After the Union Budget 2026-27 presentation on February 1, the Finance Ministry released FAQs through the Income Tax Department to explain how the new proposals will work.
These clarifications are especially important as India shifts to the new Income-tax Act, 2025, starting April 1, 2026.
While some changes might seem minor, they will affect how taxpayers file returns, disclose income, deal with penalties, comply with TDS rules, and respond to notices in the next financial year.
Updated Returns and Filing Flexibility
Longer window for updated returns: Taxpayers can now file updated returns for up to 48 months, even if they didn’t file the original return.
However, the longer you wait, the higher the tax—additional tax can rise from 25% to 70%.
Loss reduction allowed: Updated returns can now be used to reduce losses claimed in the original return, giving taxpayers flexibility to correct mistakes.
File updated returns after reassessment notice: Even after a reassessment notice, taxpayers can file updated returns.
No penalties will be applied on income disclosed this way.
Extra time for non-audit businesses: Non-audit businesses and trusts now have until August 31 to file returns instead of July 31.
Salaried taxpayers still follow the July 31 deadline.
Relief and Simplification for Taxpayers
Motor accident compensation interest is tax-free: Interest awarded by the Motor Accident Claims Tribunal is fully exempt from tax and no TDS will be deducted.
No TAN needed for property from non-residents: Buyers don’t need a TAN to deduct TDS when purchasing property from non-resident sellers. PAN is enough.
Manpower supply under contract TDS: The definition of “work” now includes manpower supply, bringing clarity on TDS rates for contractors.
Easier lower or nil TDS certificates: Small taxpayers can now apply online for lower or nil TDS certificates, speeding up the process.
Single declaration for mutual funds and dividends: Investors can submit one declaration for mutual funds, bond income, and dividends, removing the need for multiple forms.
Big Changes to Penalties and Prosecution
Tax on unexplained income halved: Tax on unexplained credits, investments, or expenditures drops from 60% to 30%, with no penalty if voluntarily disclosed.
Assessment and penalties together: The tax department can now issue one composite order covering both assessment and penalty, reducing litigation.
Wider immunity: Even misreported income may qualify for immunity if the additional tax is paid and the taxpayer doesn’t appeal.
Fixed, automatic penalties: Certain penalties, like late filing or non-audit, will now be fixed statutory fees applied automatically.
Decriminalisation of offences: Many income-tax offences will now attract fines instead of jail, and minor defaults are removed from criminal liability.
Alignment and Practical Changes
PF and ESI contribution deadlines: Employers can now claim deductions for employees’ PF and ESI contributions if deposited up to the ITR filing date, simplifying compliance.
Why it matters: Budget 2026 is not just about tax rates.
It reshapes compliance, enforcement, and taxpayer behavior under the new law.
Understanding these quiet changes is as important as knowing slab rates when the new regime starts on April 1, 2026.
