Income Tax Slabs Budget 2026 Highlights: What taxpayers got in Budget 2026 — were there any income tax cuts?

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Now that gains from buybacks will be treated as capital gains from the next fiscal year for all investors, it will effectively reduce the tax outgo for several shareholders.

While that’s great news for non-promoter shareholders, promoter shareholders will have to pay a differentiated buyback tax that is higher than the capital gains, limiting the benefit they get from the move announced in the Union budget for FY27 on Sunday.

In her budget speech, FM Nirmala Sitharaman announced that gains from buybacks for shareholders will be taxed as capital gains at their usual rates—12.5% for long-term, and 20% for short-term.

In Budget 2026, the government proposed that buyback proceeds for all types of shareholders will be taxed as capital gains, marking a major overhaul of the previous rule.

Earlier such proceeds were treated as dividend income. The move addresses a complex and widely criticised tax structure that had led to punitive outcomes for promoters and shareholders, as the entire buyback proceeds, including the acquisition cost, were taxed at slab rates.

If this is implemented, employees who are not promoters will pay a 12.5% tax rate on long-term gains held for over one year.

The Union Budget 2026 has proposed a big change that would impact investors who borrow funds to invest in dividend-paying stocks or mutual funds. The proposal removes the existing tax benefit that allowed investors to claim a deduction on interest paid for such borrowings.

Under the current rules, taxpayers are permitted to deduct a portion of the interest expense that they incurred for earning dividend income or income from mutual fund units, subject to a prescribed limit. This relief has been particularly relevant for investors who use borrowed money to build income-generating portfolios.

In the Union Budget 2026, FM Sitharaman proposed reducing the TCS rate on the sale of “overseas tour programme package,” to 2% from 5% on amounts up to ₹10 lakh. This includes expenses for travel or hotel stay or boarding or lodging or any similar or related stuff.

Meanwhile, the TCS rate on packages whose amounts exceed ₹10 lakh was 20%. That has also been reduced to 2%, providing relief to people who seek to travel abroad.

“The Union Budget 2026 underscores the government’s strategic focus on strengthening India’s tourism sector. Initiatives such as the the reduction of TCS on overseas tour packages to 2% is a well-timed move that improves affordability and reinforces traveller confidence,”said Akansha Agarwal, the co-founder and CMO of Int2Cruises.

Finance Minister Nirmala Sitharaman announced a reduction in the Tax Collected at Source (TCS) rate for education and medical purposes from 5% to 2% in the Union Budget 2026, providing major relief for students and families.

The TCS rate on remittance under the LRS of an amount or aggregate of the amounts exceeding ₹10 lakh has been proposed at 2% for purposes of education or medical treatment from the current 5%, according to the announcement.

As part of the Union Budget for 2026-27, FM Nirmala Sitharaman announced plans to establish hostels for girls in every district across India, aiming to promote girls’ education as a driver of economic growth. The proposal envisages at least one dedicated hostel for girl students in each of India’s 806 districts.

“The Union Budget 2026 recognises that women’s participation in the workforce is not just a social issue, but a key driver of economic growth and household income. Investments in safety, education, skilling, and working women’s hostels and accommodation make it easier for women, especially from smaller towns and rural areas to study, work, and become financially independent,” said Karanvir Singh, the founder of Connecting Nations.

When women have access to safe housing and proper support, they are better able to earn, save, and contribute to family finances. Stronger participation also improves productivity and strengthens local economies, Singh noted.

“By focusing on education, skills, and workforce-linked infrastructure, the Budget helps more women move from dependency to stable income and long-term financial security. This is how truly inclusive growth is built,” he said.

Rohit Gera, Managing Director, Gera Developments said the Union Budget 2026–27 takes a balanced approach to growth, combining fiscal discipline with focused investments that strengthen confidence in India’s economy.

Higher spending on infrastructure and urban development, especially in Tier-2 and Tier-3 cities, will improve connectivity, create new housing markets, and enhance everyday livability. All these changes would be beneficial for the public.

