Budget 2026: New Income Tax Act 2025 will come into effect on April 1

New Delhi: Union Finance Minister Nirmala Sitharaman on Sunday presented Union Budget 2026 and said the new Income Tax Act 2025 will come into effect on April 1. "I propose to reduce TCS rate on the sale of overseas tour program package from the current 5% and 20% to 2% without any stipulation of amount," she said.

FM Sitharaman said, "I propose that any interest awarded by the motor accident claims tribunal to a natural person will be exempt from income tax and any TDS on this account will be done away with."

FM proposes rule-based automated process for small taxpayers

“We propose a rule-based automated process for small taxpayers in FY27 Budget. "People filing ITR-1 and ITR-2 can continue to file till July 31. Non-audit business cases and trusts will be allowed to file returns till August 31,” she said.

She said "now as a person you can file revised ITR by March 31 with a nominal fee". She stated that minor offences to attract fine only and there will be no penalty on non-disclosure of non-immovable foreign assets with aggregate value less than Rs 20 lakh. “I propose to provide them immunity from prosecution,” she said.

Income Tax Act 2025 will replace six-decade-old tax law

Beginning April 1, the Income Tax Act, 2025, will come into force replacing the six-decade-old tax law and the changes made in tax laws in 2026-27 Budget will be incorporated in the new legislation.

In her Budget speech in the Lok Sabha on Sunday, she said, "This (direct tax code) was completed in record time and the Income Tax Act 2025 will come into effect from first April 2026. The simplified income tax rules and forms will be notified shortly, giving adequate time to taxpayers to acquaint themselves with its requirements."

The forms have been redesigned, such that ordinary citizens can comply without difficulty, she added.

2025 I-T law is revenue neutral with no change in tax rates

The 2025 I-T law is revenue neutral with no change in tax rates. It has only made direct tax laws simple to understand, removed ambiguities, thereby reducing scope for litigations. It reduces text volume and sections by about 50 per cent vis-a-vis the 1961 Income Tax Act.

The new law simplifies the tax timeline by doing away with the distinction between the assessment year and the previous year, replacing it with a single "tax year" framework. It also allows taxpayers to claim TDS refund even when ITRs are filed after deadlines, without any penal charges.