Budget 2026-27: Major Direct Tax Proposals with new Income Tax Act, 2025
The central announcement is that the Income Tax Act, 2025 will come into force from 1 April 2026, replacing the legacy of 1961 act with a simplified and reorganised tax code.
The Union Budget 2026-27, presented in Parliament by Finance and Corporate Affairs Minister Nirmala Sitharaman today. Along with the new income tax act, 2025, the minister also proposed major reforms to the direct taxes. The central announcement is that the Income Tax Act, 2025 will come into force from 1 April 2026, replacing the legacy of 1961 act with a simplified and reorganised...
The Union Budget 2026-27, presented in Parliament by Finance and Corporate Affairs Minister Nirmala Sitharaman today. Along with the new income tax act, 2025, the minister also proposed major reforms to the direct taxes.
The central announcement is that the Income Tax Act, 2025 will come into force from 1 April 2026, replacing the legacy of 1961 act with a simplified and reorganised tax code.
The Minister said that redesigned Rules and Forms will be notified shortly, giving taxpayers and professionals sufficient transition time.
The new forms are structured for easier comprehension and compliance by ordinary citizens, clarified FM.
With regards to administration, the Budget proposed the constitution of a joint committee of the Ministry of Corporate Affairs and the Central Board of Direct Taxes (CBDT) to integrate the requirements of Income Computation and Disclosure Standards (ICDS) into Indian Accounting Standards (Ind AS).
🏛️ Union Budget 2026–27 decoded with laws and notifications | Click Here
With this convergence, the need for separate ICDS-based tax accounting is proposed to be eliminated from tax year 2027-28, reducing dual-reporting complexity for businesses.
Other reforms proposed:
- Budget 2026-27 proposes to tax share buybacks as capital gains in the hands of all shareholders to curb misuse of the buyback route. Promoters will also face an additional buyback tax, resulting in an effective tax of about 22% for corporate promoters and 30% for non-corporate promoters.
- TCS on specified goods, alcoholic liquor, scrap, and minerals is proposed to be rationalised at 2%, while TCS on tendu leaves will be reduced from 5% to 2%. Under LRS remittances above ₹10 lakh, TCS will be 2% for education/medical purposes and 20% for other purposes.
- STT on futures is proposed to be increased from 0.02% to 0.05%. STT on options premium and options exercise will be raised to 0.15%, up from the current 0.1% and 0.125% respectively.
- Companies opting for the new corporate tax regime will be allowed to set off brought-forward MAT credit to encourage migration. Such set-off will be permitted up to 25% of the tax liability in the new regime.
- From 1 April 2026, MAT is proposed to become a final tax with no further credit accumulation, and the MAT rate will be reduced from 15% to 14%. MAT credit accumulated up to 31 March 2026 will continue to be available for set-off under the prescribed limits.
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