“Increased capital expenditure is likely to support steady demand for homes by reducing project risks and improving execution. While direct tax relief for homebuyers remains limited, sustained infrastructure spending and better access to financing can help improve affordability over time. Clearer policies on affordable and rental housing will be crucial to ensure that rising demand is matched with timely and efficient supply,” he said.

Budget 2026 has proposed a high-level committee to review the banking sector. Public sector NBFCs like PFC and REC will be restructured, which in turn will improve efficiency.

“The announcement to set up a high-level committee on banking and financial sector reforms is a significant step toward aligning the financial ecosystem, including NBFCs and banks, with India’s long-term goals,” said Kapil Garg, MD of Mufin Green Finance.

Garg further said that the committee can help refine regulatory frameworks, improve risk management, and ensure that NBFCs play a complementary role in credit delivery alongside banks.

FM Nirmala Sitharaman proposed a Coconut Promotion Scheme to increase production and improve productivity, boosting India's competitiveness in coconut cultivation.

She also announced a dedicated programme for Indian cashew and cocoa, with the objective of making India self-reliant in raw cashew and coconut production and processing, while enhancing export competitiveness.

These schemes mostly target the farmers in southern India, two of whose states (Tamil Nadu and Kerala) go to polls a little later this year, HT reported.

Finance Minister Nirmala Sitharaman proposed a rule-based, automated process for small taxpayers in the FY27 Budget. Outlining the proposal, she said: “I propose a scheme for small taxpayers wherein a rule based automated process will enable obtaining a lower or nil deduction certificate. Instead of filing an application with the assessing officer,” said FM Sitharaman.

This initiative aims to reduce manual intervention and ease compliance. In broad terms, it is also expected to minimise disputes, cut processing time, and lower the compliance burden for small taxpayers.

"As someone closely engaged with investors and India’s evolving financial landscape, I see Budget 2026 as a constructive and forward-looking roadmap that keeps the Government’s long-term growth agenda firmly on track," said Nishant Kohli, the founder and CEO of NRI Nivesh.

Rather than focusing on headline tax rate changes, the Finance Bill prioritises simplification and improved compliance, strengthening overall investor confidence, he added.

Kohli further noted that encouraging steps have also been taken for NRIs, an area where the experts have consistently provided feedback, particularly on easing the lower TDS process and removing practical hurdles like the TAN requirement in property transactions.

“The move towards electronic Nil/Lower TDS certificates and PAN-based compliance is therefore welcome,” he said.

Additionally, he noted that the strong expansion of IFSC incentives underlines India’s ambition to emerge as a global financial hub.

The Union budget for FY27 has proposed that residents buying properties from non-resident Indians (NRIs) are not required to obtain TAN (tax deduction and collection account number), a move that make it easier to process such transactions.

Presently, to buy an immovable property from a resident seller, a person does not need TAN, which is required to deduct tax at source. However, if the seller is an NRI, the buyer needs TAN to deduct tax at source. This creates an unnecessary compliance burden for the buyer, as he would need TAN for a single transaction.

Check out the list of items that have become cheaper —

1. Personal use imported goods
2. 17 drugs or medicines for cancer patients
3. Drugs, medicines and Food for Special Medical Purposes (FSMP) for 7 rare diseases
4. Leather items (footwear)
5. Textile garments
6. Seafood products
7. Tour package (overseas)
8. Lithium-Ion Cells for batteries
9. Solar glass
10. Critical minerals
11. Biogas-blended CNG
12. Aircraft manufacturing components
13. Microwave oven
14. Foreign education

Check out the list of items that have become expensive —

1. Alcohol
2. Cigarettes
3. Nuclear Power Projects components
4. Minerals, iron ore, coal

In a major announcement related to tax rule changes, FM Nirmala Sitharaman proposed a sharper penalty framework for underreporting of income in the Union Budget 2026.

If a taxpayer underreports their income happens due to a genuine mistake or oversight, the penalty will be limited to 50% of the tax amount payable on such income.

However, in cases where underreporting is a result of misreporting of income, then the penalty will be a steep 200% of the tax amount.

