Union Budget 2026-27 - Direct Tax

The Union Minister for Finance and Corporate Affairs Smt. Nirmala Sitharaman presented the Union Budget 2026-27 on February 1, 2026 in the Lok Sabha. The key highlights of the proposed changes are as follows:

1. Tax Slab Rates for AY 2026-27.

There is no change in tax slab rates for AY 2026-27, meaning thereby tax structures for AY 2026-27 remains intact as that were applicable for AY 2025-26.

2. Change in rates of TCS

Changes in the rate of TCS are presented in the table below:

3. Change in due dates in filing of ITR

Explanation 2 in sub-section (1) of section 139 has been amended to introduce new extended due date for Assessee for filing ITR whose books of accounts are not liable to be audited and for partners of a firm whose accounts are not required to be audited under the ITA, 1961.

Current provision

Section 139 of the Income-tax Act, 1961 prescribes that the due date for filing income-tax returns (ITR) in non-audit cases is 31st July of the assessment year. This includes assessees engaged in business or profession whose accounts are not required to be audited, as well as partners of such firms.

Issue involved

Taxpayers engaged in business or profession, partners of non-audit firms, and trusts often require additional time to finalize accounts and records. The existing due date is insufficient, causing compliance difficulties. Extending the due date would enable accurate filing without undue pressure.

Amendment proposed

It is proposed that for:

Assessees deriving income from business or profession not requiring audit,

Partners of firms whose accounts do not require an audit, and

Spouses of such partners (where applicable under section 10),

the due date for filing income-tax returns be extended from 31st July to 31st August. However, for individuals filing ITR-1 and ITR-2, the due date will remain 31st July.

A similar amendment is proposed in clause (c) of sub-section (1) of section 263 of the ITA, 2025 to rationalize the due date for non-audit business cases and trusts, ensuring consistency in the new law.

This amendment aims to ease compliance, provide taxpayers sufficient time to prepare accurate returns, and reduce disputes or errors arising from premature filing.

Implementation

It is proposed that the amendments made in ITA, 1961, shall come into force from the 1st day of March, 2026, for the assessment year 2026-27(previous year 2025-26).

It is proposed that the amendments made in the Income-tax Act, 2025 shall come into force from the 1st day of April, 2026, for the tax year 2026-27 and subsequent tax years.

4. Extension in period of filing of an ITR

Section 139(5) of ITA, 1961 has been amended to increase the prescribed time limit for filing the revised return from the existing 9 months to 12 months from the end of the relevant tax year.

Current provision

Section 139(5) of the Income-tax Act, 1961 currently allows taxpayers to revise their original or belated return to correct any omission or error relating to income, deductions, exemptions, losses, or any other particulars. At present, the due date for filing a revised return is 31st December of the relevant assessment year.

Issue involved

Since the deadlines for belated and revised returns are the same, taxpayers filing belated returns near the end get no practical chance to revise them. Extending the time limit for revised returns would allow adequate opportunity to make corrections.

Amendment proposed

To address this, it is proposed to amend section 139(5) to extend the time limit for filing a revised return from nine months to twelve months from the end of the relevant financial year.

Corresponding amendments are also proposed in section 263(5) of the ITA, 2025, to maintain consistency in the new law.

Additionally, a nominal fee is proposed under section 245I of the ITA, 1961 / section 428(b) of the ITA, 2025 for revised returns filed beyond nine months from the end of the relevant financial year:

Rs. 1,000 if total income does not exceed Rs. 5 lakh Rs. 5,000 in other cases

This amendment aims to provide taxpayers with more flexibility to correct returns, reduce inadvertent errors, and ensure fairness while maintaining a nominal fee for extended revisions.

Implementation

This amendment aims to provide taxpayers with more flexibility to correct returns, reduce inadvertent errors, and ensure fairness while maintaining a nominal fee for extended revisions.

It is proposed that the amendments made in Income-tax Act, 2025 shall come into force from the 1st day of April, 2026 for tax year 2026-27 and subsequent tax years.

