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Union Budget 2026-27 may not be remembered for dramatic tax rate cuts, but it may well go down as a tipping point for individual taxpayers. The Budget adopts a measured approach to personal taxation, prioritising structural improvements over immediate tax relief. Through legislative overhaul, procedural simplification and enforcement rationalisation, the Budget lays the groundwork for a more predictable and citizen-friendly tax framework for individuals.
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A New Income-tax Law from April 2026
The most notable announcement is the new Income-tax Act, 2025, slated to take effect from 1 April 2026. While tax rates remain largely untouched, the new legislation aims to replace the existing law with a cleaner, more accessible framework, supported by redesigned income-tax return forms intended to simplify compliance for ordinary citizens.Also read | 14 personal finance highlights impacting middle-class taxpayers in FY26-27 from Budget 2026
Overseas Remittances: Lower TCS, Lower Friction
Individuals making overseas payments under the Liberalised Remittance Scheme receive meaningful relief. The Tax Collection at Source (TCS) rate on remittances for education and medical purposes has been reduced from 5% to 2%. Similarly, TCS on overseas tour packages has been rationalised to 2%, replacing earlier higher rates that often resulted in taxpayers having to claim a refund in income-tax return.
Automatic Relief for Small Taxpayers
One of the more practical reforms is the introduction of a rule-based mechanism for small taxpayers satisfying certain conditions to receive lower or nil TDS certificate by filing an electronic application with the prescribed income-tax authority. This will eliminate the need to file applications with the assessing officer which was a time consuming process due to verification mechanism followed by the assessing officers. This addresses a long-standing grievance, particularly amongst pensioners and individuals with stable income but with excess TDS deductions. The move reflects a shift towards system-driven relief rather than discretionary approvals of the assessing officer.
More time for tax return, better sequencing, ease of compliance
The Budget introduces staggered return filing deadlines to reduce congestion and compliance stress. Timeline for filing ITR-1 and ITR-2 will continue to be 31 July, while non-audit business/ profession cases will have time until 31 August to file their ITR. Further, taxpayers now will have time until 31 March to file revised returns, instead of the earlier 31 December deadline, subject to a nominal fee of INR 1,000 or 5,000, depending on their total income.
In addition, to ease compliance for investors, depositories will be permitted to centrally accept Form 15G and Form 15H declarations and transmit them to multiple payers, eliminating the need for repetitive submissions across institutions.
Simplifying TDS and Reducing Procedural Burden
In transactions involving the sale of property by a non-resident, resident buyers will now be able to deposit TDS using PAN, eliminating the need to obtain a TAN.
Assessment and penalty proceedings will be merged into a single order, reducing duplication and administrative drag. Importantly, interest will not accrue until the first appellate order, regardless of whether proceedings continue. The mandatory pre-deposit for demand stay has also been reduced from 20% to 10%, easing liquidity pressure during appeals.
Taxpayers will also be allowed to file updated returns even after reassessment proceedings have commenced, subject to payment of an additional 10% over applicable tax and interest, without levy of penalty on the additional income disclosed.
From Punishment to Proportionality
A defining feature of this Budget is its approach to enforcement. Penalties for technical defaults – such as failure to maintain books or file specified reports are proposed to be converted into fees, signalling a move away from punitive consequences for non-fraudulent lapses.
The prosecution framework has also been rationalised. Non-production of books and documents, and TDS defaults where consideration is paid in kind, are proposed to be de-criminalised, attracting only monetary fines. For minor offences, the maximum imprisonment has been capped at two years, with courts empowered to levy fines instead.
Additionally, non-disclosure of non-immovable foreign assets with an aggregate value of up to INR 20 lakh will not attract prosecution, with retrospective effect from 1 October 2024, reducing fear of disproportionate consequences for small omissions.
The Budget also extends the existing immunity framework from penalty and prosecution to certain cases of misreporting of income, subject to payment of higher additional tax, reflecting a settlement-oriented approach to dispute resolution.
Targeted Relief for Students, NRIs and Global Experts
Recognising genuine hardship scenarios, the Budget introduces a one-time six-month window for students and relocated NRIs to regularise foreign income and asset disclosures below specified thresholds. Separate routes have been provided depending on whether income was undisclosed or only assets were omitted, with immunity available on payment of additional tax or a prescribed fee.
In parallel, under notified schemes, non-Indian sourced income of global experts will be exempt from tax in India for five years, aligning the tax policy with India’s ambition to attract high-skill global talent.
The Bigger Shift
Budget 2026-27 reflects a clear philosophical change. The focus is no longer on frequent tinkering with tax rates, but on reducing friction, fear and formality in the system. For individual taxpayers, the message is unmistakable: compliance is being redesigned to be simpler, enforcement more proportionate, and disputes less central to administration.
The success of these reforms will ultimately depend on execution. But as a statement of intent, this Budget represents a meaningful reset in how individuals experience India’s tax system.
(The article is authored by Shalini Jain, Tax Partner, EY India. Vijayalakshmi Pg, Director – Tax, EY India also contributed to the article.)
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