Union Budget 2026 introduces Income Tax Act 2025 from April 2026. Here are 10 key tax changes including simpler rules, refunds, TCS cuts and incentives.
The new law incorporates all tax changes announced in Budget 2026 and focuses on simplicity, clarity, and reduced litigation—without increasing tax rates.
Union Budget 2026-27 signals a historic shift in India’s direct tax framework. Finance Minister Nirmala Sitharaman announced that the Income Tax Act, 2025 will come into force from April 1, 2026, replacing the six-decade-old Income Tax Act of 1961.
The new law incorporates all tax changes announced in Budget 2026 and focuses on simplicity, clarity, and reduced litigation—without increasing tax rates.
Here are the 10 most important direct tax highlights from Budget 2026:
The Income Tax Act, 2025 will officially replace the 1961 law, modernising India’s tax system for the next generation of taxpayers.
Presenting the Budget, Sitharaman said, "This (direct tax code) was completed in record time and the Income Tax Act 2025 will come into effect from first April 2026. The simplified income tax rules and forms will be notified shortly, giving adequate time to taxpayers to acquaint themselves with its requirements."
The new tax law remains revenue-neutral. The government has not altered existing tax rates, ensuring no additional burden on taxpayers.
The new Act reduces the length of the law and the number of sections by nearly half, making it easier to read and understand.
Budget 2026 removes the confusion between “previous year” and “assessment year” by introducing a single tax year concept.
Taxpayers can now claim refunds of Tax Deducted at Source (TDS) even if they file their Income Tax Returns after the deadline—without penalties.
The government proposed exempting Minimum Alternate Tax (MAT) for non-residents who pay tax under the presumptive taxation scheme.
The safe harbour threshold for IT services has been raised sharply from Rs 300 crore to Rs 2,000 crore, reducing transfer pricing disputes.
The Budget simplifies Tax Collected at Source by fixing a flat 2% rate for liquor, scrap, and mineral sellers.
Foreign companies offering cloud services using Indian data centres will get a tax holiday until 2047, subject to conditions—boosting India’s digital infrastructure ambitions.
By simplifying compliance, reducing litigation risks, and keeping tax rates unchanged, Budget 2026 positions the new Income Tax Act as a citizen-friendly reform focused on long-term growth.