The Centre on Sunday laid out a proposal for global cloud service providers such as Microsoft, Google and Amazon to use more of Indian data centres, promising zero tax on global cloud services provided by them through an Indian entity and from an Indian data centre, union finance minister Nirmala Sitharaman said at her Budget speech in parliament.

“Proposal to provide tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India will accelerate both foreign and domestic investment in data centres, accelerate demand for renewable energy and energy storage solutions,” said Ramanuj Kumar, Partner at Cyril Amarchand Mangaldas.

He further added that the initiative provides a long-term growth path for data centre providers and associated ecosystem players in India.

Meanwhile, another CAM Partner Huzefa Tavawalla noted that the intent of the initiative appears to be to ensure a level playing field for domestic service providers. That said, much will depend on how the actual text of the Income Tax Act will read in relation to the said relaxations.

“The Union Budget 2026‑27 takes a bold stride in fortifying India’s digital landscape through an extended tax holiday for data centre projects. By incentivising domestic infrastructure, it paves the way for global tech investments and positions India at the forefront of cloud innovation and next-generation digital technologies.” said Ajay Sawhney, Partner at Cyril Amarchand Mangaldas.

Union Budget 2026, presented by FM Nirmala Sitharaman, makes capital gains on Sovereign Gold Bonds (SGBs) taxable if not brought directly from the RBI. Onlt SGBs subscribed at original RBI issue and held till 8-year maturity stay exempt.

Here's a list of truly tax-free investment options:

— PPF: Tax-free contribution, interest and withdrawal

— Sukanya Samriddhi Yojana: High interest, tax-free returns

— EPF: Employer-employee contributions with tax-free maturity

— Others: Select ULIPs and ELSS schemes under EEE category remain tax free.

The deadlines for filing Revised ITR and ITR-3 and 4 have been extended, with an aim to reduce filing rush.

To ease last-minute traffic on the income tax portal, the government has made some changes in ITR filing deadlines. Individuals filing ITR-1 and ITR-2 will continue to have a 31 July deadline, while non-audit business entities and trusts will now be allowed to file returns up to 31 August.

Meanwhile, for those filing Revised ITR, the due date has been extended from 31 December to 31 March, with the payment of a nominal fee.

Union Budget 2026 has hiked Securities Transaction Tax (STT) on futures to 0.05% from 0.02%. Meanwhile, for options premium and exercise, the STT has been increased to 0.15%.

For retail investors who are trading frequently in F&O, this directly increases trading costs, reducing net profits and making speculative trades more expensive.

However, some experts and market commentators don't view this change as a negative development, but rather something that would bring ‘risk-discipline’ in the markets.

“The increase in STT on futures and options should be seen as a market-quality and risk-discipline measure, not a directional call on markets. While it incrementally raises transaction costs for high-frequency and ultra-short-term trading, its impact on institutional capital and long-horizon investors remains limited. Over time, this may help moderate excessive speculative churn and encourage more thoughtful capital deployment,” said Rajesh K, the Founder and CEO of BlissMoney Fintech Pvt. Ltd.

During the Union Budget 2026–27 presentation, FM Nirmala Sitharaman confirmed that the Income Tax Act, 2025 will come into force from 1 April, 2026, replacing the decades-old tax law.

The government clarified that the objective of introducing a new Act is to simplify language and provisions, reduce interpretational disputes and prevent litigation.

Alongside the new law, simplified Income Tax Rules and redesigned ITR forms will be notified shortly, aimed at helping ordinary taxpayers comply without difficulty.

In the Budget 2026 presentation, FM Sitharaman has proposed a major relief by reducing Tax Collected at Source (TCS) on overseas tour programme packages to a flat 2%, down from the earlier 5% and 20% slabs, with no amount-based conditions.

Additionally, TCS under the Liberalised Remittance Scheme (LRS) for education and medical purposes has also been cut from 5% to 2%, easing cash-flow pressure for families, students and individuals making essential overseas payments.

Finance Minister Nirmala Sitharaman, in her Union Budget 2026 speech on Sunday, 1 February, announced a one-time foreign asset disclosure scheme for small taxpayers like students, tech professionals, and relocated Non-Resident Indians (NRIs).

