Tax Reforms under Union Budget 2026-27:
The government replaces the existing Income Tax Act, 1961 with a new, simplified Income Tax Act, 2025, effective from 1st April 2026.
- Tax Rates: No changes to the tax slabs for FY 2026-27; stability maintained.
- Tax Collected at Source (TCS) on overseas tour packages and remittances for education/medical purposes under LRS is reduced to a uniform 2% (without any threshold).
- To remove ambiguity, Tax Deduction at Source (TDS) on the supply of manpower services is fixed at 1% (for Individuals/HUF) or 2% (for others).
- Non-production of books of accounts and failure to pay TDS (where payment is made in kind) will be decriminalized.
- The tariff rate on goods imported for personal use is reduced from 20% to 10%.
- Customs duty is fully exempted on 17 cancer drugs and medicines/foods for 7 rare diseases.
- Securities Transaction Tax (STT): Marginally increased (from 0.1% to 0.15% in certain segments) to curb excessive speculation in equity markets.
- The Union budget also proposes to provide exemption from Minimum Alternate Tax (MAT) to all non-residents who pay tax on presumptive basis.
- The Budget proposes a Joint Committee of Ministry of Corporate Affairs and Central Board of Direct Taxes for incorporating the requirements of Income Computation and Disclosure Standards (ICDS) in the Indian Accounting Standards (IndAS), eliminating separate ICDS-based accounting from tax year 2027–28, and rationalising the definition of accountant under the Safe Harbour Rules to simplify compliance.
- Non-disclosure of foreign assets worth less than Rs 20 lakh will be granted immunity from prosecution (retrospective effect from 1st October 2024).
- Share buybacks will now be taxed as Capital Gains in the hands of the shareholder (shifting the burden from the company to the recipient).
- Foreign companies providing global cloud services via Indian data centers will receive a tax holiday until 2047.
- IFSC (GIFT City): Tax holiday extended from 10 to 20 years for Offshore Banking Units.
- Customs duty exemptions granted on capital goods required for the processing of critical minerals (Lithium, Cobalt, etc.) and manufacturing of Lithium-ion cells.
- The threshold for availing “Safe Harbour” rules for IT services is enhanced to Rs 2,000 crore, with a unified category for software development and KPO services.
- Duty-free import limits for inputs in Marine, Leather, and Textile sectors have been increased to boost export competitiveness.
- Aviation & Defence: Duty exemptions provided for parts/components used in the manufacture and MRO (Maintenance, Repair, Overhaul) of aircraft.
- Ease of Doing Business: The Budget streamlines trade through a single digital window for cargo clearance, instant customs clearance for non-compliant goods, rollout of the Customs Integrated System (CIS), and expanded AI-based container scanning.
- It makes Exclusive Economic Zone (EEZ) or on the High Seas fish catch duty-free, revises duty-free baggage allowances, and allows dispute settlement for honest taxpayers with a reduced penalty.
