punishment is prescribed.
  • For amount of tax evaded does not exceeds ten lakh rupees, punishment of only fine is prescribed.
  • Imposition of fine is introduced in lieu of or in addition of imprisonment.
  • Certain offences are fully decriminalized.

3. Rationalisation of Penalties into Fee (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to convert the following penalties into fee:
  • Penalty for failure to get accounts audited;
  • Penalty for failure to furnish transfer pricing audit report; and
  • Penalty for failure to furnish statement of financial transaction or reportable account.

4. Integration of assessment and penalty proceedings

• Under the existing provisions, taxpayer remains in uncertainty regarding the status of imposition of penalty as the appellate proceedings may stretch to multiple years.
• In this context, the Finance Bill, 2026 proposes to a common order for both assessment and penalty for under-reporting and misreporting of income, which will ensure avoiding multiplicity of proceedings which in turn would reduce the compliance of the taxpayers apart from providing consistency in levying of penalty.
• The proposed amendments shall come into force in the Income-tax Act, 2025 from 1st day of April, 2026 and shall be effective from 1st day of April, 2027, where any draft of the proposed order of assessment under Section 275 is made or assessment under Section 270 or reassessment under Section 279 is made on or after 1st of April, 2027.

5. Increase in maximum amount of penalty in Section 466 of the Act (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to amend Section 466 of the Act (penalty for failure to comply with the provisions of Section 254) so as to enhance the maximum amount of penalty to Rs. 25,000 from existing Rs. 1,000.

6. Rationalisation of tax rate under Section 195 and penalty under Section 443 in respect of certain Income (Effective from 1 April 2026)

• Under the existing provisions, income arising from unexplained credits, unexplained investments, unexplained assets, unexplained expenditure, or amounts borrowed or repaid through negotiable instruments (such as hundis) is taxed at a higher rate of 60%.
• In addition to the higher tax, a separate penalty equal to 10% of the tax payable is currently levied where such unexplained income is assessed.
• The Finance Bill, 2026 notes that the existing tax rate of 60% on such unexplained income is disproportionate and requires rationalisation. Accordingly, it is proposed to reduce the tax rate on such income to 30%.
• It is further proposed to omit the existing penalty provision and, in respect of such income, to subsume the penalty within the provisions applicable to cases of under-reporting of income arising due to misreporting.

7. Expanding the scope of immunity from penalty or prosecution under Section 440 of the Act

Amendment under the Income-tax Act, 2025 (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to expand the scope of immunity from penalty and prosecution to include cases of under-reporting of income arising due to misreporting, subject to payment of additional income-tax in lieu of penalty.
• The additional income-tax payable for availing such immunity would be 100% of the amount of tax payable on such under-reporting of income arising due to misreporting in lieu of the penalty.
• Further, in cases involving unexplained credits, investments, assets, expenditure, etc., where the separate penalty is proposed to be omitted and subsumed under misreporting, immunity would also be available on payment of additional income-tax to the extent of 120% of the amount of tax payable on such income in lieu of penalty.

Amendment under the Income-tax Act, 1961 (Effective from 1 March 2026 for Assessment Year 2026-27 and earlier assessment years)

• Correspondingly, under the Income-tax Act, 1961, the Finance Bill, 2026 proposes to amend the provisions relating to immunity from penalty and prosecution to extend the benefit to cases of under-reporting of income arising due to misreporting, subject to payment of additional income- tax equal to 100% of the tax payable on such income.

G. Other Proposals

1. Increase in tax rates of Securities Transaction Tax (Effective from 1 April 2026)

• In view of the scale and depth achieved by the derivatives market, the Finance Bill, 2026 proposes to undertake a calibrated revision of the applicable rates of STT on options and futures transactions, as summarised below.

2. Non-allowability of Interest as a deduction against Dividend Income (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to amend Section 93(2) of the Act (Deductions against Income from other sources) to provide that no deduction shall be allowed in respect of any interest expenditure incurred for earning dividend income or income from units of mutual funds.

3. Exemption for Sovereign Gold Bonds (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to clarify the capital gains exemption on redemption of Sovereign Gold Bonds (SGBs) under Section 70(1)(x), by restricting the exemption only to cases where the SGB is subscribed at the time of original issue and held continuously until redemption on maturity.

4. Amendments in Chapter XIII -G for giving effect to extension of Tonnage tax scheme to Inland Vessels (Effective from 1 April 2026)

• Chapter XIII-G of the Act provides for special provisions relating to income of shipping companies. vide Finance Act, 2025, benefit of tonnage tax scheme under the said Chapter was extended to Inland vessels registered under Inland Vessels Act, 2021 to promote the inland water transportation.
• In order to give effect to Tonnage tax scheme extended to inland vessels, the Finance Bill, 2026 has proposed certain modifications in provisions of the said Chapter for aligning them with the Inland Vessels Act, 2021, and rules made thereunder.

