What is Finance Bill? Changes in Tax Structure for 2026

Here are some of the major highlights of finance bill announced in the Union Budget 2026-2027 by the Finance Minister, Nirmala Sitharaman on 1 February 2026:

No change in income tax slabs: The income tax structure for AY 2026–27 remains unchanged from the previous year.

Tax holidays and incentives:

1. A tax holiday until 2047 has been granted to foreign companies providing global cloud services through Indian data centres, subject to routing services to Indian customers via an Indian reseller.

1. The tax holiday for IFSC units and Offshore Banking Units has been extended from 10 years to 20 years.

1. After the holiday period ends, income from IFSC units will be taxed at 15%.

Tax on share buybacks:

1. Along with an additional buyback tax for promoters, all share buybacks will be taxed as capital gains.

1. The effective tax rate will be 22% for corporate promoters and 30% for non-corporate promoters.

Increase in Securities Transaction Tax (STT):

1. Options: Increased from 0.1% to 0.15%.

1. On exercised options: Raised from 0.125% to 0.15%.

1. On futures: increased from 0.02% to 0.05%.

Mutual fund income deductions:

1. For interest expenditure incurred to earn dividend income or income from mutual fund units, no deduction will be allowed.

1. Earlier, such deductions were allowed up to 20% of gross income.

Minimum Alternate Tax (MAT):

1. From 1 April 2026, MAT credit accumulation will not be available.

1. The MAT rate is reduced from 15% to 14%.

1. Under the new tax regime, MAT credits can be set off only up to 25% of tax liability.

Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026:

1. For certain small taxpayers, including returning non-residents, a time-bound disclosure scheme has been introduced.

1. The scheme offers graded relief, including immunity from penalty and prosecution, subject to payment of tax, additional levy, or a fixed fee

Relaxations for non-residents:

1. Five-year income tax exemption for supplying capital goods to electronics manufacturers.

1. For expert non-residents working in India for up to five years under notified schemes, the global income is exempted from tax.

1. MAT exemption extended to additional categories of non-residents.

Rationalisation of penalties and prosecution: Several tax offences have been decriminalised, with maximum imprisonment capped at two years in certain cases.

Tax Collected at Source (TCS):

1. For education and medical treatment, TCS on remittances above Rs.10 lakh reduced from 5% to 2%.

1. TCS on overseas tour packages, including travel and hotel expenses, reduced to 2%, replacing earlier rates of 5% and 20%.

MACT interest exemption:

1. Interest awarded by the Motor Accident Claims Tribunal (MACT) will be fully exempt from tax in the hands of an individual or their legal heir.

1. On MACT interest payments; no TDS will be deducted.

Disability pension for Armed Forces: Disability pension is exempt from tax, which is received by Armed Forces personnel invalided out of service due to disability attributable to or aggravated by service.

Supply of manpower covered under “work”: The definition of “work” is expanded to explicitly include supply of manpower, clarifying the applicable TDS rate.

Lower or nil TDS certificates:

1. For lower or nil TDS certificates, small taxpayers can apply electronically.

1. Based on prescribed conditions, certificates will be issued or rejected online.

Centralised submission of declarations (Form 15G/15H):

1. Declarations can be filed with a depository for income from mutual fund units, interest from securities, and dividends.

1. The depository will share the declaration with deductors.

Property purchase from non-residents:

1. When buying immovable property from a non-resident, resident individuals or HUFs will not need a TAN to deduct TDS.

1. TDS will be deducted and reported using PAN, aligning the process with resident transactions.

TCS on remittances:

1. TCS for education and medical treatment abroad reduced from 5% to 2%.

1. No change in TCS rate for other foreign remittances.

Revised return timeline: Revised returns can be filed within 12 months from the end of the relevant tax year or before completion of assessment, whichever is earlier.

Employer deduction for employee contributions: Employee contributions received by employers towards PF, superannuation fund or ESI will be allowed as deduction if deposited by the due date of filing the return.

Disallowance of interest expenditure: For interest expenditure incurred to earn dividend income or income from mutual fund units taxable under “Income from other sources”, no deduction will be allowed.

Composite assessment and penalty orders: Where penalty proceedings are initiated, a single composite order for assessment and penalty may be passed, after giving the taxpayer adequate opportunity.

Expanded immunity from penalty: Immunity provisions extended to cases of under-reporting due to misreporting, subject to payment of additional tax.

Penalties converted into fees:

Certain penalties are replaced with fixed fees, including:

1. Rs.75,000 (up to one month delay) and Rs.1.50 lakh thereafter (Section 446)

1. Rs.50,000 (up to one month delay) and Rs.1 lakh thereafter (Section 447)

1. Rs.200 per day, capped at Rs.1 lakh, for specified reporting failures (Section 454)

Partial decriminalisation: Several offences are partially or fully decriminalised, with changes to the nature and duration of punishment.

Higher maximum penalty: Maximum penalty under Section 466 increased to Rs.25,000 from Rs.1,000.

