New Delhi: The Union Budget 2026-27 has laid out a fresh round of direct tax reforms with the Income Tax Act, 2025 set to come into effect from April 1, 2026, marking a major reset of India’s tax architecture aimed at simplifying compliance and improving transparency.
Presenting the Budget in Parliament, Finance Minister Nirmala Sitharaman said the new law will be supported by redesigned rules and forms to make compliance easier for ordinary taxpayers, with notifications to be issued in due course to allow adequate transition time.
In a significant change to capital market taxation, the Budget proposes that share buybacks will be taxed as capital gains for all categories of shareholders, moving away from the earlier framework. To curb misuse of tax arbitrage, promoters will pay an additional levy, taking the effective tax rate to about 22% for corporate promoters and 30% for non-corporate promoters, according to the proposals.
The Budget also rationalises tax collected at source (TCS) across several categories. The TCS rate for sellers of alcoholic liquor, scrap and minerals will be brought down to 2%, while that on tendu leaves will be cut from 5% to 2%. Under the Liberalised Remittance Scheme (LRS), TCS on remittances for education and medical treatment will be reduced to 2%, while a higher 20% rate will continue for other purposes beyond the specified threshold.
On the securities market front, the government has proposed to raise the Securities Transaction Tax (STT) on derivatives, with futures STT increased to 0.05% from 0.02%, and options STT on premium and exercise raised to 0.15% from the current lower rates. The Budget also seeks to push companies towards the new corporate tax regime by allowing set-off of brought-forward MAT credit only in the new regime, capped at one-fourth of the tax liability, and by making Minimum Alternate Tax (MAT) a final tax from April 1, 2026 at a reduced rate of 14%, down from 15%, while preserving accumulated credits till March 31, 2026.
To streamline tax administration, Sitharaman proposed setting up a joint committee of the Ministry of Corporate Affairs and the CBDT to align Income Computation and Disclosure Standards (ICDS) with Indian Accounting Standards (IndAS), doing away with separate accounting requirements from tax year 2027-28. Analysts said the package signals a continued push towards simplification, though market participants will closely watch the impact of higher STT and the buyback tax shift on trading and corporate payout strategies