In her latest Budget address, Finance Minister Nirmala Sitharaman outlined a broad revamp of India’s tax ecosystem, reshaping how individuals declare income, pay taxes, and correct past filings. The reforms focus on reducing paperwork, improving flexibility for taxpayers, lowering upfront costs, and easing the transition to the upcoming Income Tax Act, scheduled to take effect on April 1, 2026.

A cornerstone of the announcement is the introduction of the modernised Income Tax Act, which aims to streamline tax rules and make compliance more taxpayer-friendly. To support this transition, return filing deadlines will be adjusted: individuals using ITR-1 and ITR-2 will retain the July 31 deadline, while non-audit business taxpayers and trusts will receive an extended deadline until August 31.

Taxpayers will also benefit from more time to amend errors. The window to revise returns will now remain open until March 31 each year, subject to a modest fee. Additionally, individuals will be allowed to submit updated returns even after an assessment has started, provided they pay an extra 10 percent tax.

One of the most impactful consumer-focused moves is the reduction in Tax Collected at Source (TCS) on foreign spending. TCS on international tour packages has been reduced to a flat 2 percent with no minimum threshold, replacing the earlier higher slabs. Similarly, remittances made under the Liberalised Remittance Scheme (LRS) for education and medical needs will now attract only 2 percent TCS, easing financial strain on families.

Tax experts have welcomed the shift toward easier compliance, noting improvements such as lower withholding tax requirements, better access to nil or low TDS certificates, extended revision timelines, and new provisions for declaring foreign assets.

The Budget also resolves long-standing ambiguity by fully exempting interest awarded by the Motor Accident Claims Tribunal to individuals from income tax, with no TDS applicable on such compensation.

For small investors, depositories CDSL and NSDL will now accept Form 15G and 15H and transmit them to companies, helping prevent unnecessary tax deductions for eligible low-income earners.

A special six-month disclosure scheme has been introduced for individuals holding undisclosed foreign assets. Students, NRIs, and small taxpayers can regularise such holdings under two categories:

• Assets worth up to ₹1 crore will attract a combined 60 percent tax and penalty.

• Previously declared income tied to unreported assets up to ₹5 crore can be disclosed for a flat ₹1 lakh fee.
  Participants will receive immunity from prosecution and penalties.

To accelerate dispute resolution, assessment and penalty processes will be merged, and the pre-deposit requirement to obtain a stay on tax demand will be reduced from 20 percent to 10 percent. Minor tax offences, including certain record-keeping lapses, will also be decriminalised and replaced with financial penalties.

Overall, the reforms aim to reduce taxpayer stress, improve transparency, and create a smoother, more efficient tax compliance system ahead of India’s upcoming income tax overhaul.