- Union Budget 2026 introduces Income Tax Act 2025 effective April 1, 2026, replacing 1961 law
- Tax forms redesigned for simpler compliance and reduced litigation for salaried taxpayers
- Interest from Motor Accident Claims Tribunal awards will be exempt from income tax and TDS
The Union Budget 2026 brings a wave of significant reforms for salaried taxpayers, with Finance Minister Nirmala Sitharaman emphasising simpler compliance, reduced litigation, and meaningful relief for individuals. A major highlight is the rollout of the Income Tax Act 2025, which will replace the 1961 law and come into force on April 1, 2026.
Sitharaman noted that tax forms have been redesigned to ensure “ordinary citizens can comply without difficulty,” marking a major shift toward user-friendly processes.
Income Tax Reductions and Exemptions
In a strong relief measure for accident victims, the Minister announced that interest awarded by the Motor Accident Claims Tribunal will now be fully exempt from income tax, and TDS on such payouts will be removed. This is expected to ease the financial burden on families already dealing with distressing circumstances.
The Budget also reduces the outflow for individuals making overseas payments. Tax collection at source (TCS) on foreign tour packages has been cut to 2%, down from 5% and 20%, with no minimum amount requirement. Similarly, TCS on education and medical remittances abroad will also drop from 5% to 2%. Additionally, the Budget clarifies that manpower supply services will now fall clearly under TDS rules, taxed at 1% or 2%, avoiding ambiguity.
ITR Deadline Extended
To encourage better compliance, the deadline to revise income-tax returns has been extended from December 31 to March 31, subject to a nominal fee. Litigation relief has also been prioritised: taxpayers will no longer face interest on penalty amounts during the appeal period, and prepayment requirements have been halved from 20% to 10%.
In a major procedural reform, taxpayers will now be allowed to update returns even after reassessment proceedings begin, with the updated return forming the basis of the assessment.
No Change To Tax Slabs From 2025
Last year, in a bid to provide massive relief to the middle class the Finance Minister had announced that under the new regime, a taxpayer with an income of Rs 12 lakh will get a benefit of Rs 80,000 in tax for assessment year 2025-26. This made up of 100% of tax payable as per existing rates, Sitharaman said.
Therefore, there would be no income tax payable for up to Rs 12 lakh per annum income under the new tax regime.
According to tax slabs changes made in Budget 2025, there will be no tax imposed on those with income starting from Rs 0 to Rs 4 lakh, 5% tax will be imposed on income between Rs 4 lakh to 8 lakh and 10% tax for income up to Rs 8 lakh to Rs 12 lakh.
There will be 15% tax for income of Rs 12 lakh to Rs 16 lakh and 20% for income of Rs 16 lakh to Rs 20 lakh. There will be a 25% tax on income of Rs 20 lakh to Rs 24 lakh. Any income above Rs 24 lakh will be taxed at 30%.
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