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In terms of tax proposals, specifically for individual and small taxpayers, rather than offering immediate tax rate reductions or slab restructuring, the Government has focused on structural simplification, procedural certainty, reduced litigation, and promoting trust-based compliance. For individual taxpayers, particularly salaried employees, professionals, young earners, NRIs, and globally mobile individuals, the Budget’s impact lies less in headline relief and more in how taxation is administered and enforced.
No changes have been made to tax slabs or rates for individuals under either the new tax regime or the old tax regime. The Government has clearly signaled predictability and fiscal discipline, discouraging expectations of frequent slab tinkering.
The Income-tax Act, 2025 comes into force from 1 April 2026, replacing the 1961 Act. While substantively similar, the new law aims to simplify language, reorganise provisions and reduce interpretational ambiguity. New forms and rules will be notified well in advance, with an emphasis on self-compliance. This is a long-term reform aimed at reducing disputes arising purely from drafting complexity rather than taxpayer behavior.
Interest on compensation awarded by Motor Accident Claims Tribunal (MACT) is now fully exempt from tax. Such disbursements would not be subject to Tax deduction at Source (TDS), irrespective of amount paid.
Resident individuals and HUFs purchasing immovable property from a non-resident will no longer be required to obtain a Tax Deduction and Collection Account Number (TAN) for carrying out TDS, significantly reducing one-time compliance burden for homebuyers. This change simplifies property transactions involving NRIs and aligns the process with purchases from resident sellers, making the tax system more practical and user-centric.
Small taxpayers can now apply electronically for a nil or lower TDS certificate without physical interaction with the tax officer, ensuring faster and more transparent processing. The move promotes trust-based compliance by reducing procedural delays and easing cash-flow challenges for individuals with lower effective tax liability.
TCS has been reduced to 2% (from 5% / 20%) for overseas tour packages and foreign remittances for education and medical purposes with no monetary threshold applicable. These changes aim to ease cash-flow pressure and reduce dependency on adjustment of TCS against final tax liability or potential tax refund at the time of filing tax return.
Under the Foreign Assets of Small Taxpayers – Disclosure Scheme (FAST – DS), 2026, Part A covers individuals who neither disclosed foreign assets nor paid tax earlier, subject to a value cap of INR 1 crore. Such taxpayers are required to pay 30% tax on the fair market value of the asset or undisclosed income, along with an additional 30% levy in lieu of penalty, after which full immunity from prosecution is granted.
Part B applies to taxpayers who had already disclosed foreign income and paid due tax but failed to report the asset itself, with an asset value cap of INR 5 crore. In these cases, no additional tax or penalty is payable; instead, a fixed fee of INR 1 lakh is required to be paid to obtain complete immunity from both penalty and prosecution, providing finality and an opportunity for transparent financial reporting.
The assessment and penalty proceedings will now be combined into one order, reducing prolonged uncertainty. Also, the pre-deposit of taxes for filing appeal has been reduced from 20% to 10%. Further, propose that no interest would accrue on penalty amounts during first appellate proceedings.
The penalty on technical and procedural defaults (eg. audit delays, reporting lapses) have been converted into fees. Several offences now attract only fines, with imprisonment capped at two years in serious cases. This marks a philosophical shift from deterrence-based enforcement to proportional compliance.
Union Budget 2026-27 is not a populist tax-cut budget for individuals. Instead, it represents a mature phase of tax policy, prioritising stability, administrative fairness, and compliance certainty. For individual taxpayers, the biggest gains lie in simplified processes, fewer disputes, reduced fear of penalties/ prosecution, and greater flexibility to correct mistakes.
The underlying message is clear: while tax rates may not change every year, the quality of the tax system itself is steadily improving on one hand and taxpayers are being entrusted to ensure diligence in compliance on the other hand.
This article first appeared in The Economic Times on 2 February 2026.
