Budget 2026 Unveils New Income Tax Act Implementation Timeline and Key Reforms
Finance Minister Nirmala Sitharaman made significant announcements during her Budget 2026 presentation on Sunday, outlining the roadmap for India's tax system overhaul. The centerpiece of her speech was the confirmation that the Income Tax Act, 2025 will come into effect from 1 April 2026, marking a historic shift from the six-decade-old tax legislation currently in force.
No Changes to Income Tax Slabs for the Coming Financial Year
In a move that maintains stability for taxpayers, the finance minister explicitly stated that there will be no alterations to the income tax slabs for the upcoming financial year 2026-2027. This decision means the existing tax structure will continue unchanged, providing clarity and predictability for individuals and businesses alike.
The current tax slabs under the Old Regime remain as follows:
- Income up to ₹2.5 lakh: Nil
- Income from ₹2.5 lakh to ₹5 lakh: 5%
- Income from ₹5 lakh to ₹10 lakh: 20%
- Income above ₹10 lakh: 30%
Under the New Regime, the structure is:
- Income up to ₹4 lakh: Nil
- Income from ₹4 lakh to ₹8 lakh: 5%
- Income from ₹8 lakh to ₹12 lakh: 10%
- Income from ₹12 lakh to ₹16 lakh: 15%
- Income from ₹16 lakh to ₹20 lakh: 20%
- Income from ₹20 lakh to ₹24 lakh: 25%
- Income above ₹24 lakh: 30%
It is important to note that the government had previously announced a tax rebate for incomes up to ₹12 lakh, coupled with an increased standard deduction of ₹75,000. This effectively makes income up to ₹12.75 lakh tax-free for salaried individuals, a benefit that continues unchanged.
Key Tax Reforms and Exemptions Announced in Budget 2026
While tax slabs remain static, the finance minister introduced several important reforms aimed at simplifying compliance and providing relief in specific areas:
- Motor Accident Compensation Interest Exemption: Interest earned on compensation awarded by Motor Accident Claims Tribunals will now be exempt from income tax for natural persons. Additionally, Tax Deducted at Source (TDS) requirements on such interest payments will be eliminated.
- Reduced TCS Rates: The Tax Collected at Source (TCS) rate on overseas tour program packages has been reduced from the current 5% and 20% to a uniform 2% without any amount stipulation. Furthermore, TCS rates for education and medical purposes under the Liberalized Remittance Scheme (LRS) have been lowered from 5% to 2%.
- Extended Return Revision Window: Taxpayers will now have until 31 March to revise their returns, extended from the previous deadline of 31 December, subject to payment of a nominal fee.
- Streamlined TDS Process for Securities: Depositories will be enabled to accept Forms 15G or 15H directly from investors and provide them to relevant companies, simplifying the process for those holding securities across multiple firms.
- Revised Filing Deadlines: Individuals filing ITR 1 and ITR 2 returns will continue to have until 31 July, while non-audit business cases or trusts are proposed to be allowed until 31 August.
- One-Time Foreign Asset Disclosure Scheme: A special six-month scheme will be introduced for students, young professionals, and small taxpayers to disclose foreign income or assets below a specified threshold.
- TDS Reduction on Property Sales by Non-Residents: The finance ministry has proposed reducing TDS on the sale of immovable property by non-residents when deposited through a resident buyer's PAN-based challan, eliminating the need for a TAN.
Implementation Timeline and Future Notifications
The Income Tax Act, 2025 represents a comprehensive overhaul of India's tax framework, incorporating all changes made in the 2026-27 Budget. While the implementation date is set for April 2026, the finance minister clarified that all accompanying rules and tax return forms will be notified separately at a later date.
This strategic approach allows for a smooth transition period, giving taxpayers and authorities adequate time to prepare for the new legislative environment. The unchanged tax slabs for 2026-27 provide immediate stability, while the announced reforms address specific pain points and compliance challenges across various taxpayer segments.
The Budget 2026 tax announcements reflect a balanced approach—maintaining continuity in fundamental structures while introducing targeted improvements to enhance efficiency, reduce burdens, and address specific economic and social objectives through the tax system.
