Union Budget 2026–27: Key Income Tax Announcements – Detailed Overview by CA R Jegadeesh

Union Budget 2026–27: Key Income Tax Announcements – Detailed Overview

CA R Jegadeesh, Founder Partner,

Jegadeesh & Jefferson chartered Accountants

The Union Budget for the financial year 2026–27 has brought several important announcements related to Income Tax. While taxpayers were expecting major tax relief measures, the government has focused more on simplifying tax laws and easing compliance procedures. Here is a detailed explanation of the major income tax-related changes announced in the budget.

New Income Tax Law to be Implemented from April 1, 2026

One of the most significant announcements in this budget is the introduction of a new Income Tax Law, which will come into effect from April 1, 2026.

The current Income Tax Act has been in force for many decades and has become complex due to numerous amendments over time. The new law aims to:

· Simplify income tax rules

· Remove outdated and unnecessary provisions

· Make compliance easier for taxpayers

· Introduce simpler and clearer income tax return forms

· Promote a more transparent and digital-friendly tax system

The government has stated that detailed rules and new tax forms will be released soon for public understanding.

No Income Tax on Motor Accident Insurance Compensation

Specifically for general insurance industry, the compassionate exemption of TDS (and full tax) on Motor Accident Claims Tribunal interest awards stands out as a victim-friendly relief, ensuring faster, untaxed

The reforms related to motor insurance, particularly the exemption of income tax on interest awarded by the Motor Accident Claims Tribunal and the removal of TDS, will meaningfully improve claimant outcomes and reinforce trust in the claims process. This is an important step towards making motor insurance more customer centric and responsive.

A very important relief measure has been announced for individuals and families affected by road accidents.

From now on:

👉 Compensation received from motor vehicle accident insurance claims will be completely exempt from income tax.

Earlier, in certain situations, such compensation was treated as taxable income. This change will provide much-needed financial relief to accident victims and their families.

Extended Deadline for Filing Revised Income Tax Returns

Taxpayers often realize mistakes in their Income Tax Returns after filing them. To help such taxpayers, the government has extended the deadline for filing revised returns.

Earlier:

· Revised returns could be filed only up to December 31

Now:

· The deadline has been extended up to March 31

Additionally, the fee for filing revised returns will be kept at a nominal level, making it easier and more affordable for taxpayers to correct their mistakes.

This is a very taxpayer-friendly step aimed at improving voluntary compliance.

No Change in Basic Income Tax Exemption Limit

One of the most awaited expectations from this budget was an increase in the basic income tax exemption limit.

However, the government has announced that:

👉 There is no change in the existing income tax exemption slabs.

The current tax structure and exemption limits will continue for the financial year 2026–27.

Minor Non-Compliance Will No Longer Be Treated as Criminal Offense

The government has taken a major step to reduce the fear of harsh legal action among small businesses and individual taxpayers.

Earlier, certain procedural lapses such as:

· Not submitting proper documents for payments made in kind

· Failure to deduct or pay TDS on time

were treated as criminal offenses.

Under the new rules:

👉 Such violations will no longer attract criminal prosecution

👉 They will be treated as civil offenses with only monetary penalties

This change will greatly benefit small business owners, employers, and professionals by reducing unnecessary legal complications.

Reduction in TCS for Foreign Expenses

The budget has also announced relief in Tax Collected at Source (TCS) on foreign remittances.

· For foreign travel expenses: TCS has been reduced to 2%

· For money sent abroad for education and medical purposes: TCS will also be only 2%

Earlier, higher TCS rates created an additional burden for students, patients, and families traveling abroad. This reduction will make overseas education, medical treatment, and travel more affordable.

Overall Impact of These Announcements

Although the budget has not provided direct tax relief in terms of higher exemption limits or lower tax rates, it has focused on:

· Simplifying income tax laws

· Making compliance easier

· Reducing legal complications

· Offering relief in specific areas like insurance compensation and foreign remittances.

The introduction of a new Income Tax Code is expected to bring long-term benefits by making the entire tax system more transparent and user-friendly.

Conclusion

The 2026–27 Union Budget has taken a balanced approach toward income tax reforms. Instead of major rate cuts, the government has prioritized structural improvements and procedural simplifications.

For taxpayers, the key takeaway is that:

· Income tax rules will become simpler

· Filing returns and correcting mistakes will be easier

· Legal hassles for minor errors will reduce

· Certain financial transactions will become more affordable

By understanding these changes and planning finances accordingly, taxpayers can benefit from a smoother and more efficient tax system in the coming years.

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