Government Finalizes Major Direct Tax Reforms to Boost Investment Climate
The Centre has successfully implemented several significant direct tax reforms announced in recent Union Budgets. These changes aim to provide greater investment certainty and reduce the compliance burden for taxpayers across various sectors. As the presentation of the Union Budget 2026-27 approaches, the Ministry of Finance shared detailed information about these legislative amendments through a social media post.
Key Reform for Alternative Investment Funds
A crucial reform focuses on Alternative Investment Funds (AIFs). The Finance Act, 2025, amended Section 2(14) to classify securities held by Category I and Category II AIFs as capital assets. This move provides "certainty of taxation" for these funds. Consequently, income from the transfer of such securities will now be taxed under "Capital Gains" instead of "Profits and Gains of Business or Profession".
This amendment becomes effective from April 1, 2026, and will apply to Assessment Year 2026-27. The change aligns Indian AIFs with Foreign Portfolio Investors, creating a more uniform regulatory environment.
Support for Startups and Manufacturing
The government has extended tax incentives to strengthen startups and boost electronics manufacturing. Section 80-IAC was amended to extend the incorporation deadline for eligible startups to March 31, 2030. These qualifying startups can claim a "100% profit deduction for 3 consecutive years in their first 10 years" of operations.
To support electronics manufacturing, a presumptive taxation regime under Section 44BBD was introduced for non-residents providing services or technology to electronics units. This regime taxes them on a deemed profit of 25 percent of gross receipts, simplifying their tax obligations.
Infrastructure and Individual Taxpayer Relief
Infrastructure development received a boost with the extension of the Tonnage Tax Scheme to inland vessels. This follows an amendment to Section 115VD, effective from April 1, 2026.
For individual taxpayers, several relief measures were implemented. Withdrawals from National Savings Scheme (NSS) accounts made on or after August 29, 2024, are now "fully tax-exempt". Additionally, NPS Vatsalya offers an "additional deduction of up to Rs 50,000" under Section 80CCD(1B), over and above the Section 80C limit.
Property tax rules were simplified to allow nil annual value for two properties without any conditions, reducing paperwork for homeowners.
Measures to Reduce Tax Litigation
To minimize disputes and litigation, the finance act introduced a three-year block period for transfer pricing assessments. The government also expanded Safe Harbour rules by raising the turnover threshold to Rs 300 crore and adding new sectors such as electric vehicle components.
These comprehensive reforms demonstrate the government's commitment to creating a more predictable and business-friendly tax environment while providing relief to individual taxpayers and reducing legal conflicts.
