The Union Budget 2026, presented by Finance Minister Nirmala Sitharaman, focuses on tax simplification, compliance rationalisation, and investor confidence. The tax proposals aim to reduce litigation, encourage voluntary disclosure, and provide certainty to businesses and taxpayers.
Below is a consolidated overview of the key direct and indirect tax proposals, as analysed by Institute of Cost Accountants of India (ICMAI).
Key Direct Tax Proposals
1. Income Tax Slabs (FY 2026–27)
Individual & HUF tax rates remain unchanged under both old and new regimes.
Rebate benefits under the new tax regime continue for resident individuals up to the specified income threshold.
Health and Education Cess remains at 4%.
2. Surcharge Rationalisation
Maximum surcharge capped at 15% for dividend income, long-term capital gains, and short-term capital gains under specified sections.
For taxpayers opting for the new tax regime, surcharge is capped at 25%.
3. Rationalisation of Tax on Unexplained Items
Tax on unexplained credits, investments, assets, and expenditure reduced from 60% to 30%.
Earlier additional 10% tax is abolished.
Such income will now attract penalty for misreporting instead of harsher provisions.
4. Immunity from Penalty
General misreporting: Immunity available on payment of additional 100% of tax.
Unexplained items: Immunity available on payment of additional 120% of tax.
5. Black Money Act – Disclosure Scheme
Introduction of Foreign Assets of Small Taxpayers Disclosure Scheme, 2026.
Covers:
Undisclosed foreign assets
Foreign-sourced income relating to past years up to 31 March 2026
Prosecution relief provided where foreign assets (other than immovable property) do not exceed ₹2 crore.
6. Transfer Pricing & Safe Harbour Rules
Safe Harbour Regime extended to IT, ITES, KPO, R&D services.
Uniform margin of 15% introduced.
Threshold increased to ₹20 billion.
Approval process simplified with automated, rule-based mechanisms.
Scope expanded to include data centre services on cost + 15% basis.
7. IFSC Incentives Extended
Tax holiday for IFSC units extended to 20 consecutive years out of 25 years.
Offshore banking units also eligible for extended benefits.
No deduction allowed for units formed by restructuring or splitting existing businesses after 1 April 2026.
8. Securities Transaction Tax (STT)
Increase in STT rates:
Sale of options: 0.15% of option premium
Exercise of options: 0.15% of intrinsic value
Sale of futures: 0.05% of traded price
9. TDS & TCS Proposals
Electronic filing enabled for lower or nil TDS certificates.
No TAN required for buyers purchasing immovable property from non-residents.
TDS on manpower supply clarified under “work”.
TCS rates rationalised:
Overseas tour packages, education (LRS), liquor sales reduced to 2%.
10. Capital Gains & Buyback Tax Rationalisation
Shift from dividend-based taxation to capital gains-based taxation.
Shareholders taxed directly on capital gains simplifies compliance.
Alignment with international tax practices and reduction in cascading tax effect.
Key Indirect Tax Proposals (GST & Customs)
1. GST – Post-Sale Discount Simplification
Removal of mandatory invoice linkage for post-sale discounts.
Discount allowed if credit note is issued and ITC reversed by recipient.
2. Refund Process Reforms
Threshold limit for sanctioning refunds removed.
Refund of IGST on exports simplified.
3. Appeals & Dispute Resolution
Existing authority empowered to hear appeals pending constitution of appellate tribunals.
Effective from 1 April 2026.
4. Intermediary Services
Export of intermediary services to be treated as zero-rated.
Import of intermediary services to attract GST under reverse charge.
5. Customs Act Amendments
Advance rulings validity extended to five years.
Special provisions introduced for fishing activities beyond territorial waters.
Simplified movement of goods between bonded warehouses.
Conclusion
Union Budget 2026 marks a decisive shift towards simplification, reduced litigation, and taxpayer-friendly compliance. By easing penalties, rationalising rates, and strengthening digital processes, the government aims to improve transparency and promote voluntary compliance while maintaining revenue stability.
