Union Budget 2026: A Roadmap for Taxpayer Simplification
Finance Minister Nirmala Sitharaman presented the Union Budget for the fiscal year 2026-2027 on February 1, outlining a comprehensive vision aimed at easing the tax compliance burden for individual taxpayers. While the budget maintains the existing personal income tax rates and overall tax structure, it introduces a series of targeted reforms designed to streamline processes and address practical challenges faced by citizens.
Core Focus: Simplification and Ease of Compliance
The budget's primary emphasis is on simplifying the tax ecosystem. Sitharaman highlighted the completion of a major overhaul of the Income Tax Act, 1961, which was announced in July 2024. The new Income Tax Act, 2025, is set to come into effect from April 1, 2026. The finance minister assured that compliance under this new framework would be significantly more straightforward.
"The simplified Income Tax Rules and Forms will be notified shortly, giving adequate time to taxpayers to acquaint themselves with its requirements. The forms have been redesigned such that ordinary citizens can comply without difficulty," Sitharaman stated during her budget speech.
Key Reforms for Individual Taxpayers
The budget introduces several specific measures to benefit individual taxpayers:
- Unchanged Tax Rates: The slab rates for individuals under both the new and old tax regimes remain untouched. There are no proposed changes to education cess or surcharge either.
- Revised Filing Timelines: The deadline for filing ITR-1 and ITR-2 remains July 31. However, non-audit business cases and trusts will now have until August 31 to file returns. The window for revising returns is extended from December 31 to March 31, subject to a nominal fee.
- Reduced Tax Collected at Source (TCS): TCS on overseas tour packages is reduced to a flat 2%, replacing the earlier 5% and 20% rates. TCS on remittances for self-funded foreign education and overseas medical treatment under the Liberalised Remittance Scheme is also reduced from 5% to 2%.
- Support for Small Taxpayers: A fully automated, rule-based approval mechanism will be introduced for small taxpayers seeking nil or lower TDS certificates, replacing the current application-based process.
- Clarity on Manpower Services: Manpower services are now clearly categorized under payments to contractors for TDS purposes, with rates set at 1% or 2%, eliminating previous confusion.
Major Initiative: Foreign Asset Disclosure Scheme
A significant highlight of Budget 2026 is the introduction of a one-time, six-month foreign asset disclosure scheme. This initiative aims to address issues faced by students, young professionals, tech employees, and individuals relocating to or returning to India.
The scheme is divided into two categories:
- Category A: Taxpayers who failed to disclose overseas income or assets valued up to Rs 1 crore can regularize them by paying 30% of the fair market value of the asset or 30% of the undisclosed income as tax, plus an additional 30% in lieu of penalty, with immunity from prosecution.
- Category B: Taxpayers who paid due tax on overseas income but failed to declare the associated foreign asset (value up to Rs 5 crore) can regularize it by paying a fee of Rs 1 lakh, receiving immunity from both penalty and prosecution.
Additionally, individuals who did not disclose foreign non-immovable assets valued below Rs 20 lakh will receive immunity from prosecution, with retrospective effect from October 1, 2024.
Other Notable Measures
The budget also includes provisions for overseas investors and global talent:
- For Overseas Investors: Persons resident outside India will be permitted to invest in listed Indian equities through the Portfolio Investment Scheme, with the individual investment limit raised from 5% to 10% and the overall cap increased from 10% to 24%.
- For NRIs: In the sale of immovable property involving non-residents, resident buyers can now deduct and deposit TDS using a PAN-based challan, removing the need for a TAN and simplifying compliance.
- Attracting Global Talent: An exemption on foreign-sourced income has been granted to experts visiting India for up to five years, subject to conditions including being a non-resident for the preceding five years and providing services under a government-notified scheme.
Overall, Union Budget 2026 focuses on creating a more taxpayer-friendly environment through procedural simplifications and targeted relief measures, particularly for those with international financial exposures.
