The Union Budget 2026, presented on February 1st, 2026, by Finance Minister Nirmala Sitharaman, maintained the status quo on income tax slabs and rates for individual taxpayers. However, the budget introduced several changes impacting both individual and corporate taxpayers, focusing on streamlining processes, promoting manufacturing, and attracting investment. The New Income-tax Act 2025, which aims to simplify the law and minimize controversies, will be applicable from the tax year 2026-27 onwards.

Income Tax Slabs and Rates

Old Tax Regime: The income tax slabs under the old tax regime remain unchanged.

• Up to ₹2,50,000: Nil
• ₹2,50,001 to ₹5,00,000: 5%
• ₹5,00,001 to ₹10,00,000: 20%
• Above ₹10,00,000: 30%

New Tax Regime: The new tax regime, which is the default option, also sees no changes in its income tax slabs.

• Up to ₹4,00,000: Nil
• ₹4,00,001 to ₹8,00,000: 5%
• ₹8,00,001 to ₹12,00,000: 10%
• ₹12,00,001 to ₹16,00,000: 15%
• ₹16,00,001 to ₹20,00,000: 20%
• ₹20,00,001 to ₹24,00,000: 25%
• Above ₹24,00,000: 30%

The new regime offers a rebate of ₹60,000, potentially making income up to ₹12 lakh practically tax-free. A standard deduction of ₹75,000 is available against salary income. The maximum surcharge rate under the new regime is 25% for income above ₹2 crore.

Key Changes and Proposals

• Minimum Alternate Tax (MAT): The MAT rate has been reduced from 15% to 14% for domestic companies not opting for a concessional tax regime. There will be no further credit accumulation from April 1, 2026.
• Tax on Share Buybacks: Buyback of shares is now proposed to be taxed as capital gains instead of dividend income.
• Safe Harbor Provisions: The scope for safe harbor provisions under Indian Transfer Pricing Regulations has been enhanced.
• Advance Pricing Agreements: The process for unilateral Advance Pricing Agreements will be fast-tracked.
• Tax Holiday for OBUs and IFSC Units: The tax holiday period for Offshore Banking Units (OBUs) and Units operating in International Financial Service Centers (IFSC) has been extended. Following the tax-holiday period, a concessional tax rate of 15% is now proposed on specified income earned by OBUs and IFSC Units.
• Exemption for Foreign Companies: Income arising in the hands of a foreign company from providing capital goods, equipment, or tooling to an Indian contract manufacturer producing electronic goods is proposed to be tax exempt up to the tax year 2030-31.
• TCS Rate Reduction: The Tax Collected at Source (TCS) rate on the sale of overseas tour program packages is reduced to 2% from the current 5% & 20%. The TCS rate is also reduced to 2% from the current 5% for Liberalized Remittance Scheme (LRS) remittances for education and medical purposes.
• Customs Duty: A uniform customs duty for all personal imports, including gifts, is now applicable.
• Foreign Asset Disclosure Scheme: A one-time 6-month foreign asset disclosure scheme for small taxpayers to disclose their overseas income or assets has been introduced. Under the scheme, undisclosed foreign assets and income of up to INR 1 crore may be regularized on payment of tax at 30 per cent along with an additional amount equal to 100 per cent of such tax.

Other Key Highlights

• New Income Tax Act 2025: The new Income Tax Act, 2025 will come into effect from April 2026. Simplified Income Tax Rules and Forms will be notified shortly.
• Increased STT: Securities Transaction Tax (STT) on futures has been increased to 0.05% from 0.02%.
• Customs Duty Exemptions: Basic Customs Duty exemptions have been given to capital goods used for manufacturing Lithium-Ion Cells for batteries and to the import of capital goods required for processing critical minerals.

The Union Budget 2026 aims to create a more transparent and efficient tax system while promoting economic growth and attracting investment. While there are no changes to the income tax slabs, the budget includes several proposals focused on simplification, promoting domestic manufacturing, and easing compliance for taxpayers.