Union Budget 2026 arrived in the shadow of the Income Tax Act, 2025 — but it brought its own set of meaningful direct tax changes. Here are the proposals every tax professional should know.
TDS/TCS Rationalization
The headline changes in TCS rates:
- Overseas tour packages: Reduced from the tiered 5-20% structure to a flat 2% with no threshold
- Education/medical remittances (LRS): Above Rs 10 lakh, reduced from 5% to 2%
- Alcoholic liquor, scrap, minerals: Rationalized to a uniform 2%
On the TDS side: manpower supply payments are now expressly classified as "work" for uniform treatment, ending the long-running 194C vs 194J dispute. CBDT guidelines on TDS/TCS are now binding — not merely advisory.
Special Disclosure Window — Foreign Assets
A one-time 6-month scheme targeting students, young professionals, and relocated NRIs:
- Category A (undisclosed overseas income/assets up to Rs 1 crore): Tax at 30% plus 30% additional income tax — effective rate ~60%. Benefit: immunity from prosecution
- Category B (income disclosed but foreign assets not declared, up to Rs 5 crore): Filing fee of Rs 1 lakh. Benefit: immunity from penalty and prosecution
MAT Rate Reduction
Minimum Alternate Tax reduced from 15% to 14%. No further MAT credit accumulation from April 1, 2026. Existing accumulated credit can be set off up to 25% against new regime liability.
Extended Timelines
- ITR-3/ITR-4 filing (non-audit business/profession): Deadline extended from July 31 to August 31
- Revised returns: Window extended from 9 months to 12 months (now March 31 instead of December 31)
- Late revised return fee: Rs 1,000 (income up to Rs 5 lakh) or Rs 5,000 (all other cases)
Other Notable Changes
- Unexplained income tax: Rate reduced from 60% to 30% — effective rate drops from ~78% to ~39%
- Audit failure penalty: Converted to fixed fees — Rs 75,000 (up to 1 month delay) or Rs 1,50,000 (beyond)
- Form 15G/15H: Can now be filed with depositories quarterly instead of monthly to individual payers
Budget 2026 is a compliance simplification budget. No new taxes, no rate hikes — just rationalization and extended deadlines. The real disruption is the new Act itself.
Comments (5)
Form 15G/15H quarterly filing with depositories — senior citizen clients will appreciate this simplification.
Revised return deadline to March 31 is the single most useful change for practitioners. Three extra months to fix errors.
Fixed audit failure fees instead of percentage penalties — this removes a lot of litigation. Practical change.
The foreign assets disclosure window is clearly targeting tech employees with ESOPs and startup founders with overseas accounts.
Unexplained income rate halved from 60% to 30% is surprisingly generous. Wonder what the compliance impact will be.