5. Upliftment of scope of filing an updated ITR in case of loss

Section 139(8A) of the ITA, 1961 has been amended to provide that updated return may also be filed in such cases where taxpayer is reducing the amount of loss in comparison to the amount of loss claimed in the return of loss furnished within the due date specified under sub-section (1).

Current provision

Under the existing section 139(8A) of the Income-tax Act, 1961, a taxpayer is allowed to file an updated return only if the original return filed under section 139(1) is a return of loss and the updated return filed subsequently is a return of income. This effectively prohibits filing an updated return if the updated return is itself a return of loss for the same assessment year.

Issue involved

This restriction prevents taxpayers from reducing losses claimed in the original return, even when revisions are needed to reflect accurate financial information.

Amendment proposed

To address this concern, it is proposed to amend the provisions to allow taxpayers to file an updated return even when reducing the loss claimed in the original return, subject to compliance with the due date under sub-section (1) of section 139. A similar amendment is also proposed in section 263(6) of the ITA, 2025, corresponding to section 139 of the ITA, 1961, to ensure consistency in the new law.

This amendment aims to provide greater flexibility for taxpayers in reporting accurate losses, reduce disputes, and align the law with the intent of allowing voluntary correction of returns.

Implementation

It is proposed that the amendments made in ITA, 1961 shall come into force from the 1st day of March, 2026.

It is proposed that the amendments made in Income-tax Act, 2025 shall come into force from the 1st day of April, 2026.

6. Allowing the filing of an updated return after issuance of notice of initiation of reassessment proceedings:

Section 139(8A) of the ITA, 1961 has been amended to provide that updated return may also be filed where notice of initiation of reassessment proceedings u/s 148 of the ITA, 1961 is issued.

Current provision

At present, section 139(8A) prevents a taxpayer from filing an updated return if any reassessment proceeding is pending or has been completed for the relevant assessment year.

Issue involved

Currently, significant litigation arises when notices under section 148 are issued, often based on information available with the tax authorities, compelling the taxpayer to file a return. This has led to disputes over the validity and scope of such returns. To reduce litigation and provide certainty to taxpayers, it is considered appropriate to permit filing of an updated return even after initiation of reassessment proceedings.

Amendment proposed

Section 139 of the ITA, 1961 is proposed to be amended to allow a taxpayer to file an updated return for the relevant assessment year in response to a notice under section 148, within the period specified in the notice. Once filed in this manner, the taxpayer will be precluded from filing any other return in response to the same notice.

Since section 280 of the ITA, 2025 corresponds to section 139 of the ITA, 1961, similar amendments are proposed to permit updated returns under the new law.

Section 267 of the ITA, 2025 is also proposed to be amended to provide that where an updated return is filed under section 280 within the period specified, the taxpayer will pay an additional income-tax of 10% on the aggregate of tax and interest arising from such return.

Further, the income disclosed in the updated return on which this additional tax is paid will not be subject to penalty under section 439 of the ITA, 2025.

This amendment aims to simplify compliance, provide legal certainty, and reduce litigation by giving taxpayers a clear and structured mechanism to disclose additional income after the initiation of reassessment proceedings.

Implementation

It is proposed that the amendments made in ITA, 1961 shall come into force retrospectively from the 1st day of March, 2026.

It is proposed that the above amendments shall come into force from the 1st day of April, 2026 and shall be applicable for the tax year 2026-27 and subsequent tax years.

7. Rationalizing the due date to credit employee contribution by the employer to claim such contribution as deduction

Section 29(1)(e) of ITA,2025 correspondents to section 36(1)(va) of ITA, 1961 provides for deductions related to employee welfare. At present, contribution received by the employer by the employee is allowed as an deduction if such contribution is credited to the account of the employee by the employer within the due date as prescribed under the relevant fund or act.

