Key Points:
No change in income tax slabs, but taxpayers earning up to ₹12 lakh may pay zero tax due to rebates under the new tax regime.
Tax compliance eased with extended deadlines for revised returns, staggered ITR filing dates, lower TCS rates.
Major relief measures announced, including tax exemption on motor accident compensation interest, a one-time foreign asset disclosure scheme (up to ₹1 crore).
Finance Minister Nirmala Sitharaman presented her ninth consecutive Budget on 1 February 2026, sending shockwaves through the Indian stock market. However, the income tax rates and slabs remain unchanged following last year’s major tax reforms.
While the basic tax structure remains the same as in the previous financial year, Finance Minister Sitharaman announced several measures aimed at simplifying tax compliance and providing relief to taxpayers.
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According to the new tax regime, taxpayers earning up to ₹4 lakh will pay no tax. For incomes between ₹4 lakh and ₹8 lakh, the income tax rate is 5%, while for incomes between ₹8 lakh and ₹12 lakh, the tax rate is 10%. Many middle-income taxpayers earning up to ₹12 lakh will be eligible for a tax rebate under the new tax system. This will ultimately result in many middle-income taxpayers paying zero tax.
During the Union Budget 2026 session, Sitharaman also proposed extending the timeline for revising income tax returns from December 31 to March 31, with a nominal fee. She further highlighted that income tax return deadlines will vary for different groups.
Individuals filing ITR-1 and ITR-2 must file their returns by July 31, 2026. A taxpayer with an annual income of less than ₹50 lakh is eligible to file ITR-1, whereas those with an income exceeding ₹50 lakh must opt for ITR-2, which has no income limit.
FM Sitharaman also stated that businesses that do not require an audit and trusts will be given additional time until August 31, 2026 to file their income tax returns.
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In the Union Budget 2026, the government stated that interest awarded by the Motor Accident Claims Tribunal to an individual will not be taxed, and the corresponding Tax deducted at Source (TDS) will be removed. Sitharaman also proposed several measures to benefit small taxpayers, including relocated Non-Resident Indians (NRIs), students, and young professionals.
The government has proposed a one-time, six-month foreign assets disclosure scheme that will allow individuals to declare their foreign income or assets without facing severe penalties. The scheme will reportedly apply to two categories of people: those who never disclosed their foreign income or assets earlier, and those who paid tax on foreign income but never declared the foreign assets they acquired provided the undisclosed assets are up to Rs 1 crore.
FM Sitharaman stated, “They need to pay 30 percent of the fair market value of the asset or 30 percent of the undisclosed income as tax, along with an additional 30 percent as income tax in lieu of a penalty, and will thereby receive immunity from prosecution.”
Non-Resident Indians (NRIs) providing capital goods to Indian companies will also enjoy an income tax exemption for a period of five years.
The Finance Minister simplified Tax Collected at Source (TCS) rates for taxpayers by cutting the rate on foreign tour packages to 2%, down from 5% or 20%, with no minimum remittance limit. Previously, the 20% TCS on foreign travel under the Liberalised Remittance Scheme (LRS) was seen as too harsh and made overseas travel more expensive for many people.
The government has further reduced the TCS rate on education and medical treatment remittances under LRS to 2%, from the existing 5%, to help people manage their finances while paying for expenses abroad.
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