Union Budget 2026: New Income Tax Law from April, Relief for Small Taxpayers, Lower TCS on Foreign Tours and Big Push for Data Centres

New Delhi: Union Finance Minister Nirmala Sitharaman, while presenting the Union Budget 2026 in Parliament, announced a series of taxpayer-friendly reforms alongside the rollout of a new Income Tax Act, marking the biggest overhaul of India’s direct tax system in over six decades.

The Finance Minister confirmed that the Income Tax Act, 2025, will come into force from April 1, 2026, replacing the existing 1961 law. The new legislation aims to make tax compliance simpler, clearer, and litigation-free, without changing existing tax rates.

Major Relief for Foreign Tourists and Travellers

In a move expected to benefit overseas travellers and the tourism industry, the government proposed a sharp reduction in Tax Collected at Source (TCS) on foreign tour packages. The TCS rate will be cut to 2%, replacing the earlier structure of 5% and 20%, and will apply without any minimum spending limit.

Motor Accident Compensation Made Tax-Free

The Budget also brought relief to accident victims and their families. The Finance Minister announced that interest awarded by Motor Accident Claims Tribunals to individuals will be fully exempt from income tax. Any deduction of tax at source on such interest income will be completely removed, ensuring victims receive the full amount.

Simpler ITR Filing and More Time for Taxpayers

To reduce compliance stress, the government proposed a rule-based automated return processing system for small taxpayers starting FY 2027.
Key filing timelines include:

• ITR-1 and ITR-2 can be filed up to July 31
• Non-audit business cases and trusts can file returns up to August 31

Taxpayers will also be allowed to file revised returns until March 31 by paying a small, nominal fee, giving individuals greater flexibility to correct errors.

Immunity for Minor Offences and Small Foreign Assets

The Finance Minister announced that minor tax violations will now attract only monetary fines, with no prosecution. Additionally, taxpayers who fail to disclose foreign assets (excluding immovable property) worth up to ₹20 lakh will receive immunity from prosecution, provided other conditions are met.

What’s New in the Income Tax Act, 2025

According to the Finance Minister, the new law:

• Is revenue-neutral, with no change in tax rates
• Cuts the length of tax law and sections by nearly 50%
• Removes ambiguities to reduce legal disputes
• Replaces “previous year” and “assessment year” with a single “tax year”
• Allows TDS refunds even for delayed ITR filings, without penalties

Newly designed simplified tax forms will be notified soon, giving citizens enough time to understand and adapt.

Tax Holiday for Global Cloud Companies

In a major boost to India’s digital infrastructure ambitions, the government proposed a tax holiday till 2047 for foreign companies offering cloud services globally using data centres located in India.

To qualify, such companies must route services to Indian customers through Indian reseller entities. The move aims to attract large-scale investments in data centres, strengthen India’s cloud ecosystem, and create high-value jobs.

Hospitality Education Upgrade

The Budget also announced the creation of a National Institute of Hospitality by upgrading the existing National Council for Hotel Management and Catering Technology, to enhance skill development and global competitiveness in the tourism and hospitality sector.