Budget 2026 Key Tax Highlights: Income Tax, GST and TDS/TCS Changes

Budget 2026 Key Tax Highlights focus on tax certainty, compliance simplification and structural reforms rather than headline tax rate changes. The Union Budget 2026 tax changes do not alter major income-tax or GST rates, but introduce important reforms in income tax administration, TDS and TCS provisions, Securities Transaction Tax (STT), IFSC/GIFT City incentives, and GST compliance procedures.

In this article, we summarise the key Budget 2026 tax reforms, including major income tax changes in Budget 2026, GST changes in Budget 2026, and important updates affecting taxpayers, businesses and investors.

Budget 2026 Tax Changes – Key Highlights at a Glance

Income Tax – Key Highlights

• No change in income tax slab rates, basic exemption limits, surcharge structure, or Health & Education Cess.
• No change in corporate tax rates, including concessional regimes.
• No change in capital gains tax rates or surcharge caps applicable to specified capital assets.
• New Income tax Act, 2025 to come into force from 1 April 2026, replacing the existing Income-tax Act with a simplified and consolidated law.
• Finance Bill, 2026 carries clause-wise substitutions, omissions and alignments to operationalize the new Act framework.
• Assessment and penalty proceedings to be combined into a single order, reducing multiplicity of proceedings, with penalty for under-reporting or misreporting of income to be imposed as part of the assessment order itself, replacing the existing system of separate penalty proceedings, while continuing to provide an opportunity of being heard in accordance with principles of natural justice.
• Pre-deposit requirement for disputed tax demands reduced from 20% to 10% of the core tax demand.
• Penalty provisions rationalized to reduce overlapping and discretionary penalties.
• Prosecution provisions streamlined, with focus on serious tax evasion rather than procedural defaults.
• Maximum imprisonment term for non-filing of return reduced from 7 years to 2 years, with an option to pay monetary penalty in specified cases.
• Taxation of share buy-backs continues under the capital gains regime in the hands of shareholders; buy-back amount not taxed as dividend income.
• Interest received on motor accident compensation awards made tax-exempt.
• Foreign Assets of Small Taxpayers – Disclosure Scheme (FAST-DS) introduced for one-time disclosure of undisclosed foreign assets with prescribed tax and penalty.
• Scheme provides immunity from penalty and prosecution and does not trigger reopening of completed assessments.
• Centralised submission and processing of Form 15G / Form 15H enabled to simplify TDS compliance.
• Revised return filing window extended up to 31 March of the assessment year with a prescribed additional fee.
• Tax holiday for foreign companies providing cloud services from India extended up to 2047, along with a safe-harbour margin framework.
• Capital gains exemption on Sovereign Gold Bonds (SGBs) clarified to apply only to bonds subscribed at the time of original issue and held till redemption on maturity, and not to SGBs purchased from the secondary market.
• MAT provisions rationalised, with MAT rate reduced from 15% to 14% of book profit, MAT credit under the old regime restricted, no fresh MAT credit allowed under the old regime, and limited MAT credit utilisation permitted under the new regime for domestic companies.
• Exemption from TDS on interest income extended to co-operative banks and co-operative land mortgage banks, other than interest on securities, aligning their treatment with banking companies.
• Updated return regime tightened, with additional income-tax payable increased by a further 10% where an updated return is filed pursuant to a notice, while income declared in such updated return is protected from penalty proceedings.
• Statutory interpretation clarified, providing that in case of any inconsistency between different language versions of the law, the English version shall prevail.

IFSC / GIFT City – Major Incentive Enhancement (Important)

• Tax holiday for units located in International Financial Services Centres (IFSC / GIFT City) extended from 10 years to 20 years.
• After the tax holiday period, income of IFSC units shall be taxable as per the applicable provisions of the Income-tax Act, including any concessional tax regime, where the unit so qualifies.
• Measures aimed at strengthening GIFT City as a global financial, fintech and fund-management hub and attracting long-term international capital.
• Treasury centre provisions for IFSC units rationalised, with refined definitions of group entity and parent or principal entity, and alignment of conditions with notified foreign jurisdictions and regulatory requirements.
• Dividend exclusion for inter-group transactions in IFSC clarified, with continuation of exemption subject to revised group entity and jurisdictional conditions.

