Union Budget 2026 Highlights: Key Part-B Announcements

Building on the growth-focused announcements of Part-A, the Union Budget 2026 introduces wide-ranging reforms in direct and indirect taxation, aimed at simplifying compliance, improving ease of living, supporting businesses, and strengthening India’s global competitiveness. These measures form a crucial part of the Budget 2026 highlights, particularly under the evolving New Income Tax Act 2026 and trade facilitation framework.

Direct Taxes: Simplification, Certainty, and Ease of Living

New Income Tax Act

A landmark reform under the Union Budget 2026 India is the introduction of the New Income Tax Act 2026, which will come into effect from April 2026.

The new legislation seeks to:

• Simplify tax provisions and remove redundant sections
  
  
• Improve clarity and reduce litigation
  
  
• Enhance voluntary compliance

Alongside the new Act, simplified Income Tax Rules and redesigned forms will be notified shortly, making compliance easier for ordinary taxpayers. While Income Tax slabs FY 2026-27 remain unchanged, the new framework focuses on transparency and user-friendly administration.

Ease of Living Measures for Taxpayers

Several taxpayer-friendly initiatives have been announced under the Union Budget 2026:

• Interest awarded by the Motor Accident Claims Tribunal to a natural person will be fully exempt from income tax, and TDS on such interest will be abolished.
  
  
• A single-window filing system will be introduced with depositories for submission of Form 15G and Form 15H for TDS on dividends and interest.
  
  
• The time limit for revising income tax returns will be extended from 31 December to 31 March, subject to payment of a nominal fee.
  
  
• Filing timelines for tax returns will be staggered to ease system load.
  
  
• For property transactions involving NRIs, the requirement of TAN will be replaced with a PAN-based challan system for resident buyers.
  
  
• A one-time 6-month foreign asset disclosure scheme will allow small taxpayers to declare overseas income or assets.

TCS and TDS Rationalisation

To reduce compliance burden and improve cash flows:

• TCS on overseas tour programme packages will be reduced to 2% from the current range of 2–20%.
  
  
• TCS on LRS remittances for education and medical purposes will be reduced from 5% to 2%.
  
  
• Simplified TDS provisions for manpower supply will benefit labour-intensive industries.
  
  
• A rule-based automated system will replace manual applications for obtaining lower or nil TDS certificates, benefitting small taxpayers.

Rationalisation of Penalty and Prosecution

The Union Budget 2026 India introduces major relief measures to reduce litigation:

• Income tax assessment and penalty proceedings will be integrated into a single common order.
  
  
• Taxpayers will be allowed to update returns even after reassessment proceedings, on payment of an additional 10% tax.
  
  
• Penalty for misreporting of income will be eligible for immunity upon payment of additional tax.
  
  
• The prosecution framework under the Income Tax Act will be rationalised.
  
  
• Non-production of books, TDS payment where consideration is in kind, and certain procedural defaults will be decriminalised.
  
  
• Non-disclosure of non-immovable foreign assets up to ₹20 lakh will be granted retrospective immunity from prosecution from 1 October 2024.

Boost to Cooperatives

To strengthen cooperative institutions:

• Existing deductions for primary cooperative societies supplying milk, oilseeds, fruits, or vegetables will be extended to include cattle feed and cotton seed.
  
  
• Inter-cooperative dividend income will be allowed as a deduction under the new tax regime when distributed to members.
  
  
• Dividend income exemption for 3 years will be provided to notified national cooperative federations on investments made up to 31 January 2026.

Supporting IT Sector as India’s Growth Engine

Recognising the IT sector’s role in economic growth:

• Software development, IT-enabled services, KPO, and contract R&D services will be grouped under a single category of Information Technology Services.
  
  
• A uniform safe harbour margin of 15.5% will apply.
  
  
• The safe harbour threshold will increase from ₹300 crore to ₹2,000 crore.
  
  
• Safe harbour approvals will be automated and valid for 5 consecutive years.
  
  
• Unilateral APA timelines will be fast-tracked to 2 years, extendable by 6 months.
  
  
• Modified return facilities will be extended to associated entities entering APAs.

Attracting Global Business and Investment

Several incentives have been introduced to position India as a global business hub:

• Tax holiday till 2047 for foreign companies providing global cloud services using Indian data centres.
  
  
• 15% safe harbour on cost for related-party data centre services.
  
  
• Safe harbour for non-residents for component warehousing at 2% of invoice value.
  
  
• 5-year income tax exemption for non-residents supplying capital goods or tooling to toll manufacturers in bonded zones.
  
  
• Exemption for global income of non-resident experts for a stay of 5 years under notified schemes.
  
  
• MAT exemption for non-residents paying tax on a presumptive basis, aligning with the broader MAT rate reduction policy.

