In the Union Budget 2026 – 27, Finance Minister Nirmala Sitharaman announced a major overhaul of India’s tax framework with the Income Tax Act, 2025 set to come into force from April 1, 2026, replacing the nearly 65-year-old 1961 law. This new tax code is designed to simplify rules, reduce the number of provisions, and make compliance easier, though it keeps existing tax rates and slabs unchanged. Redrafted tax forms and clearer language are expected to cut compliance costs, reduce litigation, and encourage voluntary adherence by individual and corporate taxpayers.

Key Highlights

• New Income Tax Act effective April 1, 2026 simplifies compliance without changing slabs or rates.
• Budget raises FPI limits, hikes STT on derivatives to deepen markets while curbing excessive speculation.

To deepen capital markets and attract stable foreign capital, the Budget raised foreign portfolio investor (FPI) limits, allowing overseas individuals to increase their stake in Indian listed companies and expanding the overall cap, which market participants say could broaden India’s investor base amid global volatility. At the same time, the government raised Securities Transaction Tax (STT) on futures and options — increasing costs for short-term traders — as part of a strategy to curb excessive speculation while balancing market liquidity.

Other noteworthy reforms include easing tax compliance for non-resident Indians by simplifying TDS procedures on property transactions, reducing the Minimum Alternate Tax (MAT) rate for companies, rationalising customs duties with targeted exemptions on essential drugs and clean-energy inputs, and various customs relief measures aimed at bolstering domestic manufacturing and strategic sectors.

Together, these reforms aim to modernise India’s tax regime, enhance ease of doing business, and strengthen financial markets — even as some traders and analysts have reacted cautiously to changes such as the STT increase.