Meaning of the term 'due date' for the purpose of the above provision is amended to provide that the due date for the said clause shall be date of filing of return u/s 263 of the ITA, 2025 correspondents to section 139 of the ITA, 1961.

The amendment will take effect from the 1st day of April, 2026 and will, accordingly, apply to tax year 2026-27 and subsequent tax years.

8. Exemption on interest income under the Motor Vehicles Act, 1988 (Section 11 of ITA, 2025)

The Motor Vehicles Act, 1988 provides for compensation and interest to be awarded by the tribunal to an individual or their legal heirs in cases of death, permanent disability, or bodily injury resulting from a motor accident. Such compensation is intended to alleviate the financial hardship faced by the victim or their family.

To further support accident victims and their families, it is proposed to amend the relevant Schedule to exempt from tax any income in the form of interest received under the Motor Vehicles Act, 1988. Additionally, no TDS will be deducted on such interest income, unlike the earlier provision where TDS was applicable if the interest exceeded Rs. 50,000. This amendment ensures that victims and their families receive the full benefit of the awarded interest without any tax or procedural burden.

These amendments will take effect from the 1st day of April, 2026 and shall accordingly, apply in relation to the tax year 2026-27 and subsequent tax years.

9. No requirement to obtain TAN Number by a resident individual/HUF where the seller of the immovable property is a non-resident. (Section 397 of ITA, 2025)

Under the current provisions of the Income-tax Act, 2025, a buyer is required to obtain a Tax Deduction Account Number (TAN) to deduct tax at source (TDS) only when purchasing immovable property from a non-resident seller. No TAN is required when the seller is a resident. However, this creates an unnecessary compliance burden for resident buyers, especially individuals or Hindu Undivided Families (HUFs), who may need to obtain TAN for a single property transaction.

To simplify compliance, it is proposed to amend section 397(1)(c) of the Act to clarify that a resident individual or HUF will not be required to obtain TAN for deducting TDS on consideration paid for transfer of immovable property under section 393(2). This amendment aims to reduce procedural requirements for small and individual taxpayers while ensuring tax is deducted at source in accordance with the law.

The amendment will take effect from the 1st day of October, 2026.

10. Inclusion of 'manpower' in the works and TDS applicability on such supply of manpower. (Section 402 of ITA, 2025)

Earlier, there was ambiguity whether provisions of section 194C or 194J of ITA, 1961 will apply for supply of manpower for which relevant rate of TDS @1% or 2% will be applicable. In order to remove the above ambiguity in ITA, 2025, it is proposed to include the supply of manpower within the ambit of 'work' in section 402 of ITA, 2025.

The amendment will take effect from the 1st day of April, 2026.

11. Rationalizing the period of block in case of other persons (295 of the ITA, 2025)

Earlier, in accordance with section 153C of the ITA, 1961, (correspondent to section 295 of ITA, 2025) if the Assessing Officer is satisfied that any undisclosed income belongs to or pertains to the any other person other than the searched person, then in view of the existing provisions of the block assessment, the block period is same as for the searched person.

In this regard, it has been considered that where undisclosed income pertaining to a third person relates only to a single tax year, the third person is nonetheless required to undergo the full block assessment procedure, resulting in an increased compliance burden on a person against whom no search or requisition was initiated. Accordingly, it is proposed to amend the section 295(2) of the Act so as to limit the period of block in case of third pa

Further, the time limit to complete the block assessment has been proposed to increase to 18 months from the end of the quarter in which the last search authorization was executed or requisition was made from earlier the time limit of 12 months.

This amendment will take effect from the 1st day of April, 2026, for search or requisition is initiated or made as the case maybe, on or after 1st day of April, 2026.

12. Conversion of penalties into fees

In order to reduce litigation for technical glitches and defaults, it is proposed to convert penalties applicable for such technical defaults into mandatory fees. In this regard, it is proposed to convert following penalties into fees:

1. Section 446 of the ITA, 2025; failure to get accounts audited.
2. Section 447 of the ITA, 2025; failure to furnish report u/s 172 of ITA, 2025.iii. Section 454 of the ITA,2025; failure to furnish statement of financial transactions.

