After the Union Budget 2026-27 was presented on February 1, the Finance Ministry released a detailed FAQ guide through the Income Tax Department.
These clarifications are important as India moves to the new Income Tax Act, 2025, from April 1, 2026.
While some changes didn’t make headlines, they will significantly impact how taxpayers file returns, pay penalties, claim deductions, and comply with TDS rules in the coming financial year.
Important Updates for Filing and Returns
Longer window for updated returns
Taxpayers can now file an updated return for up to 48 months, even if they didn’t file the original return.
However, the longer you wait, the higher the cost, with additional tax ranging from 25% to 70%.
Reduce losses through updated returns
Previously, updated returns couldn’t reduce losses from the original return.
Budget 2026 now allows taxpayers to adjust over-reported losses, offering more flexibility.
File after reassessment notice
Even after receiving a reassessment notice, taxpayers can file an updated return without penalties for the disclosed income.
Extended deadlines for non-audit businesses
Non-audit businesses and trusts now have until August 31 to file returns, giving them extra time.
Salaried individuals still follow the July 31 deadline.
Relief and Clarity in Taxes
Motor accident compensation interest is tax-free
Interest awarded to accident victims or their families by the Motor Accident Claims Tribunal is now fully exempt from tax, with no TDS deduction.
Simpler property TDS rules
Buyers purchasing property from non-resident sellers no longer need a TAN.
PAN-based deduction and reporting is sufficient, cutting down on paperwork.
Manpower supply under contract TDS
The definition of “work” now includes manpower supply, clearing confusion over TDS rates for staffing and outsourcing services.
Easier lower or nil TDS certificates
Small taxpayers can now apply online for lower or nil TDS certificates, reducing the need to visit the Assessing Officer.
Single declaration for investment income
Investors can submit one declaration for non-deduction of tax on mutual funds, dividends, and bond income, instead of multiple forms to each payer.
Penalty and Compliance Reforms
Big cut in tax on unexplained income
The tax on unexplained income has been halved from 60% to 30%, and no penalty is levied if voluntarily disclosed.
Combined assessment and penalty orders
tax department can now issue a single order covering both assessment and penalties, reducing prolonged litigation.
Wider immunity from penalty and prosecution
Even misreporting cases may now qualify for immunity, provided the additional tax is paid and no appeal is filed.
Fixed automatic fees for minor defaults
Penalties for defaults like delayed statements or non-audit of accounts will now be fixed statutory fees, automatically applied, without the “reasonable cause” defence.
Decriminalisation of income-tax offences
Many offences now attract fines instead of jail, and lower-value defaults are removed from criminal liability, making the law less punitive.
PF and ESI contributions aligned
Employers can now claim deductions for employee PF and ESI contributions if deposited by the ITR filing due date, aligning employer and employee rules.
Why These Changes Matter
Budget 2026 is not just about tax rates, but also about making compliance simpler, reducing penalties, and encouraging correct reporting.
Taxpayers need to understand these quieter, yet significant changes to avoid surprises and plan effectively under the new regime starting April 1, 2026.
