Finance Minister Nirmala Sitharaman used her Budget speech to overhaul how ordinary Indians file, disclose and pay taxes, unveiling new timelines, lower TCS rates, tax‑free compensation rules and a sweeping new disclosure window for foreign assets.
The changes are designed to cut compliance hassle, reduce upfront cash outgo and give taxpayers more room to correct mistakes before the new Income Tax Act takes effect on April 1, 2026.
At the core of the announcements is the rollout of the new Income Tax Act from April 1, 2026, which the government says will modernise and simplify the tax framework. Ahead of that transition, filing timelines are being staggered: individuals filing ITR‑1 and ITR‑2 will continue to file by 31 July, while non‑audit business cases and trusts get time until 31 August.
The deadline to revise returns will also be extended to 31 March each year with a small fee, giving taxpayers more time to correct errors.
One of the biggest consumer wins is the sharp cut in TCS on overseas tour packages, now a flat 2 percent with no threshold, compared with the earlier 5 percent and 20 percent slabs. The TCS rate on remittances for education and medical purposes under LRS will also fall from 5 percent to 2 percent, easing the cash burden on families. "Procedural compliance for small taxpayers takes a central role in this budget. Reduction in TCS rates, automate facility to procure low and nil withholding tax certificates, ability to disclose foreign assets and extended timelines to file revised returns are all key examples," said Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co.
In a major relief measure, interest awarded by the Motor Accident Claims Tribunal to natural persons will now be completely tax‑exempt, and no TDS will apply, ending years of ambiguity.
The Budget also proposes allowing taxpayers to update their returns even after assessment begins, subject to an additional 10 percent tax. For small investors, CDSL and NSDL will now accept Form 15G/15H and share them with companies to prevent unnecessary TDS.
A one‑time, six‑month foreign asset disclosure scheme will let students, NRIs and small taxpayers regularise holdings. Category A covers undisclosed assets up to Rs 1 crore with a 60 percent tax and penalty, while Category B allows disclosure of previously unreported assets up to Rs 5 crore for a Rs 1 lakh fee.
To speed up dispute resolution, assessment and penalty proceedings will be integrated, and the pre‑deposit for stay of demand will be cut from 20 percent to 10 percent, reducing cash strain during appeals.
Key points
New Tax Framework
- New Income Tax Act kicks in April 1, 2026, setting up a modernised tax system.
Filing & Revision Deadlines
- ITR‑1 & ITR‑2: Deadline stays 31 July.
- Non‑audit businesses & trusts: 31 August filing deadline.
- Revised returns: Time extended to 31 March with a nominal fee.
- Updated returns: Allowed even after assessment starts with 10% extra tax.
Lower TCS Rates
- Foreign tour packages: TCS slashed to flat 2%, no threshold (was 5%/20%).
- Education & medical LRS remittances: TCS cut from 5% to 2%.
Relief for Accident Victims
- MACT interest now fully tax‑exempt.
- No TDS on compensation interest.
Simpler TDS for Small Investors
- CDSL & NSDL will accept Form 15G/15H and forward them to companies.
- Prevents unnecessary TDS on eligible low‑income individuals.
One‑Time Foreign Asset Disclosure Window
- Six‑month scheme for small taxpayers, students, NRIs.
- Category A: Undisclosed assets up to Rs 1 crore, taxed at 60% total.
- Category B: Disclosed income but unreported assets up to Rs 5 crore, Rs 1 lakh fee.
- Immunity from prosecution and penalties for both categories.
Compliance & Dispute Resolution
- Assessment + penalty proceedings integrated for faster closure.
- Pre‑deposit for stay of demand lowered to 10% (from 20%).
- Non‑production of books and select minor offences decriminalised, replaced with fines.
