India's Union Budget 2026 introduces key income tax reforms effective 1 April 2026

India's Union Budget 2026 introduced several tax changes effective from April 1, 2026, mainly simplifying income tax slabs, easing compliance, and rationalising penalties for individuals and businesses. These updates aim to reduce the tax burden on middle-income earners and make filing easier.

New Income Tax Slabs

Under the new tax regime for FY 2026-27 (AY 2027-28), slabs have been widened to provide relief, with no tax up to Rs 4 lakh and the 30% rate starting only above Rs 24 lakh.

• Up to Rs 4 lakh: 0%

• Rs 4-8 lakh: 5%

• Rs 8-12 lakh: 10%

• Rs 12-16 lakh: 15%

• Rs 16-20 lakh: 20%

• Rs 20-24 lakh: 25%

• Above Rs 24 lakh: 30%

The old regime remains optional, with deductions like 80C, but the new one is the default, with lower rates and fewer exemptions. Standard deduction rose to Rs 75,000 under the new regime.

Compliance Simplifications

Taxpayers get more time: revised returns can now be filed up to 12 months from the tax year's end (previously 9 months), with a small fee (Rs 1,000-5,000) if filed after 9 months. Due dates for non-audit cases and trusts have been extended to 31 August from 31 July. No TAN needed for resident individuals/HUFs buying property from non-residents; use PAN instead.​

Employer Contributions

Employee PF/ESI contributions deducted by employers can now be paid by the ITR due date, matching employer contributions for easier deduction claims. Employer PF contributions get a Rs 7.5 lakh cap, beyond which they're taxable as perks.​

Penalty Changes

Many penalties turn into fixed fees: Rs 75,000-1.5 lakh for late audits, Rs 50,000-1 lakh for late accountant reports, and daily Rs 200 (capped at Rs 1 lakh) for late SFT filing. Immunity from penalties/prosecution expands if tax plus extra is paid timely, even for misreporting cases.

Other Key Updates

A new FAST-DS scheme lets small taxpayers (under Rs 1-5 crore foreign assets) disclose unreported foreign income/assets with 60% payment for immunity. Interest from Motor Accident Claims Tribunal is tax-free for individuals/legal heirs, with no TDS. MAT rate drops to 14%, no new credits post-March 31, 2026. The Income-tax Act, 2025, replaces the 1961 Act from April 1, 2026, with simpler language.