Union Budget 2026: New Income Tax Act from April 1, No Change in Slabs; Buybacks to Be Taxed as Capital Gains

Union Budget 2026: New Income Tax Act from April 1, No Change in Slabs; Buybacks to Be Taxed as Capital Gains

Finance Minister Nirmala Sitharaman on Sunday announced that the New Income Tax Act will come into force from April 1, 2026, with rules and income tax return (ITR) forms to be notified shortly. The new legislation will replace the six-decade-old Income Tax Act of 1961 and aims to simplify direct tax laws by reducing complexity, removing ambiguities, and cutting down litigation.

Presenting the Union Budget 2026, Sitharaman clarified that the new tax law is revenue-neutral and does not alter existing tax rates or slabs. A key structural reform under the Act is the introduction of a single “tax year”, replacing the earlier distinction between assessment year and previous year. Taxpayers will also be allowed to claim refunds of Tax Deducted at Source (TDS) even if returns are filed after the due date, without facing penalties.

On income tax slabs, the Finance Minister announced no changes. Under the old regime, tax slabs remain unchanged with rates rising at income levels of ₹5 lakh, ₹10 lakh and above. The new tax regime continues with a zero-tax bracket up to ₹4 lakh, followed by graduated rates, reaching 30 per cent for income above ₹24 lakh. The standard deduction also remains unchanged at ₹75,000 under the new regime and ₹50,000 under the old regime.

Among significant tax-related announcements, Sitharaman said that buybacks by all shareholders will now be taxed as capital gains, marking a shift from the earlier tax treatment. The Budget also reduced Tax Collected at Source (TCS) on overseas tour packages to a flat 2 per cent, down from the earlier structure of 5 per cent and 20 per cent, offering relief to consumers.

Additional measures include rationalisation of penalties, easier return filing timelines, relief for small taxpayers through a six-month foreign asset disclosure scheme, and several compliance simplification steps aimed at improving taxpayer convenience.

While the Budget focused heavily on simplification and compliance reform, the absence of income tax slab changes or additional relief for salaried taxpayers drew mixed reactions, as expectations of direct tax relief remained unmet.

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