➡️ This is a material corporate tax incentive and a core Budget 2026 highlight.

TCS (Tax Collected at Source) – Major Rationalisation

• Budget 2026 undertakes a broad-based rationalisation of TCS rates, significantly reducing high rates and easing cash-flow blockage.
• TCS rates rationalised, with several specified categories reduced to 2%, replacing earlier higher rates of 5% and 20%.
• TCS on overseas tour programme packages reduced to 2%.
• TCS under the Liberalised Remittance Scheme (LRS) for:
  • education remittances, and
  • medical treatment remittances reduced to 2%.
• TCS on sale of scrap, minerals and metals rationalised to 2%.
• TCS on sale of coal and lignite increased from 1% to 2%.
• Other specified TCS categories aligned to the revised rationalised structure.

TDS, STT & Withholding Tax Measures

• Procedural simplification in TDS on property transactions, including clearer PAN-based compliance for non-resident transactions.
• CBDT instructions and circulars relating to TDS/TCS made binding, improving certainty and uniformity in compliance.
• Securities Transaction Tax (STT) rates revised, particularly for derivatives, futures and options transactions, to align with market structure and trading volumes.
• No across-the-board increase in TDS rates; changes are targeted and compliance-oriented.

GST & Indirect Tax Highlights

• No change in GST rate slabs for goods or services.
• No new GST cess or surcharge introduced.
• IGST place of supply rules for intermediary services amended, by omitting the special place of supply provision and applying the general place of supply rules, providing significant relief to exporters of intermediary services.
• GST refund provisions strengthened, including extension of provisional refund mechanism to inverted duty structure cases and removal of threshold restrictions for sanction of export refunds with payment of tax.
• Customs procedures further simplified, including removal of prior approval requirement for transfer of goods between bonded warehouses and introduction of facilitation measures for fishing and fishing-related activities beyond territorial waters.

• Customs tariff changes implemented through schedules, providing for selective increase or reduction in Basic Customs Duty for specified goods, with changes effective immediately or from notified dates under the Provisional Collection of Taxes Act

Overall Tax Direction in Budget 2026

• No rate-driven tax relief or additional burden.
• Emphasis on simplification, consolidation, and procedural efficiency.
• Strong push towards a trust-based, technology-enabled tax administration.
• Structural clean-up through the new Income-tax law framework, IFSC incentives, and rationalised withholding regime, rather than headline tax cuts.

Final Word

The Budget 2026 tax highlights reflect a deliberate policy shift towards tax certainty, administrative simplification and litigation reduction, rather than headline tax cuts or major rate changes. While the Union Budget 2026 tax changes do not alter income-tax or GST rate structures, they introduce important reforms in income tax administration, TDS and TCS provisions, Securities Transaction Tax (STT), IFSC incentives and GST compliance.

Overall, the major tax reforms in Budget 2026 focus on simplifying compliance, rationalising withholding taxes and strengthening a technology-enabled, trust-based tax system. Taxpayers, businesses and investors should closely review these key tax changes in Budget 2026 to assess their impact on compliance obligations, cash flows and long-term tax planning.

Sources & References

• Finance Bill, 2026, as introduced in Parliament.
• Memorandum Explaining the Provisions of the Finance Bill, 2026, Ministry of Finance.
• Official FAQs issued by the Income Tax Department on Budget 2026 tax proposals.

Disclaimer:

This article is based on the Finance Bill, 2026 and the Memorandum Explaining the Provisions and is subject to changes upon enactment of the Finance Act and subsequent notifications.