Tax Administration Reforms

To align accounting and taxation:

• A joint committee of MCA and CBDT will integrate ICDS into IndAS, eliminating separate ICDS compliance from FY 2027-28.
  
  
• The definition of accountant under Safe Harbour Rules will be rationalised.

Other Direct Tax Proposals

• Buyback taxation will shift to a capital gains regime for all shareholders.
  
  
• Promoters will bear additional buyback tax, resulting in an effective rate of 22% for corporate and 30% for non-corporate promoters.
  
  
• STT increase derivatives:
  
  
  • Futures STT raised to 0.05%
    
    
  • Options premium and exercise STT increased to 0.15%
    
    
• Companies opting for the new regime can set off MAT credit up to one-fourth of tax liability.
  
  
• MAT to become final tax from 1 April 2026, with the rate reduced to 14% from 15%.

Indirect Taxes: Customs and Trade Facilitation

Tariff Simplification

Marine, leather, and textiles

• Duty-free import limit for seafood processing inputs increased from 1% to 3% of FOB value.
  
  
• Duty-free inputs extended to leather and synthetic footwear exports.

Energy transition

• Customs duty exemption extended for Lithium-ion battery manufacturing capital goods.
  
  
• Sodium antimonate imports for solar glass manufacturing are exempted. 

Nuclear power

• Customs duty exemption for nuclear power project imports extended till 2035.

Critical minerals

• Capital goods for critical mineral processing exempted from customs duty.

Biogas blended CNG

• Entire biogas value excluded while computing central excise duty.

Sector-Specific Customs Reforms

• Customs duty exemption for civil and defence aircraft components and raw materials.
  
  
• Customs duty exemption on specified electronics parts used in microwave ovens.
  
  
• One-time SEZ relief allowing concessional duty sales to DTA within prescribed export-linked limits.

Ease of Living Through Customs Reforms

• Tariff on personal imports reduced from 20% to 10%.
  
  
• Customs duty exemption on 17 medicines.
  
  
• Duty-free personal imports for medicines and food for 7 additional rare diseases.
  
  
• Revised baggage clearance rules to enhance duty-free allowances.

Customs Process Simplification and Trust-Based Systems

• Minimal intervention customs processing.
  
  
• Duty deferral period for Tier 2 and Tier 3 AEOs extended to 30 days.
  
  
• Advance ruling validity extended from 3 years to 5 years.
  
  
• Warehouse system to become operator-centric with electronic tracking and risk-based audits.
  
  
• Expansion of AI-based non-intrusive scanning across major ports.

Ease of Doing Business and New Export Opportunities

• Single digital window for cargo clearance by FY-end.
  
  
• Immediate customs clearance for goods without compliance requirements.
  
  
• Rollout of Customs Integrated System (CIS) within 2 years.
  
  
• Fish caught in EEZ or High Seas treated as duty-free exports.
  
  
• Removal of ₹10 lakh cap on courier exports, supporting MSMEs, artisans, and startups—strengthening the MSME budget 2026.

Ease of Living

Enhancing ease of living for citizens and taxpayers remains a key focus area of the Union Budget 2026 India, with multiple reforms aimed at simplifying procedures and reducing compliance burdens.

Provisions governing baggage clearance during international travel will be revised to reflect present-day travel realities. The revised rules will enhance duty-free allowances, making international travel more convenient for passengers.

Additionally, honest taxpayers who are willing to settle disputes will be provided an opportunity to close pending cases by paying an additional amount in lieu of penalty. This measure promotes voluntary compliance, reduces litigation, and reinforces the trust-based approach to tax administration under the New Income Tax Act 2026 framework.

Conclusion

The Union Budget 2026 presents a decisive shift toward a simpler, more predictable, and trust-based tax ecosystem while reinforcing India’s long-term growth ambitions. Through the introduction of the New Income Tax Act 2026, rationalisation of TDS and TCS provisions, reduction in litigation through penalty and prosecution reforms, and targeted relief measures for individuals, cooperatives, and MSMEs, the Budget places taxpayers at the centre of policy design.

On the indirect tax front, extensive customs duty changes 2026, tariff simplification, and process automation aim to strengthen supply chains, promote exports, and enhance ease of doing business. Sector-specific exemptions for energy transition, critical minerals, defence, electronics, and aviation further align trade policy with the Make in India budget and the Manufacturing sector budget 2026.

Together with initiatives supporting capital markets, global investment, and new export opportunities, the Budget 2026 highlights reflect a balanced approach that combines fiscal prudence with economic expansion. By integrating ease of living, compliance simplification, and global competitiveness, the Union Budget 2026 India lays a strong foundation for sustainable, inclusive, and future-ready growth.