Union Budget 2026-27: A Detailed Look at Tax Measures for Individual Taxpayers
While the Union Budget for 2026-27 did not feature the sweeping income tax reforms seen in the previous year, it introduced a series of targeted adjustments and announcements that will significantly affect individual taxpayers across various categories. Finance Minister Nirmala Sitharaman's proposals focus on revenue generation, easing compliance burdens, and providing relief in specific areas, marking a shift from big-bang announcements to nuanced policy tweaks.
Securities Transaction Tax (STT) Hike in F&O Trades
The government has proposed a substantial increase in the Securities Transaction Tax (STT) on futures and options (F&O) trades, aimed at implementing a reasonable course correction in the stock trading segment. This move is expected to generate additional revenue while addressing concerns over retail speculation. Specifically, the STT on futures will rise to 0.05% from 0.02%, representing a two-and-a-half-fold increase. Meanwhile, the STT on options premium and exercise of options will be elevated to 0.15% from the current rates of 0.1% and 0.125%, respectively.
This adjustment is designed to deter excessive speculation in the F&O segment, which has witnessed a surge in participation from retail investors. According to data from the Securities and Exchange Board of India (SEBI), more than 90% of individual traders in this segment incur losses. Market analysts anticipate that the hike could lead to a moderation in trade volumes, promoting more stable market conditions.
Encouraging Equity Investments from Persons Resident Outside India (PROIs)
In a bid to boost foreign investments and strengthen capital inflows, the Budget has proposed measures to facilitate equity investments from Persons Resident Outside India (PROIs). PROIs will now be permitted to invest in listed Indian companies' equity instruments through the Portfolio Investment Scheme. The investment limit for an individual PROI under this scheme will be doubled to 10%, with the overall investment limit for all individual PROIs increasing to 24% from the current 10%.
A PROI is defined as any individual or entity that does not meet India's residency criteria under the Foreign Exchange Management Act (FEMA). These changes are expected to attract investments from non-Indian foreign nationals, extending beyond non-resident Indians (NRIs) and Overseas Citizens of India (OCIs). Currently, foreign investments are categorized as either Foreign Direct Investment (FDI) or Foreign Portfolio Investment (FPI), subject to FEMA regulations. The enhanced limits are projected to provide a significant boost to capital inflows, supporting economic growth.
Relief in Tax Collection at Source (TCS) Rates
The Budget offers relief in Tax Collection at Source (TCS) rates for specific overseas expenditures, aiming to lower barriers for international education and medical treatment. Under the Liberalised Remittance Scheme, the TCS rate for pursuing education or obtaining medical treatment abroad, for an aggregate amount of Rs 10 lakh per year, will be reduced to 2% from the current 5%.
Although TCS is adjustable against the final tax liability, this reduction means that a smaller portion of taxpayer funds will be locked away as tax, thereby improving cash availability for individuals. Additionally, the TCS rate on the sale of overseas tour programmes will also be cut to 2% from 5% for amounts up to Rs 10 lakh, and from 20% to 2% for aggregate amounts exceeding Rs 10 lakh. This measure is likely to ease financial planning for those seeking services or experiences abroad.
Simplified Income Tax Rules and Compliance Easing
To streamline tax compliance, the government will shortly notify simplified Income Tax rules and forms under the Income Tax Act, 2025, which followed a comprehensive review of the Income Tax Act, 1961. These forms have been redesigned to enable ordinary citizens to comply without difficulty. Key changes include:
- The deadline for filing revised Income Tax returns is extended by three months, moving from December 31 to March 31 following the tax year, with a nominal fee required. Taxpayers can file revised returns for original or belated returns, with fees of Rs 1,000 for incomes up to Rs 5 lakh and Rs 5,000 for higher incomes.
- While the filing deadline for individuals with ITR 1 and ITR 2 returns remains July 31, those in non-audit business categories, such as individual business owners and professionals, will have an extra month until August 31.
- A new scheme will introduce a rule-based automated process for obtaining lower or nil deduction certificates, eliminating the need to file applications with assessing officers. This certificate allows for reduced or eliminated Tax Deducted at Source (TDS) when estimated annual tax liability is below the standard rate.
- For taxpayers holding securities in multiple companies, depositories will now accept Form 15G or 15H from investors and provide them directly to relevant companies, simplifying the process of requesting non-deduction of TDS on investment income.
- TDS on the sale of immovable property by non-residents will be deducted and deposited through the resident buyer's PAN-based challan, instead of requiring a Tax Deduction and Collection Account Number (TAN), easing transactions for resident buyers.
One-Time Foreign Asset Disclosure Scheme for Small Taxpayers
Addressing practical challenges faced by small taxpayers, such as students, young professionals, IT employees, and relocated NRIs, the government will introduce a one-time six-month foreign asset disclosure scheme. This initiative allows taxpayers to disclose income or assets below specified thresholds, with two categories eligible:
- Taxpayers who did not disclose overseas income or assets, with a limit of up to Rs 1 crore. They must pay 30% of the Fair Market Value as tax and an additional 30% as penalty, granting immunity from prosecution.
- Taxpayers who disclosed overseas income and paid tax but failed to declare acquired assets, with a limit of up to Rs 5 crore. Immunity from penalty and prosecution is available upon payment of a fee of Rs 1 lakh.
This scheme aims to regularize undisclosed assets while providing a structured path for compliance.
Rationalisation of Tax Penalty and Prosecution Frameworks
To enhance the ease of doing business and reduce litigation, the Budget proposes several rationalizations in tax penalty and prosecution mechanisms:
- Assessment and penalty proceedings will be integrated through a common order, streamlining the process.
- Taxpayers will face no interest liability on penalty amounts during appeals before the first appellate authority, regardless of the outcome.
- The quantum of pre-payment is reduced from 20% to 10%, calculated only on core tax demand.
- Taxpayers can update returns even after reassessment proceedings begin, at an additional 10% tax rate, with assessing officers using only this updated return.
- The existing framework for immunity from penalty and prosecution in underreporting cases will extend to misreporting cases, requiring payment of 100% of the tax amount as additional income tax.
- Penalties for technical defaults, such as failure to get accounts audited, will be converted into fees, and minor offences will attract fines rather than prosecution, with graded penalties based on offence severity.
Overall, the Union Budget 2026-27 focuses on fine-tuning tax policies to balance revenue generation with taxpayer relief, emphasizing compliance ease and targeted support for individuals in specific scenarios.
