Union Budget 2026-27: Hidden Tax Benefits You Need to Know Today

No change in tax slab in new budget

Tax structures for assessment year 2026-27 mirror the previous year completely. Both old and new tax regimes stick to their existing frameworks. Many taxpayers predicted revisions to income tax slabs, but no changes materialized. The new regime still fully exempts income up to Rs 4 lakh. Tax rates then increase step by step—5% on Rs 4–8 lakh, 10% on Rs 8–12 lakh, 15% on Rs 12–16 lakh, 20% on Rs 16–20 lakh, 25% on Rs 20–24 lakh, and 30% on income above Rs 24 lakh.

The standard deduction remains Rs 50,000 for those under the old regime and Rs 75,000 for new regime taxpayers. The Section 87A tax rebate stays unchanged too. Residents with net taxable income up to Rs 12 lakh can claim a maximum rebate of Rs 60,000. This effectively eliminates their tax liability on regular income up to that threshold.

Capital gains rules remain unchanged

The government kept the existing capital gains framework intact for FY 2026–27. This consistency supports their push toward an economical and uniform tax structure for assets of all types. Listed shares and equity mutual funds still attract 12.5% long-term capital gains (LTCG) tax after 12 months. The annual exemption limit stays at Rs 1.25 lakh. Short-term capital gains (STCG) continue with 20% taxation.

Gold investment taxation rules remain steady. Physical and digital gold face 12.5% LTCG taxation after 24 months. Gold ETFs reach the long-term threshold after just 12 months. Short-term gold gains still follow applicable income slab rates. Debt funds purchased after April 1, 2023, continue without LTCG benefits or indexation advantages. All gains face taxation as short-term at individual income tax slab rates.

Why this matters for salaried taxpayers

Middle-class taxpayers feel let down by unchanged income tax slabs. The Budget skips higher exemption limits or increased standard deductions despite recent inflation pressures. Salaried individuals see little immediate relief. The government chose long-term fiscal stability over addressing near-term household financial pressures.

This stability-first approach affects your financial planning in two ways. You can plan with greater confidence since rules aren’t changing. However, your effective tax burden might increase as your nominal income adjusts to rising living costs.

The new Income Tax Act starts from April 1, 2026. It promises clearer language and fewer disputes. These structural improvements might help long-term, but they don’t solve immediate financial challenges. This especially affects the many taxpayers who still use the old tax regime.

1. Buyback Tax Shift: What It Means for Investors

Finance Minister Nirmala Sitharaman’s bold overhaul of share buyback taxation emerges as one of the most important changes in the union budget 2026-27. This reform reverses the 2024 approach and brings back capital gains treatment for buybacks. The new system creates a two-tier tax structure that treats promoters and retail investors differently.

From dividend to capital gains

The policy now taxes buyback proceeds as capital gains instead of dividend income. This change takes India’s buyback taxation framework back to its pre-2013 approach, which originally taxed buybacks under the capital gains regime.

The system that started October 1, 2024, treated the entire buyback amount as dividend income taxable at individual income slab rates. Companies had to withhold 10% TDS for resident investors (on payouts exceeding Rs 5,000) and 20% TDS for non-residents.

Shareholders will now see their buyback consideration charged under the “Capital Gains” head rather than as dividend income. This change resolves a major investor concern—the “phantom loss” trap—where they couldn’t offset acquisition costs against dividend income.

Shareholders can now balance their acquisition costs against buyback proceeds. Any resulting losses get classified as short-term or long-term capital losses, which they can carry forward for up to eight years.

Effective tax rates for promoters

The budget introduces an “Additional Income Tax” for promoters to prevent tax arbitrage. This creates a dual-tier system with different tax implications based on investor status:

• Corporate promoters: Face an effective tax rate of 22%
• For short-term gains: 20% normal rate plus 2% additional tax
• For long-term gains: 12.5% normal rate plus 9.5% additional tax
• Non-corporate promoters (individuals/trusts): Face an effective tax rate of 30%
• For short-term gains: 20% normal rate plus 10% additional tax
• For long-term gains: 12.5% normal rate plus 17.5% additional tax

The promoter definition goes beyond traditional classifications. It includes any shareholder owning more than 10% of a company’s equity (directly or indirectly). This broad definition prevents significant shareholders from avoiding the higher tax rate.