However, it is proposed that in no case the amount of penalty shall not exceed Rs. 1,00,000/-.

The above amendments will take effect from the 1st day of April, 2026 and shall apply for tax year 2026-27 and subsequent tax years.

13. Imposition of penalty u/s 270A of the ITA, 1961 within the Assessment Order

Current position: Under the current provisions of the Income-tax Act, 1961, assessment and penalty proceedings are conducted separately. Section 274 prescribes the procedure for imposing penalties, including issuance of show-cause notices and obtaining approvals from higher authorities, ensuring compliance with the principles of natural justice and preventing invalid penalty

proceedings. Section 220 provides for the payment and recovery of tax demands along with interest in cases where taxpayers fail to deposit the assessed amount. This separation often results in multiple, overlapping proceedings.

Need for amendment: To streamline the process and reduce procedural multiplicity, it is proposed to amend section 274 to allow the penalty for underreporting of income under section 270A to be levied directly within the assessment order itself. Additionally, section 220 is proposed to be amended to provide that interest under section 220(2) will be charged only after the final order has been passed by the Commissioner of Income-tax (Appeals) or the Income-tax Appellate Tribunal, as applicable, including appeals arising from Dispute Resolution Panel orders. These changes aim to simplify compliance, reduce litigation, and ensure a coordinated approach to assessment, penalty, and interest.

Applicability: It is further proposed that these proposed amendments shall come into force in the

Income-tax Act, 1961 from the 1st day of March, 2026 and shall be effective from 1st day of April, 2027, where any draft of the proposed order of assessment under section 144C of the ITA, 1961 is made or assessment under section 143 or reassessment under section 147 of the ITA, 1961 is made on or after 1st of April, 2027.

The proposed amendments shall come into force in the Income-tax Act, 2025 from 1st day of April, 2026 and shall be effective from 1st day of April, 2027, where any draft of the proposed order of assessment under section 275 of the ITA, 2025 is made or assessment under section 270 or reassessment under section 279 of the ITA, 2025 is made on or after 1st of April, 2027.

14. Change in tax rate for unexplained incomes, unexplained investments or unexplained money

Section 195 of the ITA, 2025 (correspondent to section 115BBE of the ITA, 1961) prescribes flat rate of 60% on income referred to in section 102 to 106 of the ITA, 2025 (correspondent to section 68, 69, 69A, 69B, 69C or section 69D of ITA, 1961) on account of unexplained credits, unexplained investment, unexplained asset, unexplained expenditure and amount borrowed or repaid through negotiable instrument, hundi, etc.

In order to rationalize the rate of income tax on such income, it is proposed to tax such income 30% u/s 195 of the ITA, 2025.

This amendment will take effect from the 1st day of April, 2026 and shall apply for tax year 2026-27 and subsequent tax years.

15. Expanding the scope of immunity from penalty or prosecution. (Section 440 of ITA, 2025)

Currently, immunity u/s 440 can only be granted in the case of under reporting of income and not in the case of under reporting of income in consequence of misreporting.

In this regard, it has been considered that provision of immunity should also be extended to such cases where under-reporting of income is in consequence of misreporting. However, the taxpayer is required to pay an additional income-tax to the extent of 100% of the amount of tax payable on such income in lieu of the penalty. However, where mis reporting is on account of income referred to in 102 to 106 of the ITA, 2025, the taxpayer is required to pay an additional income-tax to the extent of 120% of the amount of tax payable on such income in lieu of the penalty.

This amendment will take effect from the 1st day of April, 2026 for tax year 2026-27 and subsequent tax years.

16. This amendment will take effect from the 1st day of April, 2026 for tax year 202627 and subsequent tax years.\

To attract investment in data centres and promote the development of an artificial intelligence data centre ecosystem in India, it is proposed to amend Schedule IV of the Income-tax Act. Under the amendment, a foreign company will be exempt from tax on any income accruing or arising, or deemed to accrue or arise, in India from procuring data centre services from a specified data centre, for a period up to the tax year ending 31 March 2047.

