Union Budget 2026-27: Key Income Tax & GST Highlights

The Union Budget 2026-27 focused on sustaining economic growth, simplifying the tax framework, and enhancing compliance while maintaining fiscal prudence. Amid global uncertainties and domestic aspirations, the Government emphasised tax reforms that streamline the direct and indirect tax regimes.

🔹 Income Tax Highlights

1.     New Income-tax Act Takes Effect (April 2026)

One of the most consequential reforms announced is the transition from the Income-tax Act 1961 to the Income-tax Act, 2025, effective 1 April 2026. The objective is to modernise and simplify direct tax legislation by reducing litigation, improving compliance, and making provisions more taxpayer friendly.

2.     No Change in Tax Slabs for Individuals

The income tax slabs and rates for fiscal year 2026-27 remain unchanged from the previous year, preserving continuity and taxpayer predictability.

New Tax Regime (115BAC)

 Old Tax Regime (Optional)

3.     Extended Deadline for Revised ITRs

• The deadline for filing revised income-tax returns is extended to 31 March in the relevant assessment year.
• A nominal fee applies if filed after the earlier cutoff—₹5,000 for larger incomes and ₹1,000 for those with taxable income below ₹5 lakh.

4.     TCS & TDS Rationalisation

The budget proposed significant reductions in Tax Collected at Source (TCS), particularly on:

• Overseas travel packages
• Education and medical remittances under Liberalised Remittance Scheme

This aims to reduce compliance cost without altering the tax base.

5.     Reclassification of Share Buybacks

Taxation on share buybacks has shifted from a distribution tax at the company level to being treated as capital gains for all classes of shareholders. This aligns buyback gains with the standard capital gains framework and expands tax applicability.

6.     Securities Transaction Tax (STT) Hike

To moderate speculative trading, STT on derivatives was increased:

• Futures: from 0.02 % to 0.05 %
• Options: from 0.10 % to 0.15 %

7.     Minimum Alternate Tax (MAT) Reform

Corporate tax policy saw the MAT regime being restructured—with plans to lower rates and phase out MAT credit to simplify corporate tax burdens across the board.

8.     Enhanced Safe Harbour Threshold for IT Services

The threshold for safe harbour for Indian IT service providers was raised to ₹2,000 crore, providing certainty in tax liabilities for large service exports.

9.     Exemptions & Deduction Extensions

Tax deductions available to primary cooperatives have expanded to include input costs like cattle feed and cotton seed, incentivising farm-linked cooperatives.

🔹 GST & Indirect Tax Highlights

1.     GST Reforms Continue

While the Budget did not announce direct GST rate changes, it underscored ongoing efforts toward GST simplification and compliance efficiency as part of broader tax reform initiatives.

2.     Decline in GST Revenue Growth

Analysts noted that GST collections are expected to grow modestly or marginally contract as rationalised rates under the GST 2.0 framework take effect and consumption patterns adjust.

3.     Pre-Budget GST Collection Trend

In January 2026, GST collections grew by over 6 %, which signals robust compliance and a broadening tax base ahead of the fiscal year.

4.     Customs & Other Indirect Tax Adjustments

The Budget also contemplated customs duty rationalisation to support key sectors like health and critical imports while discouraging over-dependence on certain finished imports.

📊 What This Means for Taxpayers & Businesses

💬 Conclusion

The 2026 Budget represents a measured approach to tax policy—balancing stability with structural reform, minimizing disruption to taxpayers while steering the tax code toward simplicity and clarity. By introducing a new Income-tax Act, rationalising compliance burdens, expanding safe harbour conditions, and continuing GST improvements, the Government has set the stage for predictable and efficient taxation in the coming years.