The Finance Bill 2026 brings significant procedural reforms while keeping tax rates stable. Here’s your complete breakdown:
TAX SLABS & RATES
No Change in Tax Rates
Both Old Regime and New Regime (Section 115BAC) remain unchanged:
* New Regime (Default):
- Up to ₹4 lakh: 0%
- ₹4-8 lakh: 5%
- ₹8-12 lakh: 10%
- ₹12-16 lakh: 15%
- ₹16-20 lakh: 20%
- ₹20-24 lakh: 25%
- Above ₹24 lakh: 30%
*Surcharge & Cess: Unchanged at existing rates
NEW INCOME TAX ACT, 2025
Historic Transition (Sections 2 & 3, Chapter II)
From 1 April 2026:
- Income-tax Act, 2025 becomes operational
- Replaces Income-tax Act, 1961 (in force since 1962)
Key Improvements:
Fewer Sections
- 1961 Act: 298 sections
- 2025 Act: 536 sections (but streamlined with clarity)
Simplified Language
- Plain English drafting
- Reduced legal jargon
- Example-based explanations
Assessment Year → Tax Year
- Global alignment (matches US, UK models)
- FY 2026-27 = Tax Year 2026-27 (no more AY confusion)
Litigation Reduction
- Defined timelines for assessments
- Procedural clarity
- Reduced interpretational disputes
RETURN FILING CHANGES
Extended Due Dates (Amendment to Section 139)
| Category | Old Due Date | New Due Date (FY 2026-27) |
| Non-audit cases (Salaried, Business <₹1Cr) | 31 July | 31 August ✅ |
| Audit cases (Business, Profession) | 31 October | 31 October (No change) |
| ITR-1/2 filers (Simple returns) | 31 July | 31 July (No change) |
Revised Return Timeline (Section 139(5))
BEFORE:
- File within 9 months from year-end
- Example: FY 2025-26 → Revised till 31 Dec 2026
NOW:
- File within 12 months from year-end
- Example: Tax Year 2026-27 → Revised till 31 March 2028
Late Fee Structure:
- Within 9 months: No extra fee
- After 9 months (till 12 months): ₹5,000 additional fee
Updated Return (Section 139(8A))
New Flexibility:
– Can now reduce loss claimed originally (not just convert loss to income)
– Can file even after reassessment notice issued
- Must file within period specified in notice
- Additional tax: 10% extra over normal updated return tax
Updated Return Additional Tax:
- Within 12 months: 25% of tax + interest
- 12-24 months: 50% of tax + interest
- After reassessment notice: 60% of tax + interest
PENALTIES & PROSECUTION REFORMS
Decriminalisation of Tax Offences (Substitution of Sections 276B to 276D)
MAJOR RELIEF – Maximum Jail Term Reduced
| Offence | Old Law (1961 Act) | New Law (2025 Act) |
| Tax evasion >₹50 lakh | Rigorous imprisonment: 3-7 years + Fine | Simple imprisonment: Max 2 years + Fine |
| Tax evasion ≤₹10 lakh | Imprisonment possible | Only fine, no jail ✅ |
| TDS defaults | Criminal prosecution possible | Fully decriminalised (only penalty) ✅ |
| Non-filing of return | Up to 7 years | Up to 2 years |
| Repeat offenders | 7 years | Max 3 years |
Under-reporting vs. Misreporting (Sections 270A & 270AA)
Clear Distinction Introduced:
1. GENUINE MISTAKE (Under-reporting):
- Computational errors
- Different tax interpretation
- Penalty: 50% of tax
- Immunity available if tax + interest paid before notice
2. WILFUL EVASION (Misreporting):
- False invoices
- Suppression of facts
- Offshore asset concealment
- Penalty: 100% of tax
- Prosecution possible
Prosecution Policy Shift
Old Approach: – Automatic prosecution for technical defaults – Small taxpayers treated same as evaders
New Approach: > Prosecution only for wilful default > Tax evaded ≤₹10 lakh → No jail, only fine > Pay tax + interest → No prosecution (Section 440 immunity)
OTHER INDIVIDUAL RELIEFS
1. Motor Accident Compensation Interest – TAX-FREE
Amendment: New Exemption from 1-4-2026
BEFORE:
- Interest on compensation: Taxable
- TDS applicable if interest >₹50,000
NOW:
- Interest on compensation: Fully exempt
- No TDS on any interest amount paid to individual/legal heir
- Applies to Motor Vehicles Act compensation awards
Who Benefits:
- Accident victims
- Legal heirs of deceased
2. Land Acquisition Compensation – EXEMPT
New Exemption: RFCTLARR Act, 2013
- Compensation under Right to Fair Compensation Act: Fully exempt
- Exception: Section 46 cases (still taxable)
- Effective: 1 April 2026
3. Foreign Assets Disclosure Scheme (FAST-DS 2026)
One-Time Compliance Opportunity (Chapter IV, Clauses 114-128)
Eligibility:
- Small taxpayers (income <₹50L in last 3 years)
- Students (foreign education expenses)
- NRIs with undisclosed foreign assets
Tax Structure:
- Tax: 30%
- Surcharge: 25%
- Cess: 4%
- Total: 37.5%
- Penalty: NIL
Immunities: | No penalty | No prosecution under Black Money Act | No reopening of past returns
Black Money Act Relief:
- Foreign assets <₹20 lakh (excluding property): No prosecution
- Retrospective from 1 October 2024
KEY TAKEAWAYS
For Salaried Individuals:
- Extended return filing window (31 August for non-audit)
- 12-month revised return facility
- Motor accident interest tax-free
- Lower prosecution risk for honest mistakes
For Business Owners:
- Clear penalty framework (mistake vs. fraud)
- Decriminalisation of small defaults
- Updated return flexibility (can reduce loss)
- Immunity if tax paid voluntarily
For NRIs:
- FAST-DS 2026 disclosure opportunity
- No prosecution for small foreign assets (<₹20L)
- One-time settlement at 37.5%
ACTION POINTS
Before 31 March 2026:
- Review all income sources (salary, rental, capital gains, interest)
- Check foreign asset reporting requirements
- File revised returns for FY 2024-25 if needed
From 1 April 2026:
- Familiarize with new section numbers (1961 Act → 2025 Act)
- Use extended deadlines strategically
- Consider FAST-DS if holding undisclosed foreign assets
- Maintain detailed documentation for all claims
Bottom Line: Finance Bill 2026 is about compliance simplification, not tax increases.
The government’s message is clear: ➡ Make a mistake? Pay tax + interest → Walk free ➡ Deliberately evade? Face consequences
Time to shift from “tax planning” to “compliance design.”Questions on your specific situation? Whether it’s ITR filing strategy, foreign asset disclosure, or penalty risk assessment – let’s discuss
