Union Budget 2026: Comprehensive Analysis of Proposed Direct Tax Amendments and Finance Bill Highlights
On 1st February 2026, the Hon. Finance Minister presented the Union Budget 2026, unveiling the Finance Bill, 2026. This legislation proposes significant modifications to the tax structure, aiming to streamline compliance, reduce litigation, and enhance the ease of doing business. The amendments focus heavily on rationalizing deductions, simplifying Tax Deducted at Source (TDS) norms, and aligning specific provisions with broader taxation principles. Unless stated otherwise, these changes are slated to become effective from the Tax Year 2026–27.
Below is a detailed analysis of the critical proposals contained within the Bill.
1. Rationalisation of Income Tax Return Filing Deadlines
To alleviate the pressure on business entities and ensure better compliance, the Finance Bill proposes a modification to the statutory deadlines for filing returns.
Under the amended Section 263(1)(c) of the Income-tax Act, 2025, the filing deadline for trusts and business assessees who are not subject to audit has been extended. Previously set for 31st July, the new deadline is proposed to be 31st August. This one-month extension is designed to provide these entities sufficient time to close their books of accounts and manage statutory requirements, thereby reducing errors and grievances.
Note: This extension does not apply to salaried individuals filing Form ITR-1 or ITR-2. Their deadline remains 31st July.
These changes under the Income-tax Act, 2025 are effective from 1st April 2026. Parallel amendments have been inserted into the Income-tax Act, 1961 via Explanation 2 to section 139(1), effective from 1st March 2026, applicable for the Assessment Year 2026-27.
2. Easing TAN Requirements for Property Transactions
Currently, Section 397(1)(a) requires tax deductors to obtain a Tax Deduction and Collection Account Number (TAN). While resident buyers purchasing immovable property from resident sellers are exempt from this, the exemption did not previously extend to purchases from non-residents.
This created a compliance hurdle for resident individuals or Hindu Undivided Families (HUFs) buying property from non-residents, forcing them to obtain a TAN for a one-time transaction.
To address this, the Bill proposes an amendment to Section 397(1)(c). Going forward, a resident individual or HUF will no longer be required to obtain a TAN when deducting tax on consideration paid for the transfer of immovable property under Section 393(2). This significant relaxation comes into effect from 1st October 2026.
3. Overhaul of Minimum Alternative Tax (MAT)
The Bill introduces a structural shift in the Minimum Alternative Tax (MAT) regime for companies under Section 206 of the Income-tax Act, 2025.
Key Changes Proposed:
- Rate Reduction: The MAT rate is proposed to be lowered from 15% to 14% of book profits.
- Finality in Old Regime: Tax paid under MAT provisions will be treated as the final tax for those opting for the old tax regime. No new MAT credit will accrue.
- Credit Utilization in New Regime: Domestic companies will be permitted to set off brought-forward MAT credit only against tax liability in the new tax regime, capped at 25% of the liability.
- Foreign Companies: They may set off credit to the extent of the difference between normal tax and MAT in years where normal tax is higher.
This move is intended to encourage a transition from the old regime (laden with exemptions) to the streamlined new tax regime.