Budget eases tax compliance, cuts TCS and extends ITR timelines

The Union Budget 2026-27 on Sunday (February 1) announced a series of tax measures aimed at simplifying and streamlining compliance, reducing disputes and ensuring targeted relief to individuals, businesses and non-residents.

Presenting the Budget, Union Finance Minister Nirmala Sitharaman said the initiatives are aimed at clarity, certainty and ease of compliance, while maintaining revenue neutrality.

Extended timelines, easier compliance

As for income-tax returns, the Finance Minister proposed extending the deadline for filing revised returns from December 31 to March 31, subject to payment of a nominal fee.

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This move is intended to give taxpayers more time to correct errors or update disclosures. Sitharaman also announced a staggered return-filing schedule.

Individuals filing ITR-1 and ITR-2 will continue to file returns till July 31, while non-audit business cases and trusts will be allowed time until August 31, easing congestion during the peak filing period.

Relief for remittances, travel and NRIs

Significant relief was announced under the Liberalised Remittance Scheme. The tax collected at the source rate on overseas tour packages has been reduced to 2 per cent from earlier rates of 5 per cent and 20 per cent, without any threshold conditions.

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TCS for remittances for education and medical purposes has also been cut from 5 per cent to 2 per cent. For NRIs, TDS on the sale of immovable property will now be deducted by the resident buyer, replacing the requirement of obtaining a tax deduction account number.

Sitharaman also proposed exempting the Minimum Alternate Tax for non-residents paying tax on a presumptive basis.

Income Tax Act, 2025

The Finance Minister announced that the Income Tax Act, 2025, will come into force from April 1, replacing the six-decade-old 1961 law. “This (direct tax code) was completed in record time, and the Income Tax Act 2025 will come into effect from the first April 2026,” she said.

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The new law is revenue neutral, does not alter tax rates, reduces text and sections by about 50 per cent, and removes ambiguities to lower litigation. It introduces a single “tax year” and allows TDS refunds even when returns are filed late, without penalties.

Other tax measures

The Budget enhances the safe harbour threshold for IT services from ₹300 crore to ₹2,000 crore, rationalises TCS on liquor, scrap and minerals to 2 per cent, exempts Motor Accident Claims Tribunal awards from tax, allows inter-cooperative society dividend income as a deduction, and proposes a rule-based automated process for small taxpayers.

Sitharaman also noted that the Finance Commission has recommended a record 41 per cent tax devolution to states.

(With agency inputs)