Crypto-asset reporting penalties: New penalties introduced which is Rs.200 per day and Rs.50,000 for failure to furnish crypto-asset transaction statements and for furnishing inaccurate information, respectively.

Lower tax on unexplained income: Tax rate reduced from 60% to 30% on unexplained credits, investments, etc.

Rationalised block assessment period: Streamlines the block period definitions, especially for non-search cases involving undisclosed income of limited years.

Extended limitation period: Time limit for completing block assessments increased from 12 months to 18 months, with the search initiation date as the reference point.

Cooperative societies: Cooperatives registered under the Multi-State Cooperative Societies Act, 2002 included within the definition of cooperative societies.

MAT exclusions expanded:

MAT will not apply to:

1. Businesses operating cruise ships (subject to conditions)

1. Services or technology provided in India for electronics manufacturing facilities.

Share buy-back taxation: Under “Capital gains”, the amount received by shareholders on buy-back of shares will be taxed.

Technical amendments: References updated to align with the Inland Vessels Act, 2021 and related rules.

Union Budget Analysis on Finance Bill for FY 2025-2026

Some of the major details that were announced by the Finance Minister in the Union Budget 2025-2026 are mentioned below:

1. New Income Tax Regime Changes: Modifications to the tax slabs under the new tax regime. No tax needs to be paid in case the annual income is up to Rs.12 lakh. Earlier, no tax needed to be paid for annual income up to Rs.7 lakh. Tax slabs under the old regime remains the same.

1. NGOs: Under Section 12A the validity of tax exemption is five years. In the case of institutions with an income of Rs.5 crore and below in both the previous years, the validity has been increased to 10 years.

1. International Financial Services Centre (IFSC): The date when the IFSC unit operations commence has been extended to 31 March 2030. Several tax exemptions have been granted.

1. Income Tax Exemption for Startups: Currently, income tax exemptions are provided for startups that have been started up to 1 April 2025 for three years in a row for the initial ten years of operation. The date of incorporation of startups has been extended to 1 April 2030.

1. Customs: For certain items the customs duty is reduced.

1. TDS Limit: The TDS limit (annual) is Rs.6 lakh.

1. TCS Limit: Threshold on remittances has been increased to Rs.10 lakh from Rs.7 lakh.

1. Compliance Mechanism: Time limit has been increased to four years from two years for any assessment year. The penalty will be 60% and 70% for the third year and fourth year, respectively.

Union Budget Analysis on Finance Bill for FY 2024-25

Here are some of the major details of finance bill announced in the Union Budget 2024-2025 by the Finance Minister, Nirmala Sitharaman on 23 July 2024:

1. Some of the major highlights in the Finance Bill announced in the Union Budget 2024-2025 on 23 July 2024 are:
   1. Simplified tax regime for charities
   2. Simplified TDS rate structure
   3. Provisions for reassessment
   4. Search provisions and capital gains taxation.
2. Other major proposals in the Finance Bill are:
   1. Withdrawal of equalization levy of 2.00%
   2. To certain funds and entities in IFSCs, expansion of tax benefits has been announced
   3. Under the Benami Transactions (Prohibition) Act, 1988, to improve conviction immunity to be provided against penalty and prosecution to benamidar on full and true disclosure.

Features of the Finance Bill

1. Finance Bills are divided into three classes - Finance Bill Category I, Finance Bill Category II, and the Money Bill.
2. Money Bills contain provisions related to regulation or borrowing, amendments to tax laws at the Union or the state level, withdrawal of money from a contingency or consolidated fund, etc.
3. Finance Bills, of both categories, contain provisions related to expenditure, taxation, or any other matter.
4. A Money Bill will always be a Finance Bill. However, a Finance Bill need not necessarily be a Money Bill.
   
5. The Finance Bill can only be introduced in the lower chamber of the Parliament or the Lok Sabha.
6. The Rajya Sabha can make recommendations to the bill. The bill will have to be returned by the Rajya Sabha within 14 days of receiving it, else it will be deemed as passed.
7. If the bill is returned without any recommendations to the Lok Sabha, the same will be presented to the President for his/her approval.
8. Even if the bill is returned with recommendations, the Lok Sabha has the power to accept or reject all of these recommendations. The Lok Sabha will have to inform the Rajya Sabha about the status of the recommendations.
9. Whether the Lok Sabha accepts all the recommendations or not, the bill will be deemed to have been passed by both the Houses.
10. For all other bills, the final passing of the said bill will happen at the Rajya Sabha. However, for Money Bills, the final passing will happen at the Lok Sabha. This will then be sent to the President of India for his/her assent.
11. The President cannot return a Money Bill will recommendations to the Lok Sabha, for any purpose.

Interim Union Budget 2024-25 Update

On 1 February 2024, Finance Minister Nirmala Sitharaman presented the Interim Union Budget 2024-25 at Parliament.

The government's initiative to increase living standards and business accessibility is aligned with the Interim Budget 2024-25's proposal to waive old, unreconciled trivial tax outstanding.

Numerous unverified, disputed, or non-reconciled direct tax demands, some of which date back to 1962, are still on file. This has resulted in administrative challenges and delays in refunds in the following years.