From an income-tax perspective, this exemption ensures that such income will not be included in the taxable income of the foreign company in India, thereby removing uncertainty regarding the Indian tax liability of cross-border payments for data centre services.

One of the conditions for availing this exemption is that, if the foreign company provides services to Indian users, such services must be routed through an Indian reseller entity.

This requirement ensures appropriate compliance and alignment with domestic business operations while facilitating foreign investment and growth in India's AI and data centre sector.

These amendments will take effect from the 1st day of April, 2026 and shall accordingly, apply in relation to the tax year 2026-27 and subsequent tax years.

17. Exemption to a foreign company on income arising on account of providing capital equipment etc. to an electronic goods manufacturer located in a custom bonded area

To encourage the manufacturing of electronic goods through contract manufacturing and provide certainty on the taxation of capital equipment supplied by foreign companies, it is proposed to amend Schedule IV. Under the amendment, a foreign company will be exempt, up to the tax year 2030-31, from tax on any income arising from supplying capital goods, equipment, or tooling to an Indian resident contract manufacturer.

The above exemption will apply where the manufacturer operates in a customs-bonded warehouse (as defined in section 65 of the Customs Act, 1962) and produces electronic goods on behalf of the foreign company for consideration. This measure aims to promote investment in electronic manufacturing and support the growth of the sector in India.

These amendments will take effect from the 1st day of April, 2026 and shall accordingly, apply in relation to the tax year 2026-27 and subsequent tax years.

18. Rationalization of MAT Credit. (Section 206 of ITA, 2025)

It is proposed to make MAT a final tax under the old regime, with no further MAT credit allowed, while reducing the MAT rate from 15% to 14% of book profit. MAT credit set-off will be permitted only under the new regime—up to 25% of tax liability for domestic companies and, for foreign companies, to the extent the normal tax exceeds MAT in the relevant year. These changes aim to facilitate a smooth transition from the old to the new tax regime.

This amendment is proposed to take effect from 1st April, 2026 and will, accordingly, apply in relation to the tax year 2026-27 and subsequent tax years.

19. Increase in rates of Securities Transaction Tax (STT)

It is proposed to increase the Securities Transaction Tax (STT) to 0.15% on the sale of options based on the option premium, to 0.15% on the sale of exercised options based on the intrinsic value, and to 0.05% on the sale of futures based on the traded price, with a view to curbing excessive speculation in futures and options trading.

These amendments shall take effect from the 1st day of April, 2026, and the revised rates shall apply to transactions in options and futures in securities entered into on or after that date.

20. Taxation of buy-back of shares

Under the current provisions of the ITA, 2025, consideration received on share buy-back is taxed as dividend income, with the cost of extinguished shares allowed as a separate capital loss. It is proposed to rationalise this by taxing buy-back consideration under the head "Capital gains" instead of dividend.

Further, given the special role of promoters in buy-back decisions, it is proposed that gains arising to promoters from buy-backs be subject to an effective tax rate of 30%, and 22% in the case of promoter companies, including applicable additional tax.

These amendments shall take effect from the 1st day of April, 2026, and shall apply in relation to the tax year 2026-27 and subsequent tax years.

21. Clarifications issued w.r.t. Disputes/Litigations pending or adudicated before the Supreme Court of India

Jurisdictional Assessing Officer (JAO) versus Faceless Assessing Officer (FAO)

The ITA, 1961 provides a two-stage reassessment mechanism under section 147. The first stage involves a pre-assessment enquiry by the Assessing Officer under section 148A to determine whether reassessment is warranted, culminating in a reasoned order and issuance of notice under section 148. Upon issuance of such notice, the case is transferred to the National Faceless Assessment Centre (NaFAC) for faceless assessment in accordance with section 144B.

