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The Union Budget 2026–27 proposes wide-ranging amendments across the Income-tax framework to extend compliance timelines, expand correction windows, and recalibrate penalties and interest. Key changes include extending due dates for non-audit business taxpayers and partners to 31 August, allowing revised returns up to 12 months with graded late fees, and permitting updated returns—including loss reductions—even after assessment initiation, subject to additional tax. Interest relief is proposed on penalty-related demands until appellate disposal, alongside immunity from penalty where specified additional tax is paid. Jurisdictional clarity is provided by assigning reassessment notices to jurisdictional officers retrospectively. Exemptions and process simplifications include tax-free interest on motor accident compensation with no TDS, electronic lower/nil deduction certificates for small taxpayers, depository-based declarations for dividend non-deduction, and capital gains exemption on Sovereign Gold Bond redemption at maturity. The proposals also adjust TCS rates, enable SEZ presumptive options, restrict interest deductions against dividend and mutual fund income, and introduce structured fee regimes for audit and transfer pricing defaults, aiming for certainty, faster resolution, and targeted compliance.
Union Budget 2026 -27 – Important changes proposed in the Finance Bill 2026
A. Income Tax Act, 1961
1. Sec 139(1) Explanation 2: Due date for Assessee having business income not subject to audit under this Act or any other law and partners of those firms not subject to audit is extended from 31st July to 31st August – effective from 1st Mar 2026;
2. Sec 139(5) – Revised returns can now be filed till the end of 12 months from the end of the financial year subject to payment of late fees (Rs.1000 if total income does not exceed Rs. 5 lakhs or Rs. 5000 for others) u/s 234 I – effective from 1st Mar 2026;
3. Sec 139 (8A) – Filing of Updated Loss Return is allowed provided it has the effect of reducing the loss originally furnished – effective from 1st Mar 2026;
4. Sec 139(8A) – Updated return can now be filed even if asst proceedings have been initiated – if notice u/s 148 is issued, updated return can be filed. with additional tax of 10 % (in addition to 25/50/60/70%);
5. Sec 140B (3A)– Addl tax of 10 % (in addition to 25/50/60/70%) in case of filing after issue of Notice u/s 148.
6. Sec 147A – JAO shall issue Notice u/s 148 / 148A – and not NFAC – effective retrospectively from 1st Apr 2021;
7. Sec 220(2) – Fourth Proviso – No interest on the amount of demand levied u/s 270A – up to date of Order u/s 250 or 254 (in case of Order by DRP u/s 144C);
8. Sec 234 I – Payment of Late fee of Rs.1000/Rs. 5000 for filing revised return after end of 9 months but before 12 months;
9. Sec 270A (11A) – Where additional tax is paid as per Sec 140B(3A), no penalty on such income;
10. Sec 270AA – In case of penalty leviable/levied due to misreporting of income, additional income tax of 100 % is paid in time, no penalty – waiver will apply subject to other conditions.
B. Income Tax Act, 2025
11. Interest on compensation under Motor Vehicle Act – Exempt to individual or his legal heir – No TDS also – effective from 1st Apr 2026; – Sch III – S. No. 38B
12. Small Tax Payers to get Lower Tax or Nil Deduction Certificate electronically on fulfilment of conditions to be specified – effective from 1st April 2026;
13. For non-deduction of tax on dividends from listed units and securities, the Declaration can be now filed with Depositories, (not individually with the entities) who in turn will furnish to the respective entities; The Depositories shall deliver the same to the IT on quarterly basis;
14. Compulsory acquisition of land under RFCTLAR – exempt from 1st April 2026; Sec 11 read with Sch III – to resolve any ambiguity and align the provisions of the Act with RFCTLAR Act;
15. FAST-DS 2026 – Small tax payers with Rs. 1 of UDFA/FI /Rs.5 Cr of UDFA/FI earned out of explained source with 30 % tax on Assets & Income plus another equivalent 30 % tax (100 % tax) or Fee of Rs. 1 lakh for non-disclosure;
16. Sec 29(1)(e) – Employee Contribution – even if paid before due date u/s 263(1) for filing returns can be claimed;
17. Sec 58(11)(a) – Even newly established units SEZ can opt for presumptive taxation;
18. Sec 70(1)(x) – Capital Gain is exempt on redemption of Sovereign Gold Bond (SGB Sch 2015 or any subsequent Schemes) if held from the date of original issue till maturity by an Individual;
19. Sec 93(1)(a) – No deduction of Interest expenses against Dividend Income or Income from units of Mutual Funds;
20. Sec 150 – In case of Federal Co-op Society having income from dividends on investments as recorded in its books on or before 31/01/2026 and distributed the same at least one month prior to due date for filing of income, deduction for the same is allowed till the Tax Year 2028-29.
