New Income Tax Act From April 1, 2026: Buyback to Be Taxed as Capital Gains, TCS Rates Tweaked, Foreign Investment Limits Proposed to Rise

The Union Budget 2026–27, presented in Parliament by the Union Minister of Finance and Corporate Affairs, Smt. Nirmala Sitharaman, set out a series of major direct tax proposals, including the rollout of the Income Tax Act, 2025 from April 1, 2026. The Finance Minister said simplified tax rules and redesigned forms would be notified shortly to help taxpayers prepare in advance. The Budget proposed taxing share buybacks as capital gains for all shareholders, revising Tax Collected at Source (TCS) rates, increasing Securities Transaction Tax (STT) on derivatives, and altering Minimum Alternate Tax (MAT) provisions. It also outlined changes aimed at easing foreign investment limits in listed companies and reviewing FEMA-related rules.

Key Takeaways on the New Income Tax Act and Union Budget 2026–27

• Income Tax Act, 2025 to come into effect from April 1, 2026
• Simplified Income Tax Rules and redesigned forms to be notified shortly
• Share buybacks to be taxed as capital gains for all shareholders, with additional levy on promoters
• TCS on scrap and minerals rationalised to 2%; education and medical remittances under LRS at 2%
• STT proposed to rise on futures and options
• MAT to become final tax from April 1, 2026, at 14%
• Fiscal deficit for 2026–27 estimated at 4.3% of GDP
• Foreign individual investment limits in listed companies proposed to increase
• FEMA and foreign investment rules to be reviewed

Income Tax Act, 2025 to Take Effect From April 1, 2026

The Finance Minister told Parliament that the Income Tax Act, 2025 was slated to come into effect from April 1, 2026, and would not be deferred. According to tax expert Amit Gupta, Partner at Saraf and Partners, several taxpayers had expected a postponement because new rules and forms were yet to be issued. However, he said the Finance Minister made it clear that the law would be implemented on schedule and that the necessary rules and forms would be released soon to allow advance preparation.

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The Budget stated that Income Tax Rules and Forms had been redesigned for simpler understanding and compliance by ordinary citizens. Presenting the Budget in the Lok Sabha, Smt. Sitharaman said the forms would be notified shortly and that timelines for filing tax returns had been extended. Individuals filing ITR-1 and ITR-2 would continue to have time until July 31, while non-audit business cases or trusts were proposed to be allowed time until August 31.

Tax Administration and Accounting Standards Changes

Under the proposals on tax administration, the Finance Minister said a Joint Committee of the Ministry of Corporate Affairs and the Central Board of Direct Taxes would be constituted to incorporate the requirements of Income Computation and Disclosure Standards (ICDS) in the Indian Accounting Standards (IndAS).

Separate accounting requirements based on ICDS were proposed to be done away with from the tax year 2027–28.

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To support the Prime Minister’s vision of home-grown accounting and advisory firms becoming global leaders, the Budget also proposed to rationalise the definition of “accountant” for the purposes of Safe Harbour Rules.

Share Buybacks to Be Taxed as Capital Gains

One of the key direct tax proposals related to share buybacks. The Budget proposed to tax buybacks as capital gains for all types of shareholders.

Earlier, the entire amount had been taxed like dividends. Bringing buybacks back under capital gains taxation was described as relief for taxpayers. However, to discourage misuse of tax arbitrage, promoters were proposed to pay an additional buyback tax.

This would make the effective tax:

• 22% for corporate promoters
• 30% for non-corporate promoters

TCS Rates Rationalised and STT Proposed to Rise

The Budget proposed several changes to Tax Collected at Source:

• TCS for sellers of alcoholic liquor, scrap and minerals to be rationalised to 2%
• TCS on tendu leaves to be reduced from 5% to 2%
• Under the Liberalised Remittance Scheme, for amounts exceeding ₹10 lakh:
  • 2% for education or medical treatment
  • 20% for purposes other than education or medical treatment

On market transactions, the Finance Minister said Securities Transaction Tax on futures was proposed to be raised to 0.05% from 0.02%. STT on options premium and on exercise of options were both proposed to rise to 0.15% from the present 0.1% and 0.125%, respectively.

MAT Provisions and Corporate Tax Regime

In line with the simplified corporate tax regime, the Budget proposed that the set-off of brought-forward Minimum Alternate Tax credit would be allowed only in the new regime to encourage companies to shift.

Set-off using available MAT credit was proposed to be allowed to the extent of one-fourth of the tax liability in the new regime.

Ending further accumulation from April 1, 2026, MAT was proposed to be made a final tax. Correspondingly, the final MAT rate would be reduced to 14% from the current 15%. MAT credit accumulated up to March 31, 2026, would continue to be available for set-off as specified.

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The Finance Minister also announced that no deduction would be allowed for interest expenditure incurred in relation to dividend income or income from mutual fund units, and the existing provision permitting such deduction would be omitted subject to a specified ceiling.

Fiscal Deficit Estimate for 2026–27

During her Budget speech, Smt. Sitharaman informed Parliament that the fiscal deficit for the financial year 2026–27 was estimated at 4.3% of GDP, compared to 4.4% in the current fiscal year.

Foreign Investment Limits Proposed to Increase

The government’s stance on foreign investment was also highlighted. According to Adil Ladha of Saraf and Partners, a proposal was under consideration to allow a single foreign individual investor to hold up to 10% in an Indian listed company, compared with the current 5% limit.

In addition, the combined cap for all foreign individual investors was proposed to be raised to 24%.

He said the government was seeking to make the process easier for foreign investors so that more overseas funds could flow into Indian equity markets. A full review of FEMA and foreign investment-related rules was also proposed to make them simpler and clearer.

What the Budget Signals for Taxpayers and Markets

The proposals outlined in the Union Budget 2026–27 pointed to a new tax system taking shape, revised investment rules, and efforts to attract more foreign capital into Indian markets. With the Income Tax Act, 2025 scheduled for rollout from April 1, 2026, and multiple rate changes and compliance measures proposed, taxpayers and investors were being given advance notice to prepare for the upcoming shift.

Spiritual Perspective on Life and Liberation

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In this context, devotees also refer to Tatvdarshi Saint Rampal Ji Maharaj, emphasising that He and His Knowledge guide seekers toward Satlok through the path of devotion.

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FAQs on New Income Tax Act and Union Budget 2026–27

1. When will the Income Tax Act, 2025 take effect?
It is slated to come into effect from April 1, 2026.

2. How will share buybacks be taxed?
Buybacks are proposed to be taxed as capital gains for all shareholders, with extra tax for promoters.

3. What are the new TCS rates for education remittances?
TCS under LRS for education or medical treatment exceeding ₹10 lakh is proposed at 2%.

4. What is the proposed MAT rate from April 1, 2026?
MAT is proposed to become final tax at a reduced rate of 14%.

5. What foreign investment changes are proposed?
Single foreign individuals may hold up to 10%, while the combined limit could rise to 24%.