Impact on retail shareholders

Retail investors received good news in today’s budget. Non-promoter shareholders will pay only standard capital gains tax rates without extra levies. The rates are:

• 20% for short-term capital gains
• 5% for long-term capital gains

This is a big deal as it means that rates dropped from the previous system where buyback proceeds faced taxation as dividends at individual income tax slab rates (up to 35.88% for individuals). Retail shareholders with long-term investments will pay just 12.5% tax instead of their marginal income tax rate.

Small retail investors might pay no tax in certain cases. Their long-term capital gains from listed shares below Rs. 1.25 lakh annually remain tax-free.

Sitharaman presented this change as a way to protect minority shareholders while discouraging tax arbitrage. The new approach creates a balanced system where companies conduct buybacks for legitimate business reasons rather than tax advantages. This ended up promoting better corporate governance.

2. Foreign Asset Amnesty Scheme Explained

The 2026-27 budget brings hope to thousands of people with undisclosed foreign assets through a special amnesty scheme. Finance Minister Nirmala Sitharaman’s india union budget 2026 emphasizes a new initiative called “Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026” (FAST-DS 2026). This scheme gives taxpayers another chance to declare their overseas holdings without facing harsh penalties.

Who can apply and what to disclose

FAST-DS 2026 focuses on specific groups who might have missed foreign asset disclosure requirements unintentionally. Students who studied abroad, young professionals, tech employees with overseas assignments, and relocated NRIs who struggled with strict foreign-asset reporting can apply. The scheme creates a clear path for two types of taxpayers:

Category A: Those who never declared foreign assets or income

• You can apply if your undisclosed foreign income or assets are worth up to ₹1 crore
• You must declare all previously unreported foreign income and assets from the applicable period
• You need to provide accurate fair market valuation of all assets being disclosed

Category B: Those who paid tax on income but missed declaring the asset

• You qualify if your asset value doesn’t exceed ₹5 crore
• You should declare foreign assets acquired as a non-resident or from already-taxed income
• You must show that you paid tax on the income used for acquisition

The scheme recognizes that many compliance issues come from lack of awareness or complex reporting rules rather than intentional tax evasion.

One-time relief and compliance window

The budget announces a six-month amnesty window. This careful change in India’s tax enforcement approach acknowledges the real challenges taxpayers with limited foreign exposure face.

Category A taxpayers will pay:

• 30% tax on the fair market value of the asset or undisclosed income
• An extra 30% as tax instead of penalty
• This means a total rate of 60% of asset value or undisclosed income

Category B taxpayers have a lighter burden:

• A simple fee of ₹1 lakh to regularize
• No extra tax or penalty

The Central Board of Direct Taxes (CBDT) laid groundwork for this scheme. They ran “Nudge” campaigns in November 2024 and 2025, reaching out to taxpayers through emails and messages to update returns with undeclared foreign assets.

Avoiding penalties and prosecution

This tax budget provision gives complete protection from prosecution under the Black Money (Undisclosed Foreign Income and Assets) Act. Without this amnesty, non-disclosure can lead to:

• Fines up to ₹10 lakh
• Criminal charges whatever the asset’s value
• Tax assessments and demands with interest

The scheme comes with a lasting change in prosecution rules. Today’s budget also protects you from prosecution for not disclosing non-immovable foreign assets worth less than ₹20 lakh, applied back to October 1, 2024.

Regular compliance options still exist if you miss this window. You can fix omissions through revised returns until December 31, 2025, but without the immunity this scheme offers.

This budget shows a balanced approach. It helps people comply voluntarily while keeping strict rules for big or intentional tax evasion. Many Indians working globally can now fix their past reporting mistakes and start fresh with their tax duties.

3. IFSC and Cloud Services: Long-Term Tax Holidays

The India union budget 2026 brings sweeping fiscal changes. Tax holidays for International Financial Services Centers (IFSC) and cloud services emerge as game-changers that will help India become a global hub for financial services and data infrastructure. Finance Minister Nirmala Sitharaman has doubled these sectors’ benefits through unprecedented tax incentives.

20-year tax holiday for IFSC units

India’s competitiveness in global financial services will improve with the union budget’s bold move to double the tax holiday period for IFSC units from 10 to 20 years. IFSC units can now operate tax-free for two full decades instead of just one. These entities will pay only 15% tax on profits after this extended period, down from the earlier 25-35% rates.

This budget announcement comes at a perfect time for existing IFSC operations. Units in their ninth year at GIFT IFSC will get 11 more tax-free years. New entities registering in GIFT City will automatically get the full 20-year tax holiday.

