Income Tax 2026: New Regime Slabs, ITR Deadlines, and Key Budget 2026 Updates Explained
NATIONAL – The Union Budget 2026, presented by Finance Minister Nirmala Sitharaman on February 1, 2026, has ushered in a new era of tax administration with the implementation of the new Income-tax Act, 2025 effective from April 1, 2026 . While the government maintained status quo on income tax slabs for both old and new regimes, several significant reforms in compliance, TDS/TCS rates, and penalty rationalization are set to impact individual taxpayers, businesses, and NRIs .
This comprehensive guide breaks down everything you need to know about Income Tax for Financial Year 2026-27 (Assessment Year 2027-28).
New Income Tax Act 2025: A Landmark Reform
The most significant announcement in Budget 2026 was the implementation of the new Income Tax Act, 2025, replacing the six-decade-old Income Tax Act, 1961 . The new legislation aims to simplify language, standardize terminology, and enhance prefilling capabilities in tax returns to reduce errors and improve taxpayer experience .
Key implementation timeline:
New transactional forms (TDS, Form 15G/15H, etc.) operational from: April 1, 2026
New ITR forms notification expected by: First week of March 2026
Existing ITR forms for FY26: Will continue for filing returns related to income of 2025-26
Income Tax Slabs for FY 2026-27: No Changes Announced
The government has retained the existing income tax slab rates for both the new tax regime (default) and the old tax regime .
New Tax Regime Slabs (Default Regime)
Under Section 115BAC of the Income-tax Act, 1961 (continued under the new Act), the following slab rates apply for all individuals, regardless of age :
| Total Income (Rs) | Tax Rate |
|---|---|
| Up to Rs 4,00,000 | Nil |
| Rs 4,00,001 – Rs 8,00,000 | 5% |
| Rs 8,00,001 – Rs 12,00,000 | 10% |
| Rs 12,00,001 – Rs 16,00,000 | 15% |
| Rs 16,00,001 – Rs 20,00,000 | 20% |
| Rs 20,00,001 – Rs 24,00,000 | 25% |
| Above Rs 24,00,000 | 30% |
Key benefits under new regime :
Tax rebate under Section 87A: No tax up to Rs 12 lakh taxable income
Standard deduction: Rs 75,000 for salaried individuals
Surcharge rates: 10% (income > Rs 50 lakh), 15% (income > Rs 1 crore), 25% (income > Rs 2 crore, excluding specified capital gains/dividend income)
Old Tax Regime Slabs
Taxpayers can still opt for the old tax regime with applicable deductions and exemptions :
For individuals below 60 years:
| Total Income (Rs) | Tax Rate |
|---|---|
| Up to Rs 2,50,000 | Nil |
| Rs 2,50,001 – Rs 5,00,000 | 5% |
| Rs 5,00,001 – Rs 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
For senior citizens (60-80 years): Basic exemption limit: Rs 3,00,000
For super senior citizens (80+ years): Basic exemption limit: Rs 5,00,000
Key deductions available in old regime :
Section 80C: Up to Rs 1.5 lakh (EPF, PPF, ELSS, LIC, etc.)
Section 80D: Health insurance premium
Home loan interest deduction
Standard deduction: Rs 50,000 for salaried individuals
New vs Old Tax Regime: Which is Better?
The choice between regimes depends on your investment and deduction eligibility. Here's a comparative tax calculation for different income levels (assuming no deductions in old regime for fair comparison) :
| Income (Rs) | Old Regime Tax (Rs) | New Regime Tax (Rs) | Savings in New Regime (Rs) |
|---|---|---|---|
| 6,00,000 | 33,800 | 0 | 33,800 |
| 8,00,000 | 75,400 | 0 | 75,400 |
| 10,00,000 | 1,17,000 | 0 | 1,17,000 |
| 12,00,000 | 1,79,400 | 0 | 1,79,400 |
| 15,00,000 | 2,73,000 | 1,09,200 | 1,63,800 |
| 20,00,000 | 4,29,000 | 2,08,000 | 2,21,000 |
| 25,00,000 | 5,85,000 | 3,43,199 | 2,41,801 |
| 50,00,000 | 15,01,500 | 12,35,519 | 2,65,981 |
Verdict: The new regime offers significant savings for those with income up to Rs 15-20 lakh who don't claim major deductions. For high-income earners with substantial investments, the old regime may still be beneficial .
