While Finance Minister Nirmala Sitharaman hasn’t introduced any changes to the Income tax slabs in the Budget 2026, significant changes have been proposed in filings and compliance. Filing timings have been staggered, and a sweeping new disclosure window has been announced for foreign assets
Almost at the end of her 85-minute Budget speech, Finance Minister Nirmala Sitharaman brought some cheer to the average income tax payer when she announced changes to how we pay our taxes — unveiling new timelines, lower TCS rates, tax free compensation rules and a sweeping new disclosure window for foreign assets.
While she didn’t introduce any
changes to the Income Tax slabs, Finance Minister Nirmala Sitharaman announced that this year’s Budget focuses on simplicity, clarity, and reduced litigation.
Here are the big announcements when it came to
income tax.
New Income Tax Act from April 2026
First and foremost, the finance minister announced that the Income Tax Act, 2025 will officially replace the 1961 law, starting April 1, 2026, modernising India’s tax system for the next generation of taxpayers. The key objective of this new act aims to reduce the complication of paying taxes. For instance, the old Income Tax Act had 819 sections, but the new Income Tax Act has only 536 sections.
She also noted that simplified Income Tax rules and forms will be notified shortly. These have been redesigned so that ordinary citizens can comply without difficulty.
Changes to timelines
Part of her big announcements when it came to Income tax and the Budget was that
filing timelines are being staggered. This means that individuals filing ITR 1 and ITR 2 will continue to file by July 31, while non audit business cases and trusts get time until August 31. The deadline to revise returns will also be extended to March 31 each year with a small fee, giving taxpayers more time to correct errors.
The move is expected to benefit salaried individuals, small taxpayers and professionals who often receive revised financial information or face reconciliation issues after the original filing deadline. By allowing revisions until the end of the financial year, the government aims to reduce disputes, improve voluntary compliance and lower the need for litigation.
As per Budget 2026, taxpayers will now be allowed to update their tax returns even after reassessment proceedings have begun. They will be required to pay an additional 10 per cent tax over and above the rate applicable for the relevant financial year. Once a taxpayer files this updated return, the assessing officer will base the reassessment only on the newly updated return. This gives taxpayers a final opportunity to correct discrepancies voluntarily and avoid prolonged disputes.
Moreover, Budget 2026 removes the confusion between “previous year” and “assessment year” by introducing a single tax year concept.
Penalties and disclosure windows
She also announced a one-time, six month foreign asset disclosure scheme. The window will allow individuals who failed to declare overseas income up to Rs one crore, or those who disclosed income but not assets acquired abroad up to Rs five crore, to regularise their filings without facing heavy penalties.
The finance minister noted that the move aims to ease compliance for individuals who unintentionally missed disclosures and bring more foreign holdings into the formal tax net.
Sitharaman also signalled a decisive shift away from criminal penalties for minor infractions. The Budget proposes to decriminalise non production of books of account and remove prosecution for select offences, replacing them with monetary fines. The minimum payment required to contest a tax demand will fall from 20 per cent to 10 per cent of the core amount, easing cash burden on litigants.
In the Budget, Sitharaman also announced that the penalty for misreporting income has been raised to 100 per cent of the tax amount.
The finance minister also noted that non-disclosure of assets other than immovable property, which earlier had no penalty, will now attract penal action.
Tax rationalisation
In order to improve the overall taxpayer experience, in her Union Budget speech, Finance Minister Nirmala Sitharaman proposed reducing Tax Collected at Source (TCS) on the sale of overseas tour programme packages to two per cent from the current five per cent and 20 per cent. TCS on the Liberalised Remittance Scheme (LRS) remittance for education and medical purposes will also be cut to two per cent from five per cent.
She further announced that any interest awarded to an individual by Motor Accident Claims Tribunal (MACT) shall be exempt. No tax will be deducted at source, irrespective of the amount.
All in all, while there wasn’t any relief per se provided to the common man through changes in the income tax structure, significant changes have been introduced to making payment of taxes an easier and less complicated process.
With inputs from agencies
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