21. Sec 195 – Rate of tax is reduced from 60 % to 30 % on income referred in Sec 102 to 106 (similar to the income referred in Sec 68, 69, 69A, 69B,69C & 69D with tax rate u/s 115BBE);
22. Sec 263(1) (c) – Due date for Assessee having business/professional income not required to be audited under this Act or any other law and partners of those firms not subject to audit is extended from 31st July to 31st August;
23. Sec 263(5) – Revised returns can now be filed till the end of 12 months from the end of the tax year subject to payment of late fees (Rs.1000 or Rs. 5000) u/s 428(b);
24. Sec 263 (6)(b)(i) – Filing of Updated Loss Return is allowed provided it has the effect of reducing the loss originally furnished;
25. Sec 263 (6)(b)(ii) – Updated return can now be filed even if asst proceedings have been initiated – if notice u/s 280 is issued, updated return can still be filed with additional tax of 10 % (in addition to 25/50/60/70%) u/s 267. No penalty on the income disclosed in updated return;
26. Sec 270 – For Units in SEZ, return will be processed without any disallowance for tax holiday;
27. Sec 279 – Assessing Officer (AO) means AO (JAO) other than NFAC / any asst unit Faceless Asst. Unit (FAO) for the purpose of Issue of Notice u/s 280 and 281;
28. Sec 393(4) – TDS provision is removed consequent to the exemption of interest on the compensation amount awarded under MACT in the case of Individual;
29. Sec 393(6) – The declaration for non-deduction of tax may be furnished electronically to the Depository in case of listed securities and units;
30. Sec 394 – Changes in rates of TCS
| Nature of Receipts | Existing Rate | Proposed Rate |
| Sale of alcoholic liquor for human consumption | 1% | 2% |
| Sale of tendu leaves | 5 % | 2% |
| Sale of scrap | 1% | 2% |
| Sale of minerals – coal, lignite, and iron ore | 1 % | 2% |
| Remittances under LRS exceeding Rs 10 lakhs | 5 % for education/medical and 20 % for others | 2 % for education/medical and 20 % for others |
| Sale of overseas tour program | 5 % up to Rs. 10 lakhs and 20 % thereafter | 2 % for any amount |
31. Sec 395 – Application for lower deduction or no deduction can be filed electronically before prescribed authority, who, on electronic verification of contents and conditions, may issue or reject;
32. Sec 402 – The word ‘work’ shall include supply of manpower – prompting to deduct tax at 1 % or 2 %;
33. Sec 411 – No Interest on unpaid amount of demand raised on account of penalty till the date of Appeal Order by CIT(A) or ITAT (DRP cases);
34. Sec 428 (b) – Late Fee of Rs. 1000 if total income does not exceed Rs 5 lakhs /Rs 5000 for other cases for delay in filing revised return after end of 9 months from the end of the Tax Year (TY);
35. Sec 428 (c) – For failure to get Tax Audit Report, Fee of Rs. 75,000/- for up to one month and Rs. 1.5 lakhs thereafter;
36. Sec 428(d) – For failure to get Transfer Pricing Audit Report, Fee of Rs. 50,000/-for up to one month and Rs. 1 lakh thereafter;
37. Sec 439(f) – Mis-reporting includes income referred in Sec 102 to 106 as determined by the AO;
38. Sec 440 – Waiver of Penalty and Immunity from prosecution – 100 % of additional tax if mis-reporting of income other than income referred in 195(1)(b) – 120 % if mis-reporting of income is income referred in section 195(1)(b);
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