Key Changes in TDS and TCS Rates
Budget 2026 introduced rationalized TCS rates and simplified TDS provisions :
Revised TCS Rates (Effective from April 1, 2026)
| Nature of Receipt | Current Rate | New Rate |
|---|---|---|
| Overseas education/medical remittances under LRS | 5% (above Rs 7 lakh) | 2% (above Rs 7 lakh) |
| Overseas tour packages | 5% up to Rs 7 lakh; 20% above | 2% (flat) |
| Sale of alcoholic liquor | 1% | 2% |
| Sale of scrap | 1% | 2% |
| Sale of minerals (coal, lignite, iron ore) | 1% | 2% |
| Tendu leaves | 5% | 2% |
Key TDS Reforms
| Provision | Existing Rule | New Rule (from April 1, 2026) |
|---|---|---|
| Motor Accident Claims | TDS applicable on interest | Fully exempt from tax; no TDS |
| Manpower Supply Services | Ambiguous classification | Clearly under Section 194C (contract payments); TDS at 1%/2% |
| NRI Property Purchase | Buyer required TAN | TDS through buyer's PAN; no TAN needed |
| Lower/Nil TDS Certificate | Manual process with Assessing Officer | Automated online system for small taxpayers |
| Form 15G/15H Filing | Separate filing with each company/MF | Can file with depository for all holdings |
ITR Filing: Extended Deadlines and New Provisions
Revised Due Dates for FY 2025-26 Returns
| Taxpayer Category | ITR Form | Due Date |
|---|---|---|
| Individuals (no business income) | ITR-1, ITR-2 | July 31, 2026 |
| Business/Profession (non-audit) | ITR-3, ITR-4 | August 31, 2026 (extended) |
| Trusts | - | August 31, 2026 (extended) |
| Audit cases | - | As per Income Tax Act |
Extended Window for Revised Returns
One of the most taxpayer-friendly reforms is the extension of the revised return deadline:
Earlier deadline: December 31 of the assessment year
New deadline: March 31 of the next financial year
Late fees for revised returns filed after December 31 :
Income up to Rs 5 lakh: Rs 1,000
Income above Rs 5 lakh: Rs 5,000
Updated Returns (ITR-U) Reforms
Taxpayers can now file updated returns even after reassessment proceedings begin (with additional 10% tax)
Updated returns permitted where reported losses are reduced compared to original return
This applies to both old and new tax regimes from April 1, 2026
Major Tax Reforms in Budget 2026
1. Share Buyback Taxation
What changed? Buyback of shares will now be taxed as capital gains in the hands of shareholders, instead of being treated as dividend income.
Effective tax rates for promoters:
Corporate promoters: 22%
Non-corporate promoters: 30%
2. Minimum Alternate Tax (MAT) Overhaul
| Parameter | Existing | New (from April 1, 2026) |
|---|---|---|
| MAT Rate | 15% | 14% of book profit |
| MAT Credit Accumulation | Allowed | Discontinued (no fresh credit) |
| Set-off of existing credit | Full set-off | Limited to 25% of tax liability under new regime |
3. Securities Transaction Tax (STT) Hike
| Transaction Type | Earlier Rate | New Rate |
|---|---|---|
| Futures | 0.02% | 0.05% |
| Options (premium) | 0.1% | 0.15% |
| Options (exercise) | 0.125% | 0.15% |
4. Sovereign Gold Bonds (SGB) Taxation
Exemption at maturity: Available only for original subscribers (who subscribed during government issuance)
Secondary market purchases: Difference between acquisition price and redemption value will be taxable at maturity
5. No Deduction for Interest on Dividend/Mutual Fund Income
Interest expenditure incurred for earning dividend income or income from mutual fund units will not be allowed as deduction.