The statutory scheme clearly demarcates pre-assessment enquiry from faceless assessment. The pre-assessment functions under sections 148A and 148 are to be exercised exclusively by the Assessing Officer, while NaFAC's role is confined to faceless assessment proceedings thereafter. However, divergent High Court rulings have led to uncertainty, and the issue is pending before the Supreme Court.

To ensure clarity, consistency, and reduce litigation particularly in light of the forthcoming Incometax Act, 2025, it is proposed to clarify that for the purposes of sections 148 and 148A, "Assessing Officer" shall always mean the Assessing Officer which exclude NaFAC and its assessment units, notwithstanding any judicial decision.

This clarification will apply retrospectively from 1 April 2021 under the Income-tax Act, 1961, and prospectively from 1 April 2026 under the Income-tax Act, 2025.

DIN Issue:

Section 292B of the Income-tax Act, 1961 provides that no return, assessment, notice, summons, or proceeding shall be invalid merely due to any mistake, defect, or omission if it is in substance and effect in conformity with the intent and purpose of the Act. However, certain High Court rulings have invalidated assessments for technical lapses relating to non-quoting of the Document Identification Number (DIN), despite lawful generation and reference to the DIN, undermining the protection intended under section 292B.

To remove ambiguity and reduce litigation—especially in light of the forthcoming Income-tax Act, 2025—it is proposed to clarify that no assessment shall be invalid solely due to any error, defect, or omission in quoting the DIN, provided the assessment order is referenced to such DIN in any manner. Minor defects in notices or summons relating to such assessment shall also not invalidate the proceedings. Corresponding amendments are proposed in the Income-tax Act, 2025.

The clarification under the Income-tax Act, 1961 will apply retrospectively from 1 October 2019, while the amendment in the Income-tax Act, 2025 will take effect from 1 April 2026.

Time limit for completion of assessment under section 144C

Section 144C of the Income-tax Act prescribes a special assessment procedure for eligible assessees, including non-residents and cases involving transfer pricing adjustments, requiring the Assessing Officer to issue a draft assessment order. The assessee may either accept the proposed variations or file objections before the Dispute Resolution Panel (DRP). Where variations are accepted, the assessment must be completed within one month as specified in section 144C(4), and where objections are filed, within one month of receipt of DRP directions under section 144C(13), both timelines operating notwithstanding sections 153 and 153B.

Despite this clear statutory carve-out, divergent judicial interpretations—including a split verdict of the Supreme Court—have created uncertainty as to whether the overall time limits under sections 153 or 153B apply to assessments under section 144C. To provide clarity and reduce litigation, it is proposed to clarify that sections 153 and 153B govern the draft order stage, while the timelines under section 144C exclusively apply to finalization of assessments, notwithstanding those sections. Corresponding amendments are proposed in the Income-tax Act, 2025.

The clarification under the Income-tax Act, 1961 will apply retrospectively from 1 April 2009 for section 153 and from 1 October 2009 for section 153B, and prospectively from 1 April 2026 under the Income-tax Act, 2025.

Manner of computation of days to pass order u/s 92CA by the Transfer Pricing Officer

Section 92CA of the Income-tax Act, 1961 empowers the Assessing Officer to refer computation of the arm's length price of international or specified domestic transactions to the Transfer Pricing Officer (TPO). Under section 92CA(3A), the TPO must pass an order at least 60 days before the expiry of the limitation period for assessment under section 153 or 153B.

Judicial interpretations have differed on the computation of this 60-day period, with courts excluding the date of limitation and consequently annulling assessments, contrary to legislative intent. To remove ambiguity and reduce litigation—particularly in light of the forthcoming Incometax Act, 2025—it is proposed to clarify the manner of computing the 60-day period in section 92CA(3A), notwithstanding any judicial decision. Corresponding amendments are proposed in the Income-tax Act, 2025.

The clarification under the Income-tax Act, 1961 will apply retrospectively from 1 June 2007, while the amendment under the Income-tax Act, 2025 will take effect from 1 April 2026.