IFSC companies could earlier claim a 10-year tax holiday from when they started operations. The new budget makes this deal more attractive by offering a one-time, uninterrupted 20-year exemption without repeated approvals. Both IFSC units and Offshore Banking Units can claim this deduction for 20 consecutive years within a 25-year period.

Cloud services tax-free till 2047

The budget introduces an exceptional tax holiday until 2047 for foreign companies that provide cloud services through Indian data centers. This creates a window of over two decades for tax exemption to attract global tech giants to build strong data infrastructure in India.

Foreign companies must meet two conditions to qualify:

• All services to Indian customers must be routed through an Indian reseller entity
• Related-entity arrangements can have a margin up to 15% over cost under safe harbor rules

Major tech companies have already announced big investments in India. Google plans to invest ₹1265.71 billion in an AI data-center campus in Andhra Pradesh. OpenAI is looking to build a 1 GW data center while Reliance Industries has announced a ₹928.18 billion joint venture for AI data capacity. Amazon Web Services plans to invest ₹700.36 billion in cloud infrastructure in Maharashtra.

Boost to fintech and data economy

The budget’s dual tax holiday strategy shows a clear plan to reshape India’s role in the digital world. India creates nearly 20% of the world’s data but hosts only about 3% of data center capacity—showing huge room for growth.

These tax incentives could speed up investment in India’s data economy. Experts predict India’s total data center capacity will reach over 8 GW by 2030, up from just over 1 GW now. Capital investments could rise to over ₹16876.09 billion, much higher than the current ₹5906.63 billion being spent.

Companies at GIFT IFSC get powerful benefits from the union budget. They can cut overall operating costs by 50-70% compared to other major international financial centers. This cost advantage and extended tax holiday help India compete with other global financial hubs.

Industry experts see these changes as revolutionary for India’s digital sovereignty. Arundhati Bhattacharya, CEO at Salesforce South Asia, called the cloud services tax holiday “a masterstroke in data sovereignty, attracting an estimated INR 4219.02 billion in data center investments by 2030 while positioning India as the cloud hub for emerging markets”.

4. TDS and TCS Simplifications You Might Have Missed

The India Union Budget 2026 has some hidden gems that could save you time and money through simplified procedures. Finance Minister Sitharaman quietly introduced several tax reforms that make compliance easier. These changes will affect your financial operations, though they didn’t make big headlines in the media.

No TAN needed for NRI property buyers

Good news awaits resident individuals and Hindu Undivided Families buying property from non-resident Indians starting October 1, 2026. Buyers previously needed to get a Tax Deduction Account Number (TAN) to handle TDS for NRI property purchases. This created extra paperwork for what most people do just once in their lives.

The new rules let buyers use their existing PAN-based challan to deduct and deposit TDS. NRI property deals now work just like domestic property transactions, which removes a major compliance barrier. Real estate experts believe this streamlining will cut transaction time from 12-14 weeks to 8-10 weeks.

The TDS rate stays at 20% (plus applicable surcharge and cess) on the sale amount. The rules just make everything simpler.

Lower TCS on overseas education and health

The budget brings practical relief through reduced Tax Collected at Source (TCS) rates for specific overseas remittances. TCS rates for education and medical expenses under the Liberalized Remittance Scheme (LRS) drop from 5% to 2% when transactions exceed ₹10 lakh.

The Finance Minister also simplified TCS on overseas tour packages. A flat 2% rate now applies without any threshold limits. This replaces the old two-tier structure of 5% up to ₹10 lakh and 20% beyond that.

Recent data shows this change comes at the right time. Education remittances fell sharply in November 2025 to USD 120.94 million – 26% lower than October and 54% below September figures. Students and families will see better cash flow since TCS money stays locked until tax filing season.

Form 15G/15H now fully digital

The tax budget quietly transformed Form 15G/15H submission into a meaningful digital upgrade. These vital self-declaration forms that stop TDS deduction on interest income now live entirely online.

You need a Digital Signature Certificate (DSC) to file these forms online. Submit them when the financial year starts to avoid unnecessary TDS cuts on bank interest, dividends, rent, and pension income.

Senior citizens using Form 15H and taxpayers under 60 using Form 15G will find life easier with this digital shift. The paperwork disappears while keeping all compliance needs intact.

5. Mutual Fund and Dividend Income: New Restrictions

The India union budget 2026 brings an unexpected change that affects how investors can offset costs against their investment income. Finance Minister Nirmala Sitharaman has eliminated interest deductions for dividend and mutual fund income. This radical alteration changes investment mathematics for those who use borrowed funds.

