The Union Budget 2026–27, presented on 1 February 2026 by the Finance Minister, places a clear emphasis on tax certainty, simplification of laws, and ease of compliance, rather than major rate changes. Both direct and indirect tax proposals aim to reduce litigation, rationalise procedures, and support economic growth.
Below is a concise overview of the important tax-related announcements.
Direct Tax Proposals
1. No Change in Income-tax Slabs
In line with the government’s policy of tax stability, no changes have been made to existing income-tax rates or slabs for individuals. Taxpayers will continue to be governed by the prevailing rates applicable for FY 2026–27.
This move signals predictability for salaried individuals and businesses alike.
2. New Income-tax Act from 1 April 2026
A major structural reform announced in Budget 2026 is the introduction of a new Income-tax Act, which will replace the Income-tax Act, 1961.
The objective of the new legislation is:
- Simplification of language
- Reduction in interpretational disputes
- Improved ease of compliance and administration
The new Act is proposed to come into force from 1 April 2026.
3. Measures to Ease Tax Compliance
Several procedural relaxations have been introduced to reduce hardship for taxpayers, including:
- Extended time limit for revision of income-tax returns, allowing corrections up to 31 March of the relevant assessment year.
- Relaxation in refund claims, enabling refunds even where returns are filed belatedly, subject to conditions.
- Rationalisation and clarification of TDS provisions, including mandatory TDS in certain specified transactions.
These steps are aimed at reducing unnecessary penalties and litigation.
4. Relief to Non-Residents and Corporates
- MAT exemption has been extended to certain categories of non-resident taxpayers under presumptive taxation schemes.
- The safe harbour threshold for transfer pricing in IT and IT-enabled services has been significantly enhanced, providing relief to large service exporters and reducing compliance burden.
Indirect Tax Proposals
1. Customs Duty Rationalisation
Budget 2026 continues the policy of rationalising customs duties to promote domestic manufacturing and exports. Key measures include:
- Exemption or reduction of customs duty on critical inputs used in EVs, electronics, defence, and pharmaceuticals.
- Duty exemptions on parts used for aircraft and defence MRO (maintenance, repair, and overhaul).
- Reduction in customs duty on select life-saving drugs and specialised medical equipment.
2. Boost to Export Competitiveness
To support exporters:
- Duty-free limits for certain export sectors have been enhanced.
- Time limits for export obligations in select industries have been extended.
- Customs procedures have been simplified to reduce delays and transaction costs.
3. GST Framework – Status Quo
No major GST rate changes were announced in the Budget. The government reiterated its commitment to GST simplification and rationalisation, building upon reforms already introduced earlier.
The focus remains on:
- Improving compliance
- Reducing classification disputes
- Strengthening technology-driven administration
Conclusion
The tax proposals in Union Budget 2026–27 reflect a shift from rate tinkering to structural reform. With stable tax rates, a new Income-tax Act on the horizon, and simplified indirect tax procedures, the Budget seeks to create a predictable and business-friendly tax environment while reducing litigation and compliance costs.