Budget 2026 Proposes Fundamental Shift Towards Collaborative Tax Administration
The fiscal year 2027 Union Budget, presented on February 2, 2026, signals a significant reset in India's tax policy framework. According to a senior government official speaking on condition of anonymity, the budget combines multiple initiatives designed to reduce disputes and ease compliance burdens for domestic taxpayers while offering greater certainty to global investors in strategic sectors.
Extended Timelines and Simplified Procedures
Among the most notable changes proposed in the Finance Bill 2026 is the extension of the deadline for revising tax returns for the previous financial year. Taxpayers now have an additional three months, until the end of March, to file revised returns. Furthermore, the budget allows taxpayers to update past returns even after reassessment proceedings have commenced, fundamentally altering how individuals and businesses interact with the tax department.
Under the proposed framework, a taxpayer facing reassessment now has two clear options. They can choose to file an updated return, pay the applicable tax and interest on any under-reported income, and close the case. Alternatively, they may file an updated return with potentially lower additional tax due than the department's claim, with this revised return forming the basis for further assessment and potentially reducing the disputed amount.
The official emphasized, "The idea is to ensure that tax assessment proceedings are not adversarial, but collaborative for the purpose of paying your due legitimate tax. The tax authority aims to collect legitimate tax in the simplest manner possible."
Reducing Litigation Through Integrated Orders
Amit Maheshwari, managing partner at tax and consulting firm AKM Global, highlighted how earlier separate assessment and penalty proceedings often led to prolonged litigation and uncertainty, particularly for taxpayers filing revised or updated returns after reassessment. This resulted in high disputes and compliance challenges that contradicted the government's goal of simpler, voluntary tax compliance.
The Finance Bill 2026 addresses this by introducing:
- Integrated assessment-penalty orders to streamline proceedings
- Extended timelines for revised returns until 31 March with a nominal fee
- Expanded immunity provisions for misreporting upon payment of extra tax
"Importantly, these changes cut litigation by promoting error correction and reduce compliance burdens," said Maheshwari. "Though new incentives diverge from the broader trend of phasing out exemptions, they seek to strategically draw investments in alignment with India's digital-industrial goals like data sovereignty and FDI attraction."
Targeted Exemptions for Strategic Sectors
The budget also includes targeted tax exemptions for specific data centre operations and relaxed safe harbour norms designed to reduce transfer pricing scrutiny on cross-border transactions between global companies and their Indian units. This move aims to make Indian subsidiaries more globally competitive and better integrate India into global value chains.
The easier safe harbour norms—a form of presumptive taxation based on agreed profit margins to avoid detailed tax audits—are offered to:
- Global companies in the data centre business
- Multinational corporations storing electronics components in bonded warehouses for manufacturing in India
- Foreign companies providing capital goods for toll manufacturing in bonded warehouses in India
The official explained that these exemptions are meant for "global entities which have uniqueness," adding that the data centre exemptions offer tax certainty to investors that their global income from operations outside India will not get taxed for operating a data centre within India. However, these entities will need to provide services to Indian customers through an Indian reseller entity, with those transactions remaining subject to Indian taxation.
Balancing Incentives with Broader Tax Reform
These tax incentives come despite the budget's continued push to nudge Indian businesses toward adopting the new concessional 22% corporate tax rate regime introduced in 2019. This represents a departure from the regular tax regime where the 30% or 25% headline rate (depending on turnover) could be significantly reduced through various deductions.
Over the past decade, the government has been systematically sunsetting deductions allowed under the old corporate tax regime to transition toward the newer, simpler system. The premise has been that large industries are not built primarily on tax breaks, with incentives where needed being provided through schemes like production-linked incentives (PLI) rather than complicating the tax system.
When asked whether India's tax policy is now being aligned with broader industry policy goals of attracting investments, the official offered a nuanced perspective: "I would rather say that the elements in tax policy that deter investments—any uncertainty, procedural hassles, disputes and different interpretations—all those are getting addressed so that companies can concentrate on what they can do best: running their business, enhancing investment, and expanding themselves."
AKM Global's Maheshwari concluded that the budget proposals on safe harbour norms would significantly bring down transfer pricing disputes and improve tax certainty for multinational corporations operating in India.