No interest deduction on dividend income

The original rules allowed investors to claim interest expenses for earning dividend income as a deduction. They could claim up to 20% of the gross dividend or mutual fund income. This benefit disappears from April 1, 2026. The union budget wants to amend section 93 of the Income-tax Act, 2025. The amendment will not allow any interest expenditure deduction for dividend income or income from mutual fund units.

Here’s what this means: You borrowed ₹25,000 to invest in dividend-paying stocks that yielded ₹1,00,000. You could deduct up to ₹20,000 as interest expense. Now, your entire dividend income becomes taxable without any offset for borrowing costs. This change fits the government’s goal to simplify the tax framework by removing specialized deductions.

Impact on high-net-worth individuals

This tax budget revision hits high-net-worth individuals the hardest. HNIs used borrowed funds to build income-generating portfolios. This strategy no longer looks attractive. The amendment affects discretionary trusts that Indian promoters and wealthy individuals use to hold shares. These entities already face potential taxation at maximum marginal rates of 42.74%.

Varun Gupta, CEO of Groww Mutual Fund, said this change “largely affects leveraged investment strategies, while unlevered, long-term mutual fund investing remains unchanged”. Legal experts suggest this amendment points to “a stricter approach towards leveraging interest deductions against passive investment income”.

What investors should do now

These union budget changes mean investors should rethink their portfolio financing strategies:

1. Think over alternative deduction paths – See if you can add interest to the “cost of acquisition” of shares/units and claim it during capital gain calculation
2. Rethink leverage ratios – Change borrowing levels for dividend-yielding investments based on new after-tax returns
3. Move toward growth-oriented investments – Choose capital appreciation over dividend income where it makes sense

Corporate taxpayers need to redesign their treasury strategies. Tax computation will now handle dividend and mutual fund income without allowing deductions for interest expense. This applies even when borrowings link directly to such income. This technical change will increase the tax burden on passive portfolios.

6. Sector-Specific Deductions and Exemptions

The latest India Union Budget 2026 reveals tax incentives that target growing sectors. Finance Minister Sitharaman has rolled out several sector-specific deductions. These deductions will boost rural and agricultural economies while strengthening women entrepreneurs.

Agriculture: coconut, sandalwood, cashew

The union budget gives special attention to high-value agricultural crops through specialized programs. A new Coconut Promotion Scheme will breathe new life into production across major coconut-growing states. The scheme focuses on replacing non-productive trees with high-yielding varieties. Nearly 10 million farmers and about 30 million people who rely on coconut cultivation for their livelihood will benefit directly from this initiative.

The tax budget now has dedicated programs for Indian cashew and cocoa. These programs will boost self-reliance in production and processing. Indian cashew and cocoa are expected to become premium global brands by 2030. State governments will partner to support scientific farming and post-harvest processing of sandalwood. This partnership aims to restore traditional ecosystems.

Primary cooperative societies can now claim tax deductions on cotton seed and cattle feed supply. This brings substantial relief to agricultural cooperatives.

Animal husbandry: capital subsidy

Nirmala Sitharaman’s budget features a credit-linked capital subsidy scheme. This scheme will establish private veterinary and para-veterinary colleges, animal hospitals, diagnostic laboratories, and breeding facilities. The number of veterinary professionals is expected to grow by over 20,000.

A credit-linked subsidy program will work alongside the educational initiative. The program promotes entrepreneurship and modernization in livestock, dairy, and poultry enterprises. This integrated approach scales up value chains and supports Livestock Farmer Producer Organizations.

The budget brings good news for cooperative structures. Dividend income earned between cooperatives now qualifies for deduction under the New Tax Regime. This change will strengthen financial flows within dairy and livestock cooperatives.

Women entrepreneurs: Lakhpati Didi expansion

Self-Help Entrepreneur (SHE) Marts are being introduced as community-owned retail outlets within cluster-level federations. Women can now move from credit-linked livelihoods to becoming enterprise owners.

These outlets will receive support through improved and innovative financing instruments. This marks a big step forward from the original Lakhpati Didi concept. Success in this program means SHG members earn annual household incomes above Rs. 1,00,000.

The budget also reveals Bharat-VISTAAR, a multilingual AI tool. This tool merges AgriStack portals with AI systems to provide customized agricultural advisory support.

7. MSME and Startup Tax Benefits

The India union budget 2026 expresses a three-pronged MSME strategy by the Finance Minister that changes traditional credit guarantees into future-ready enterprises through targeted equity, liquidity support, and professional guidance.

