Budget 2026 has introduced significant changes to income tax regulations, offering relief to accident victims and rationalizing the Tax Collected at Source (TCS) mechanism. These measures, presented by Finance Minister Nirmala Sitharaman, aim to ease the burden on specific segments of the population and simplify tax compliance. The changes come as part of the new Income Tax Act 2025, set to take effect on April 1, 2026, with the goal of creating a more taxpayer-friendly ecosystem.
Relief for Accident Victims
A key highlight of Budget 2026 is the provision of income tax relief for accident victims. Interest awarded by the Motor Accident Claims Tribunal (MACT) to a natural person will now be fully exempt from income tax. Furthermore, there will be no Tax Deduction at Source (TDS) on such interest. This measure ensures that accident victims and their families receive the full compensation amount, without any deductions reducing the final sum. This move acknowledges the hardships faced by accident victims and aims to provide them with complete financial support for medical expenses and livelihood.
Rationalization of TCS
Budget 2026 also brings about changes to the TCS rates for various transactions. The TCS rate on overseas tour program packages has been reduced to 2%. Previously, these rates ranged from 5% to 20%. This reduction aims to lower the tax burden on foreign travel and simplify the process for travelers. The reduced rate applies without any spending threshold.
Families sending money abroad for education or medical treatment will also benefit from a reduced TCS rate. Under the Liberalised Remittance Scheme (LRS), the TCS rate for these purposes has been decreased from 5% to 2%. This measure is intended to ease the financial burden on families sending money abroad for these essential needs.
The budget also proposes to rationalize the TCS rate for sellers of specific goods like alcoholic liquor, scrap, and minerals to 2%. The TCS on tendu leaves is proposed to be reduced from 5% to 2%.
Additional Key Proposals
Several other proposals were made in the budget including: * New Income Tax Act 2025: The new act aims to create a simplified and more accessible framework for citizens. * Revised ITR Deadline: The deadline for revising income tax returns has been extended to March 31. * Foreign Asset Disclosure Scheme: A six-month foreign asset disclosure scheme has been introduced for small taxpayers. * Customs Duty Reduction: Customs duty on goods imported for personal use has been reduced to 10% from 20%. * Tax on Buybacks: Buybacks for all types of shareholders will be taxed as Capital Gains.
Market Volatility
Following the announcement of Budget 2026, market volatility ensued, partly due to an increase in the Securities Transaction Tax (STT). The STT on futures is to be raised to 0.05% from 0.02%. The STT on options premium and exercise of options will also be raised to 0.15% from the present rate of 0.1% and 0.125%, respectively.
Budget 2026 focuses on easing compliance, reducing litigation, and providing targeted relief to specific groups. The introduction of the Income Tax Act 2025 and the rationalization of TCS provisions are expected to create a more streamlined and taxpayer-friendly tax system.