The Union budget 2026 leaves headline tax rates unchanged, focusing on simplifying compliance, providing more certainty and building trust between the taxpayer and the State.
It introduces a series of targeted reforms across income tax and customs that collectively seek to lower the cost of compliance and enhance the ease of doing business.
Income tax reforms: Moving from enforcement to facilitation
A key reform introduced earlier is the passage of the new Income Tax Act, 2025, scheduled to take effect from April 1, 2026. The new law aims to replace dense, cross-referenced provisions with a simplified and logically organised statute. The rules, procedures and forms guiding the implementation of the new act are keenly awaited by taxpayers. Though earlier expected by December 31, 2025, the finance minister has announced that new rules and forms will be notified shortly and will be compliance-friendly.
The finance ministry has announced several measures aimed at reducing the procedural and administrative burden on taxpayers. For instance, the timelines for revising returns have been extended from December 31 to March 31 with payment of a fee, allowing taxpayers more flexibility to update their tax filings. This is a much-needed relief for corporates whose original due dates for filing returns are October 31 or November 30. Small taxpayers can now obtain lower or nil deduction certificates through an automated, rule-based process, eliminating the need to personally approach the assessing officer.
Rationalising TDS, TCS and procedural penalties
The budget also addresses long-standing concerns around the multiplicity and rigidity of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions. Several rates and thresholds have been rationalised to reduce cash-flow strain and administrative burden, particularly for individuals and small businesses.
Notably, the reduction in TCS rates on certain overseas remittances, including education and medical expenses under the Liberalised Remittance Scheme, eases upfront financial pressure on households. Equally important is the government’s decision to convert many procedural defaults – such as delayed filings or reporting lapses – into fixed fees rather than exposing taxpayers to open-ended penalties or prosecution risk.
This approach recognises that compliance failures are often procedural rather than deliberate, and that excessive penal consequences can discourage voluntary compliance rather than strengthen it.
Decriminalisation and litigation reduction
A standout feature of budget 2026 is the continued decriminalisation of minor tax offences. Several technical and procedural lapses have been removed from the ambit of criminal prosecution altogether. Where prosecution provisions remain, maximum imprisonment terms have been reduced and greater discretion has been granted to courts to levy monetary penalties instead.
Sector-specific support has also been strengthened, particularly for cooperatives and the IT industry. The IT sector stands to benefit from consolidated safe-harbour rules, higher applicability thresholds and an automated approval process – measures that will significantly improve certainty and speed of resolution in transfer pricing matters. Fast-tracking Advance Pricing Agreements (APAs), along with allowing associated entities to file modified returns post-APA, should further reduce disputes and timelines. In a strong signal to global investors, the budget also proposes a tax holiday until 2047 for foreign companies providing cloud services to global customers using data centre services from India.
Buybacks will now be taxed as capital gains in the hands of all shareholders, with promoters subject to an additional levy. Companies transitioning to the new simplified corporate tax regime will be allowed to set off brought-forward MAT (Minimum Alternate Tax) credits up to 25% of their tax liability, and MAT will become a final tax from April 2026 under the old corporate tax regime.
Customs reforms: Faster clearances, lower friction
The budget proposals echo the government’s Make in India agenda. Targeted duty support for critical raw materials and components used in high value-added manufacturing should further boost indigenous manufacturing and export competitiveness, alongside a two-year extension of key existing exemptions and new concessional duty measures for the aviation, defence, power and ESDM sectors.
The emphasis on trade facilitation is equally welcome. Extending the duty-deferment window for Authorised Economic Operators from 15 to 30 days should ease cash-flow pressure, while the proposed Customs Integrated System promises faster, more digital and more predictable cross-border processes. Extending customs advance ruling validity to five years will strengthen certainty and investor confidence. Overall, the measures support India’s positioning for a more efficient and globally competitive trade ecosystem.
Taken together, the income tax and customs measures in budget 2026 reflect a coherent policy direction: compliance should be simple, enforcement proportionate, and disputes the exception rather than the norm. The budget will be marked for lowering the costs of compliance, freeing up managerial bandwidth and improving investor confidence.
For taxpayers and businesses alike, budget 2026 represents an incremental but important step towards a more predictable, transparent and trust-based tax and trade regime – one where ease of compliance becomes a cornerstone of economic growth rather than an afterthought.