Budget 2026: What it will take to make India’s new tax law work
With the Income Tax Act, 2025, set to kick in from 1 April, the upcoming Budget must prioritize compliance, clarity and credibility over further tax rate cuts.
Budget 2026 arrives at a pivotal moment. With the Income Tax Act, 2025, set to take effect from 1 April 2026, this year’s Budget should focus less on headline-grabbing tax rate changes and more on ensuring a smooth transition to the new law. The emphasis is likely to be on ease of compliance, digital readiness, and the overall taxpayer experience, so that the law moves seamlessly from statute to practice.
The Budget for FY26 operationalized the principle of “trust first, scrutinise later." Like earlier budgets, Budget 2025 nudged taxpayers towards the new tax regime through rationalised rates and fewer deductions. Filing data suggests the shift is well underway. By 31 July 2024, 72.8 million income tax returns had been filed, of which 72% were under the new regime. First-time filers numbered 5.86 million, pointing to a widening compliance base.
Against this backdrop, Budget 2026 could reasonably concentrate on three priorities to support the rollout of the Income Tax Act, 2025: first, improving ease of compliance by providing greater clarity and addressing inequities where needed; second, strengthening digital infrastructure through pre-filled returns, intuitive dashboards and artificial intelligence (AI)-enabled assistance to simplify filing and reduce errors; and third, streamlining dispute resolution through faceless processes and time-bound mechanisms to improve predictability and speed.
Perspective on Budget proposals
Some measures merit consideration, given the direction of travel.
Selective incentives for savings where they matter
Moving away from a deduction-heavy framework is the right approach for simplicity. Yet time-bound, investment-linked incentives for individual savings can still serve broader national priorities. The new tax regime can remain simple while selectively and transparently incentivising investments in clean energy, digital and capital infrastructure, and public-private partnerships. For middle-income taxpayers, clarity and stability in savings options help sustain consumption and financial resilience. India’s experience with production-linked incentives in manufacturing suggests a similar, carefully designed approach could be explored for personal savings to encourage long-term capital formation.
Attracting global tech talent: a calibrated regime
A special, simplified tax regime to attract global technology talent—particularly in semiconductors, electric vehicles, batteries and related areas—could complement domestic capability-building efforts. If designed well, such a regime would sit comfortably within a simplified tax structure, accelerate cluster development and help India compete for scarce global skills in frontier technologies. Asia’s technology hubs, including China, Taiwan and Singapore, offer useful lessons in attracting world-class talent to build globally competitive technology centres.
Providing clarity to boost compliance
Cryptocurrencies and other virtual digital assets are an emerging investment class globally. India taxes gains from such assets at a flat 30%, allowing deductions only for acquisition costs and disallowing loss set-offs. In contrast, jurisdictions such as the US and UK tax crypto under capital gains frameworks, permitting loss offsets similar to equities. Globally, the “location" of digital assets remains difficult to determine given their decentralised nature, with most authorities relying on residence-based taxation. Greater clarity in India’s approach could help stem the migration of trading activity offshore, in line with international efforts to modernise crypto tax regimes.
Simplifying the taxation of income from futures and options for non-traders would also help, as many retail investors struggle to comply with the embedded audit requirements. Another long-standing concern relates to employee stock options, where tax is payable at the time of allotment—well before any cash is realised on sale. While this taxation is deferred for employees of eligible start-ups, extending similar relief to other employees merits consideration.
Delayed refunds remain a source of anxiety for taxpayers. Faster processing through technology, coupled with real-time dashboards tracking refund status, would strengthen trust in the system. Behavioural initiatives such as the NUDGE programme can also be leveraged more effectively, in keeping with the “trust first, scrutinise later" philosophy.
Finally, dispute resolution remains an area needing attention. A large number of cases are pending at the appellate level. While respecting judicial processes, taxpayer-friendly reforms—such as prioritisation frameworks and wider use of faceless hearings—can support the government’s goal of faster and more predictable dispute resolution.
As India prepares to usher in the Income Tax Act, 2025 on 1 April 2026, the real test will be in building a tax ecosystem that is simple, responsive and people-centric—marked by predictable rules, timely refunds, clear guidance and efficient appeals. Alongside these foundations, a calibrated talent regime for frontier industries would signal ambition and sharpen India’s competitive edge. Budget 2026 should be remembered not for rate cuts, but for making the new law work—and making India win.
Sonu Iyer is partner and national leader, People Advisory Services – Tax, EY India. Somya Rustagi, senior tax professional, EY India contributed to this column.
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