5. Rationalising the due date to credit employee contribution by the employer to claim such contribution as deduction (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to amend Section 29(1)(e) to provide that the due date by which the assessee is required as an employer to credit employee contribution to the account of an employee in the relevant fund shall be the due date of filing of return of income under Section 263(1) of the Act.

6. Exemption on interest income under the Motor Vehicles Act, 1988 (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to provide exemption to an individual or his legal heir, on any income in the nature of interest under the Motor Vehicles Act, 1988.

7. Interest on compensation amount awarded by Motor Accidents Claims Tribunal to an individual (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes that no tax shall be deducted at source in respect of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal to an individual.

8. Exemption of income on compulsory acquisition of any land under the RFCTLARR Act (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to provide exemption on any income in respect of any award or agreement made on account of compulsory acquisition of any land, carried out on or after the 1st April, 2026, under the RFCTLARR Act (Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013) (other than the award or agreement made under Section 46 of said Act).

9. Rationalizing the period of block in case of other persons (Effective from 1 April 2026)

• Where undisclosed income is found to belong to a person other than the searched person, the third party is subjected to the same block assessment period as the searched person, even if the undisclosed income relates to only a single tax year.
• To reduce undue compliance burden, the Finance Bill, 2026 proposes to rationalise the block assessment period in cases involving third parties by limiting the block period to the relevant tax year(s) to which the undisclosed income pertains.

10. Referencing the time limit to complete block assessment to the initiation of search or requisition (Effective from 1 April 2026)

• The Finance Bill, 2026 proposes to amend the Section 296 of the Act to take the date of initiation of search as the reference point to decide the date of limitation for block assessment where any search has been initiated or requisition is made in the case of any person and consequently, the period of twelve months is proposed to be to eighteen months to complete such assessment in case of such person.

11. Assessments not to be treated invalid (Effective retrospectively from 1 October 2019 for Income-tax Act, 1961 and 1 April 2026 for Income-tax Act, 2025)

• The Finance Bill, 2026 proposes to clarify in Section 292B that the Assessments are not to be treated invalid on ground of any mistake, defect or omission on account of computer-generated DIN, if such assessment is referenced by computer generated DIN in any manner.

12. Clarifying time-limit for completion of assessment under Section 144C (Effective retrospectively from 1 April 2009 in respect of Section 153 and 1 October 2008 in respect of Section 153B for Income-tax Act, 1961 and 1 April 2026 for Income-tax Act, 2025)

• The Finance Bill, 2026 proposes to clarify the assessment time-limit in DRP cases under Section 144C, providing that the timelines under Sections 153/153B apply up to the draft order stage, and thereafter the finalisation timelines under Section 144C(4)/(13) will prevail, notwithstanding Sections 153/153B of the Act.

13. Clarifying the manner of computation of sixty days for passing the order by the Transfer Pricing Officer (Effective retrospectively from 1 June 2007 for Income-tax Act, 1961 and 1 April 2026 for Income-tax Act, 2025)

• The Finance Bill, 2026 proposes to clarify the computation of the 60-day time limit under Section 92CA(3A) for passing the TPO order, confirming the legislative intent that the date of limitation under Section 153/153B is to be included in the 60-day computation, to prevent assessments being annulled on technical grounds.

14. Penalty provision for non-furnishing of statement or furnishing inaccurate information in a statement on transaction of crypto-assets (Effective from 1 April 2026)

• To ensure compliance with Section 509 (mandatory reporting of crypto-asset transactions), the Finance Bill, 2026 proposes introducing a penalty framework for non-furnishing or inaccurate reporting of such statements, including INR 200 per day for delay and INR 50,000 for furnishing inaccurate particulars and failure to rectify the same.

Kretha Comments

The Union Budget 2026 is presented at a pivotal juncture for the Indian economy, marked by resilient domestic demand, evolving global uncertainties, and a renewed focus on long-term competitiveness. Adopting a calibrated approach, the Budget balances growth with fiscal prudence through targeted measures to boost manufacturing across priority sectors, strengthen MSMEs, and support emerging areas such as artificial intelligence. A consistent theme of continuity with purpose runs through the Budget, with emphasis on policy certainty, simplification, and a trust-based regulatory framework aimed at enhancing ease of doing business.

On the direct tax front, Union Budget 2026 advances the transition towards a new income-tax regime with a strong focus on procedural reforms, including rationalisation of penalties, expansion of immunity provisions, decriminalisation of minor offences, and streamlining of TDS and TCS mechanisms. Measures supporting the IT and digital services sector, rationalised safe harbour provisions and advance pricing agreements, and targeted incentives for data centres and cross-border operations are expected to enhance tax certainty, reduce litigation, and promote voluntary compliance in an increasingly globalised economy.

1. Budget Speech ↩︎