Particularly for those who declared their income and paid taxes but did not disclose foreign assets, the proposal covers assets valued at up to ₹5 crore. For these individuals, immunity from both penalty and prosecution will be available with a payment of a fee of ₹1 lakh.

Finance Minister Nirmala Sitharaman on Sunday proposed extending the deadline for filing revised income-tax returns (ITRs) from 31 December to 31 March of the relevant financial year.

She also mentioned that taxpayers would have to make the payment of a nominal fee.

The change will be implemented under the forthcoming Income Tax Act, 2025, and is aimed at improving voluntary compliance and reducing avoidable disputes.

Speaking at her 9th consecutive Budget, Finance Minister Nirmala Sitharaman proposed an extension of the deadline for filing ITR-3 and ITR-4 from 31 July to 31 August.

It is important to note that this change would only apply to non-audit business cases and trusts.

This proposal aims to ease the rush during the peak Income Tax Return (ITR) filing season and give certain taxpayers more breathing room.

FM Nirmala Sitharaman proposed the reduction of Tax Collected at Source (TCS) rates on overseas tour packages from the current rates of 5% and 20% to a flat 2% with no minimum booking amount.

The investment limit for NRIs was increased from 5% to 10% and the overall investment limit was increased to 24% from 10%.

The move is expected to enable greater participation of NRI capital and improve access to long-term overseas funds.

The FM proposed to stagger the timeline for filing of ITRs by taxpayers. “Individuals with ITR 1 and ITR 2 returns will continue to file till 31 July and non-audit business cases or trusts are proposed to be allowed time till 31 August,” the FM said.

Under the existing provisions of the Income Tax Act, 2025, and the STT framework of Finance (No. 2) Act, 2004, STT is levied on transactions in specified securities carried out through recognised stock exchanges. The current rates applicable to options in securities are 0.1% of the option premium on sale of an option and 0.125% of the intrinsic price on sale of an option when exercised.

Issuing a clarification, the income tax department said STT has been raised only on options and futures, and not other segments.

“Further clarity through higher STT on futures and options aims to encourage longer-term investing, while higher NRI investment limits from 5% to 10% per stock and 24% at the overall level are intended to attract greater NRI participation,” says Srikanth Subramanian, co-founder and CEO of Ionic Wealth.

FM Nirmala Sitharaman announced that taxpayers will now be able to file income tax returns (ITRs) till 31 March of the relevant assessment year, instead of the current deadline of 31 December.

On the direct taxes front, the Finance Minister said the Income Tax Act, 2025, will come into effect on 1 April. The government will notify the new rules and tax return forms shortly. Notably, there are no changes to income tax rates, the standard deduction, or tax slabs under the new regime.

“Higher STT directly impacts the trading profitability for active participants and raises concerns around liquidity and volume growth,” says Ajay Menon, MD & CEO – Wealth Management, Motilal Oswal Financial Services.

Finance Minister Nirmala Sitharaman presented the Union Budget 2026 on Sunday, 1 February. The speech, keenly awaited by taxpayers, offered no relief on the income tax front, disappointing salaried and middle-class taxpayers who had been hoping for cuts in tax rates or changes to income tax slabs.

“The Government has proposed amendment under GST by removing intermediary services from the place of provision of services rules. This has brought much-needed clarity to the long-standing disputes between the taxpayers and the GST department regarding the taxability of intermediary services, with it now qualifying as export of services,” says Smita Singh, Partner (Indirect Tax), S&A Law Offices.

FM Sitharaman proposed a six-month foreign asset disclosure scheme targeted at small taxpayers such as students, technology professionals and relocated non-resident Indians (NRIs).

“The increase in the Securities Transaction Tax is defensible in isolation, but it contradicts the original logic of STT as a substitute for capital gains taxation. India now has both high capital gains taxes and a rising STT, which distorts market incentives,” says Prasanna Tantri, Associate Professor of Finance and the Executive Director of the Centre for Analytical Finance at the Indian School of Business (ISB).

Announcing key compliance changes under the Income Tax Act 2025, the finance minister proposed extending the deadline for filing revised income-tax returns to 31 March from 31 December. The revised ITR can be filed with a nominal fee after 31 December.