Champion SME scheme and equity support

Nirmala Sitharaman’s budget introduces a dedicated ₹10,000 crore SME Growth Fund to create “Champion SMEs” based on defined performance criteria. A ₹2,000 crore top-up for the Self-Reliant India Fund, 5 years old now, will give continued support to micro enterprises and maintain their access to risk capital. These funds don’t deal very well with the ongoing “funding winter” for early-stage startups and smaller enterprises. The SME Growth Fund specifically targets high-potential tech MSMEs.

TReDS integration with GeM

The union budget reshapes the scene of MSME liquidity access by making Trade Receivables Discounting System (TReDS) mandatory for all MSME purchases by Central Public Sector Enterprises. TReDS has made over ₹7 lakh crore available to MSMEs. GeM’s integration with TReDS makes shared financing of government procurement receivables faster and cheaper. Credit guarantee support through CGTMSE for invoice discounting improves working capital access fundamentally.

Tax-friendly compliance for small businesses

The tax budget ended up extending timelines for filing revised and updated tax returns. MSMEs can now correct errors without facing penalties. Labor-intensive sectors benefit from simpler TDS rules for manpower supply that reduce administrative work. The budget also introduces “Corporate Mitras” – accredited para-professionals in Tier-II and Tier-III towns. Professional bodies like ICAI and ICSI train these professionals to help MSMEs meet compliance requirements at affordable costs.

8. Planning Ahead: How to Use These Benefits Wisely

The India Union Budget 2026 brings new provisions that require strategic planning to maximize benefits. A methodical approach will help you direct your financial decisions through the changing tax landscape.

Arrange your income sources with exemptions

The New Income Tax Act’s implementation in April 2026 creates opportunities to restructure income sources for better benefits. Interest on Motor Accident Claims Tribunal compensation now enjoys complete tax exemption without TDS requirements. The old regime still offers certain exclusive exemptions, so you should review which tax structure best matches your income profile. You can file updated returns for previously undisclosed income by paying 10% additional tax, which waives penalties on that income.

Use digital tools for tax filing

AI-powered tax platforms now blend compliance with automation. You can choose from options like TaxCloud (registered as an e-return intermediary with the Income Tax department) or Tax Hub that supports complete Indian tax laws. Small taxpayers can now electronically apply for nil or lower TDS certificates without visiting tax offices. Senior citizens can submit Form 15H through a fully digital process that requires Digital Signature Certificates.

Stay updated with future budget changes

The government will soon notify simplified Income Tax rules and redesigned forms. The Joint Committee of Corporate Affairs and CBDT plans to blend Income Computation and Disclosure Standards with Indian Accounting Standards. This change will remove separate ICDS requirements from 2027-28. The nirmala sitharaman budget focuses on making the tax regime more predictable and transparent. New measures reduce litigation through rationalized penalties and decriminalized minor offenses.

Conclusion

The Union Budget 2026-27 has more to offer than what you see at first glance. Tax rates stay the same on the surface, but many hidden benefits await taxpayers who look deeper into the details. The change in buyback taxation to capital gains treatment is a big win for retail investors. It could reduce their tax burden by a lot compared to the old dividend-based system.

The Foreign Assets amnesty scheme gives a rare chance to people with undisclosed overseas holdings. They can now fix their tax status without harsh penalties. This six-month window is worth thinking about, especially for students and professionals who missed reporting requirements by mistake.

The government shows its long-term vision through extended tax holidays. IFSC units get a 20-year exemption, while cloud services enjoy tax breaks until 2047. These moves show India’s goal to become a global financial and data hub. Such policies will bring in foreign investment and create local opportunities.

The budget brings practical benefits through simpler procedures. NRIs no longer need separate TAN registration for property transactions. Families sending students abroad will pay less with education remittance TCS rates down to 2%. Seniors and eligible taxpayers can now submit Form 15G/15H digitally.

Some changes aren’t great for taxpayers. High-net-worth individuals can’t deduct interest against dividend income anymore. They used to tap into borrowed funds for investment.

The budget promotes economic growth through targeted tax benefits for agriculture, animal husbandry, and women entrepreneurs. The government helps MSMEs with equity funding and easier compliance rules to support new businesses.

Smart tax planning is crucial now. You should analyze your income sources against available exemptions. Use digital tools for compliance and watch out for future changes. Even though some predicted relief didn’t come through, these hidden benefits are great ways to optimize your tax planning.

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