22. Extension of tonnage tax scheme to Inland Vessels

Chapter XIII-G of the Income-tax Act contains special provisions for shipping companies. The

Finance Act, 2025 extended the tonnage tax scheme to inland vessels registered under the Inland Vessels Act, 2021 to promote inland water transport. To operationalize this extension, consequential amendments are proposed to align the Chapter with the Inland Vessels Act, 2021 and related rules.

The proposed amendments clarify the use of "valid certificate" for tonnage computation, replace references to tonnage certificates with "certificate of registration" for inland vessels, include inland vessels within core passenger ship activities, and align training and compliance requirements with guidelines issued by the Inland Waterways Authority of India. References to the appropriate designated authority for inland vessels are also proposed, along with defining the Inland Waterways Authority of India in the Chapter.

These amendments will take effect from 1 April 2026 and apply from tax year 2026-27 onwards.

23. Deductions in respect of dividends received and distributed by certain cooperative societies

Section 149(2)(d) of the ITA, 2025 currently provides for a deduction on the income of a cooperative society that is earned as interest or dividends from another cooperative society. At present, this deduction is available only under the old tax regime. Dividends received by a cooperative society from a company, however, are fully taxable in the hands of the cooperative society.

The proposed amendment seeks to extend this benefit under the new tax regime as well.

Specifically, it aims to allow a deduction on dividends received by a cooperative society from other cooperative societies, to the extent that such dividends are subsequently distributed to its members.

Additionally, it is proposed to provide a deduction for dividends received by notified federal cooperatives from companies for a limited period of three years, i.e., up to the tax year 2028-29, under both the old and new tax regimes. This deduction will apply only to dividends arising from investments made by the federal cooperative on or before 31st January 2026, and only if these dividends are further distributed to its members.

This amendment is proposed to come into effect from 1st April 2026 and will apply to the tax year 2026-27 and subsequent tax years.

24. Exclusion of specified business of Non-residents which are under presumptive taxation from the applicability of Minimum Alternate Tax

Under the current provisions of the Income Tax Act, certain foreign companies are exempted from the applicability of Minimum Alternate Tax (MAT). Similarly, the income of non-resident entities

for the presumptive taxation scheme under section 61 of the ITA, 2025 is also excluded from MAT. However, it has been observed that some other businesses eligible under the presumptive taxation scheme of section 61 have not been granted such exclusion, leading to inconsistent treatment.

To ensure uniformity and equitable treatment among all non-resident businesses opting for presumptive taxation under section 61, it is now proposed that two additional specified categories of businesses be exempted from MAT. These are:

The business of operating cruise ships; and

The business of providing services or technology for setting up an electronics manufacturing facility in India for a resident company.

This proposed amendment is intended to take effect from 1st April 2026 and will, therefore, be applicable to the tax year 2026-27 and subsequent assessment years.

25. Introduction of Disclosure Scheme called The Foreign Assets of Small Taxpayers Disclosure Scheme, 2026

A new Foreign Assets of Small Taxpayers Disclosure Scheme, 2026 has been proposed. Under this Scheme, an individual who acquired foreign assets during the period when they were a nonresident and who has subsequently returned to India, but inadvertently failed to disclose such foreign assets or declare the related foreign income, will be given an opportunity to regularize the non-compliance.

The Scheme permits eligible taxpayers to voluntarily disclose such foreign assets and income by paying tax at the rate of 30% on the value of the undisclosed foreign asset and 30% on the undisclosed foreign income, provided that the aggregate value of the undisclosed foreign assets and income does not exceed ₹1 crore. In addition, a one-time fee of ₹1 lakh would be payable where the value of the foreign assets does not exceed ₹5 crore.

This proposed Scheme is expected to provide significant relief to small taxpayers, particularly in cases where the non-disclosure was unintentional, while also encouraging voluntary compliance and bringing undisclosed foreign assets into the tax net.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.