Here is a list of items that will get cheaper after Budget 2026 —

Personal use imported goods, drugs or medicines for cancer patients, drugs, medicines and food for special medical purposes (FSMP) for 7 rare diseases, leather items (footwear), textile garments, seafood products, tour package (overseas), lithium-ion cells for batteries, solar glass, critical minerals, biogas-blended CNG, aircraft manufacturing components, microwave oven, foreign education.

“The Budget 2026 has delivered a practical mix of easier compliance and better cash flow for global Indians. First, simplifying NRI property sales is a structural improvement. Allowing resident buyers to deduct TDS without needing a TAN removes major friction in real estate transactions and should help speed up secondary market sales. Second, cutting the TCS rate from 5% to 2% on overseas education, medical treatment, and travel directly helps family cash flow. It reduces upfront money getting locked, especially for parents sending children abroad or planning travel, and shows an understanding of how global Indian households actually spend,” says ClearTax CEO Archit Gupta.

Starting 1 April 2026, any interest on compensation awarded by the Motor Accidents Claims Tribunals or MACT to an individual or their legal heirs – whether due to death, permanent disability, or bodily injury – will be entirely exempt from income tax deductions. Earlier, the principal compensation amount was treated as a capital receipt, effectively making the interest earned on it taxable.

During the Budget presentation, the finance minister proposed taxing the proceeds of share buybacks as capital gains. As per the existing rule, which took effect on 1 October 2024, the entire proceeds of a company’s share buyback were treated as dividend and taxed at the investor’s slab rate.

Budget 2026 introduced a new rule-based, automated scheme aimed at easing compliance for small taxpayers. Presenting the Budget in Parliament, FM Nirmala Sitharaman said the new scheme would allow eligible small taxpayers to obtain lower or nil tax deduction certificates without the need for discretionary approvals from tax officials, marking a shift towards greater automation and predictability in tax administration.

The TCS cut to 2% on travel is beneficial because travellers do not need to spend a higher amount upfront. When a large amount is involved (say ₹30 lakh), an extra 5% on ₹20 lakh can increase the cash outgo by ₹1 lakh. Now, when the rate is reduced to 2%, cash outgo would fall to ₹40,000.

“With this, the lower amount stands to get blocked for the taxpayers. This move will be beneficial not only for the taxpayers but also for the income tax department," believes CA Chirag Chauhan, founder of Mumbai-based CA Chauhan & Company.

“The Budget’s hike in STT, by 150% on Futures and 50% on Options, sends a clear signal: the government wants to slow down excessive short-term trading. Even though STT collections stayed flat at around ₹45,000 crore (from FY2425 to FY2625) against a ₹78,000 crore target, the bigger story lies in the investor behaviour. Retail participation hasn’t fallen; it has evolved. With over 21 crore demat accounts and record SIP inflows of ₹31,000 crore+ in 2025, we’re seeing a shift from frequent trading to long-term investing. The policy choice is clear - support steady capital formation over short-term transaction revenue,” says ClearTax founder and CEO Archit Gupta.

“The significant increase in Securities Transaction Tax on futures and options may adversely impact market depth and liquidity,” says Himanshu Sinha, Partner - Tax Practice, Trilegal.

As the Union Finance Minister Nirmala Sitharaman on Sunday proposed a significant hike in Securities Transaction Tax (STT) on futures and options trades, the Income Tax Department issued a clarification on the hike in Securities Transaction Tax (STT) on futures and options trades and said, "Except futures and options (F&O), STT rates remain same for others."

“Return filing has been made more practical through staggered due dates and an extended revised-return window till 31 March with a nominal fee. The Budget also softens the prosecution framework for certain procedural lapses, allows deduction of inter-cooperative society dividend income under the new regime, widens overseas investment access for non-residents, and confirms the rollout of the simplified Income Tax Act, 2025 from April 2026. Overall, the difference this year is stability in rates and meaningful reduction in uncertainty and compliance burden,” says Sakchi Jain- CA and Financial Educator.