6. Crypto Asset Reporting Penalties
New penalty provisions for crypto firms:
Rs 200 per day for non-furnishing of statements
Rs 50,000 penalty for furnishing inaccurate particulars or failure to correct errors
Relief for Small Taxpayers and NRIs
Foreign Asset Disclosure Scheme (FAST-DS 2026)
A one-time, six-month disclosure scheme for small taxpayers (students, young professionals, tech employees, relocated NRIs) to declare previously unreported foreign assets:
| Category | Eligibility | Benefit |
|---|---|---|
| Category A | Undisclosed foreign income/assets up to Rs 1 crore | Pay 30% tax + 30% additional tax (in lieu of penalty); immunity from prosecution |
| Category B | Disclosed income but failed to declare asset (value up to Rs 5 crore) | Pay Rs 1 lakh fee; immunity from penalty and prosecution |
Relief for Small Undisclosed Foreign Assets
Non-disclosure of non-immovable foreign assets below Rs 20 lakh excluded from prosecution under Black Money Act
Effective retrospectively from October 1, 2024
NRI Tax Benefits
5-year tax exemption on foreign income for non-residents rendering services under notified schemes in India
Non-residents under presumptive taxation exempt from MAT
Customs duty on personal imports reduced from 20% to 10%
Penalty and Prosecution Rationalization
Key Reforms
| Provision | Existing | New |
|---|---|---|
| Assessment & Penalty | Separate proceedings | Single common order |
| Interest on penalty | Charged immediately | Held in abeyance during appeal |
| Pre-payment for appeal | 20% of demand | 10% of core tax demand |
| Technical defaults (audit, TP report, etc.) | Penalty | Converted to prescribed fees |
| Minor offences | Imprisonment possible | Only fines |
| Maximum imprisonment | Variable | Capped at 2 years |
| Immunity from penalty | Only for underreporting | Extended to misreporting (with 100% additional tax) |
Employee Benefits and Perquisites
PF/ESIC Contribution Relief
What changed? Employees' contribution to PF, ESIC, etc., will not be disallowed if deposited before the due date of filing the return of income (earlier, delayed deposit beyond due date led to disallowance).
Disability Pension Exemption
Disability pension for armed forces and paramilitary personnel now fully exempt from income tax.
Motor Accident Compensation Interest Exempt
Interest awarded by Motor Accident Claims Tribunal to individuals is now fully exempt from tax, with no TDS applicable.
Corporate and Business Taxation
Tax Holiday for Data Centers
Foreign companies providing data center services using Indian facilities eligible for tax holiday until 2047
Aimed at boosting domestic digital infrastructure and data localization
Toll Manufacturing Exemption
Five-year income tax exemption for toll manufacturing of electronic goods
Safe Harbor Provisions Rationalized
| Parameter | Existing | New |
|---|---|---|
| IT services category | Multiple categories | Single category with common margin of 15.5% |
| Safe harbor threshold | Rs 300 crore | Rs 2,000 crore |
| Approval process | Manual | Automated rule-driven |
| Duration | Yearly | Can choose 5-year continuation |
Cooperatives: Tax Relief Measures
Deduction allowed on profits from supplying cattle feed and cotton seed to federal co-operatives
Dividend income between co-operatives allowed as deduction under new regime
National cooperative federations get 3-year exemption on dividends distributed to members
Frequently Asked Questions (FAQs)
Q1. What is the income tax slab for FY 2026-27?
Under the new tax regime (default), tax is nil up to Rs 4 lakh, 5% for Rs 4-8 lakh, 10% for Rs 8-12 lakh, 15% for Rs 12-16 lakh, 20% for Rs 16-20 lakh, 25% for Rs 20-24 lakh, and 30% above Rs 24 lakh .
Q2. Is there any change in standard deduction for FY 2026-27?
No change announced. Standard deduction remains Rs 50,000 in old regime and Rs 75,000 in new regime .
Q3. What is the last date for ITR filing for FY 2025-26?
Q4. Can I file revised return after December 2026?
Yes. The deadline has been extended to March 31, 2027, with late fees applicable .
Q5. What is the new TCS rate on foreign remittances for education?
TCS on education and medical remittances under LRS has been reduced to 2% (from 5%) .
Q6. Do I need TAN for buying property from an NRI?
No. From April 1, 2026, resident buyers can deposit TDS using their PAN .
Q7. How is share buyback taxed now?
Share buyback proceeds will be taxed as capital gains in the hands of shareholders, not as dividend .
Q8. What is FAST-DS 2026?
A one-time foreign asset disclosure scheme for small taxpayers to declare previously unreported foreign assets up to Rs 1 crore with immunity from prosecution .
Summary: Income Tax 2026 at a Glance
| Particulars | Details |
|---|---|
| New Income Tax Act effective | April 1, 2026 |
| New tax regime slabs | Unchanged (0-30% up to Rs 24 lakh+) |
| Old tax regime slabs | Unchanged |
| Tax rebate under new regime | Up to Rs 12 lakh income |
| Standard deduction (new regime) | Rs 75,000 |
| ITR due date (individuals) | July 31, 2026 |
| Revised return deadline | March 31, 2027 |
| TCS on overseas education/medical | 2% |
| MAT rate | 14% (from 15%) |
| STT on futures | 0.05% (from 0.02%) |
| Share buyback taxation | As capital gains |
This article is based on the Finance Bill 2026 announcements and CBDT guidelines as of February 2026. Taxpayers are advised to consult with a qualified chartered accountant for personalized advice.
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