It has been proposed to waive such unpaid direct tax demands up to Rs.10,000 for the financial year 2010–11 to 2014–15 and up to Rs.25,000 for the financial year 2009–10.

Regarding the applicability of this tax proposal to corporations or individual taxpayers, nothing specific has been stated. Approximately 1 crore taxpayers will benefit from this decision.

The Finance Bill 2024 does not make any specific recommendations in this area. Therefore, the Central Board of Direct Taxes (CBDT) will likely issue a separate circular to offer the previously stated relief.

Changes in the Tax Structure for FY 2023-24

The following are the changes in 2023 tax structure as per the Union Budget 2023-2024:

1. The number of slabs in the new tax structure has been reduced to five

1. Tax rebate limit raised to Rs.7 lakh, which makes income up to Rs.7 lakh tax free
2. Income above Rs.5 lakh from insurance policies will not be tax-free
3. Salaried person with income of Rs.15.5 lakh or above will be benefited by Rs.52,500
4. Tax exemption on Leave Encashment limit raised to Rs.25 lakh from Rs.3 lakh
5. Highest surcharge rate reduced from 37% to 25%, thereby reducing maximum tax rate to 39%

1. New income tax regime will now be the default tax regime
2. The new personal tax rates are:

1. 0 to Rs.3 lakh- nil
2. Rs.3 lakh to Rs.6 lakh- 5.00%
3. Rs.6 lakh to Rs.9 lakh- 10%

1. Rs.9 lakh to Rs.12 lakh- 15%
2. Rs.12 lakh to Rs.15 lakh- 20%

1. Acquisition financing will be permitted by IFSC unit of foreign banks
2. National Financial Information Registry (NFIR) to be designed in consultation with Reserve Bank of India

Changes in the Tax Structure for FY 2022-23

1. A new tax regime was introduced by the Government which an individual could choose to pay tax at lower rates. However, very few deductions and exemptions were available. You have had to choose either the old tax regime or the new tax regime. You can change your regime every year if you are a salaried individual, but the same is not applicable if you own a business.
2. Earlier, if you failed to file your income tax returns by 31 July, you could complete it within 31 March of the next year including any correction required. However, the new rule states that in case you miss the filing of your income tax returns by the due date, then the last date is 31 December of the same financial year.
3. Until 31 March 2020, dividends received from Indian Companies as well as mutual fund schemes were exempted from being taxed. However, the new changes in tax structure completely remove the exemption on your dividend income and make it taxable. If the dividend income exceeds Rs.5,000 then it will be taxable.
4. The interest received on your provident fund account with respect to your own contribution was completely exempted from being taxed even for contributions made beyond the 12% of your basic salary. However, the change in tax structure means that you can no longer enjoy this exemption for the annual contributions made beyond Rs.2.50 lakhs every year after 1st April 2021.
5. The 2021 Union Budget proposed to remove the exemption on any maturity proceeds received from any life insurance product including a ULIP (Unit Linked Insurance Plans).

Proposals made in the Finance Bill Union Budget FY 2021-22

The Union Budget 2021 has been presented by Mrs. Nirmala Sitharaman Mr. Arun Jaitley, the Finance Minister of India, to the Parliament on 1 February 2021. Various amendments were made under the Finance Bill 2021 by Mrs. Sitharaman. Some of the amendments under Finance Bill are mentioned below:

1. Under Sections 10(11) and 10(12), the threshold for contributions made to the provident fund was increased from Rs.0.25m to Rs,0.5m, in case of the event of no contribution made by the employer to the fund. The amendment also appears to provide benefits to government employees in the event of no contribution from the government to the provident fund.
2. Under Section 10(4D), the investment branch of the OBU under IFSC will now need to register as s a Category-I Foreign Portfolio Investor (FPI) in order to qualify as a specific fund.
3. The Finance Minister during the Union Budget speech had proposed setting up of Developmental Financial Institutions (DFIs) to aid in the long-term debt financing of the infrastructure sector. Hence, a new provision has been inserted where any interest accruing or income arising to a DFI be exempted from being taxed. A similar provision has been inserted for any income arising or interest accruing to an institution set up under an Act of the Parliament for financing infrastructure and development for ten consecutive financial years.
4. Under the Finance Bill, a new provision has been inserted where a transfer of an asset by a public sector company (PSC) to another PSC, or Central Government, or State Government, or by India Infrastructure Finance Company Limited to an institution set up under an Act of the Parliament for financing infrastructure and development, to exempt the capital gains from being taxed.
5. Under Section 112A, ULIPs will be considered an 'equity-oriented fund' provided the investment criteria of 90% or 65% are fulfilled throughout the insurance policy term.
6. There are various amendments made to the Finance Bill and were passed by both the houses, the details of which you will be able to find on the Government's official website.

The Union Budget of India, which is also known as the Annual Financial Statement, is a financial declaration made by the Government of India that lists out the estimated expenditures and receipts of the government for a particular financial year. As per Article 110 (a) under the Constitution of India, a finance bill is to be mandatorily presented with the budget.