The budget was announced on 1st Feb 2026, and there are several reforms announced on the income tax front. Here are the major updates:
1. Compliance & filing due dates
After years of complaints about tight filing timelines, the government has finally loosened the calendar.
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Due date for ITR-3 (non-audit cases) & ITR-4 changed
For individuals and firms not subject to tax-audit, the due date to file ITR-3 and ITR-4 has now been changed from July 31st to August 31st from this FY.
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Changed due date for revised returns
There’s relief on corrections, too. If you realise later that you missed reporting an income or made a mistake, you now have time till March 31st to file a revised return. Earlier, this window closed on December 31st.
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ITR-U flexibility
The Updated Return (ITR-U) has also been made more practical. Taxpayers can now
revise loss amounts and even file an updated return after receiving a tax notice.
2. Stock market & investment changes
If you trade in futures and options, Budget 2026 brings a clear signal that speculative activity will cost more.
- Higher STT on F&O transactions
The Securities Transaction Tax (STT) has been increased across the F&O segment:
| Instrument | Old STT rate | New STT rate |
|---|---|---|
| Futures | 0.02% | 0.05% |
| Options (Premium) | 0.10% | 0.15% |
| Options (Exercise) | 0.125% | 0.15% |
These may look like small numbers, but for frequent traders, the impact on transaction costs will add up quickly. Long-term investors, however, will remain largely unaffected.
The Budget has also cleaned up a few long-standing grey areas in investment taxation.
- Buybacks now taxed as capital gains
Share buybacks will now be taxed as capital gains for all shareholders, instead of being treated as ‘deemed dividends’ under income from other sources. To prevent promoters from using buybacks as a tax-saving tool, an additional tax has been imposed on them, 22% for corporate promoters and 30% for non-corporate promoters.
- SGBs tax benefits narrowed
For Sovereign Gold Bonds, the much-talked-about capital gains exemption is now limited. It will apply only to original subscribers who hold the bond till maturity. If you bought SGBs from the secondary market, gains on sale or redemption will now be taxable.
- No interest deduction on mutual fund dividends
There’s a change on dividends too. Interest expense can no longer be claimed against dividend income from mutual fund schemes. However, the deduction continues to be allowed for dividends from direct equity shares, subject to the existing 20% cap.
3. TDS & TCS updates
On the cash-flow front, there’s good news for those spending abroad.
- TCS reductions
Tax Collected at Source (TCS) on overseas tour packages has been cut to a flat 2%, down from 5% or even 20% earlier, without any minimum threshold.
Similarly, TCS on foreign remittances under the Liberalised Remittance Scheme (LRS) for education and medical purposes has been reduced from 5% to 2%. This reduces the upfront tax burden for families planning education or treatment overseas.
- TDS framework for manpower services
Manpower services, where businesses pay for people deployed to do work rather than a finished output, have now been clearly brought under the contractor category for TDS purposes.
Going forward, payments for manpower services will attract TDS at 1% or 2%, depending on the recipient. This puts to rest the long-standing confusion around whether such payments should be treated as professional services, contractual payments, or something else.
At the same time, access to lower or nil TDS certificates has been streamlined through an automated, rule-based process, reducing paperwork and manual intervention for small taxpayers.
4. Heavy penalties for audit delays
If there’s one area where the Budget shows zero leniency, it’s audit compliance.
As the due date to submit the Tax Audit Report (TAR) is 30th Sept, a new graded late fee structure has been introduced for delayed filing of the Tax Audit Report:
- ₹75,000 for delays of up to one month
- ₹1.50 lakh for delays exceeding one month after October 31st
These changes are part of the broader transition to the Income Tax Act, 2025, which replaces the decades-old 1961 Act starting this financial year.
We’ll dive deeper into individual changes and their practical impact in the days ahead.