Income Tax Department Releases FAQs on Direct Tax Proposals in Budget 2026 [Read FAQs]

Following the presentation of the Union Budget 2026, the Income Tax Department has released a set of Frequently Asked Questions (FAQs) to clarify the intent, scope, and implementation of the direct tax proposals introduced through the Finance Bill, 2026. Below is a summary of the most important FAQs

1. New Tax Regime and Individual Taxation

Q1. What is the default tax regime after Budget 2026?

The FAQs clarify that the new tax regime continues as the default regime for individuals, Hindu Undivided Families (HUFs), Associations of Persons (AOPs), and Bodies of Individuals (BOIs). Taxpayers retain the option to opt out and choose the old tax regime, subject to conditions prescribed under the Income-tax Act

Q2. Is any action required if a taxpayer wants to continue under the new tax regime?

No separate declaration is required. If a taxpayer does not exercise the option to opt out, the new tax regime applies automatically while filing the return of income.

Q3. Can a taxpayer switch between tax regimes?

The FAQs clarify that:

• Salaried taxpayers can choose between regimes each year.
• Taxpayers having income from business or profession can switch only once, subject to statutory conditions.

2. Deductions, Exemptions, and Reliefs

Q4. Are deductions and exemptions available under the new tax regime?

The FAQs reiterate that most deductions and exemptions are not available under the new tax regime, except those specifically allowed under the Act. Taxpayers must evaluate both regimes before making a choice.

Q5. Does the standard deduction continue under Budget 2026?

The Income Tax Department has clarified that the standard deduction available to salaried taxpayers continues under the new regime, subject to the conditions prescribed in the Finance Bill, 2026

3. Capital Gains and Investments

Q6. Have there been any changes to capital gains taxation?

The FAQs explain that the Budget 2026 proposals aim to simplify capital gains provisions and remove interpretational disputes. The existing framework of short-term and long-term capital gains continues, with clarifications issued to ensure consistency in application.

Q7. Do the changes affect small investors?

The Department has clarified that the proposals are designed to improve clarity and compliance and do not impose any additional burden on small or retail investors acting within the existing framework.

4. Compliance, Returns, and Timelines

Q8. Are there any changes in return filing obligations?

The FAQs confirm that return filing requirements remain aligned with existing provisions. However, taxpayers must ensure:

• Correct reporting of income
• Proper selection of tax regime
• Accurate disclosure of exempt and taxable income

Non-compliance continues to attract consequences under the Income-tax Act.

Q9. Are timelines for filing returns or payment of tax changed?

The FAQs state that statutory due dates remain unchanged, unless separately notified. Taxpayers must continue to follow existing timelines for advance tax, self-assessment tax, and return filing.

5. TDS, TCS, and Reporting Obligations

Q10. Do the Budget 2026 proposals impact TDS or TCS provisions?

The FAQs clarify that amendments introduced under Budget 2026 aim to improve reporting accuracy and reduce duplication, without increasing compliance burden for deductors or collectors acting in good faith.

Q11. What happens in case of reporting errors?

The Income Tax Department has clarified that genuine errors corrected within prescribed timelines will not attract harsh consequences. Repeated or deliberate non-compliance remains subject to action under the Act.

6. Litigation, Penalties, and Compliance Approach

Q12. Has the government’s approach towards penalties changed?

The FAQs reiterate that the tax administration continues to follow a trust-based compliance approach. Penalty provisions apply only in cases of:

• Wilful misreporting
• Suppression of income
• False claims

Voluntary compliance and correct disclosures reduce litigation exposure

Q13. Do the FAQs have legal binding force?

The Department clarifies that FAQs are issued to explain legislative intent and administrative practice. They do not override the Income-tax Act or rules, but guide consistent implementation.

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