**Executive Summary**
This document outlines direct tax reforms proposed in the Union Budget 2026-2027 to enhance the "Ease of Living" for taxpayers. It covers changes to tax exemptions, TCS rates, return revision timelines, and introduces a one-time foreign asset disclosure scheme. Individuals with ITR 1 and ITR 2 returns can continue to file till 31st July, and non-audit business cases or trusts are proposed to be allowed time till 31st August.
**Key Points / Main Content**
* **Tax Exemptions and Reductions:**
* Interest awarded by the Motor Accident Claims Tribunal to a natural person is exempt from income tax.
* TDS on the above is eliminated.
* TCS rate on overseas tour packages reduced from 5% & 20% to 2% with no amount stipulation.
* TCS rate for education and medical expenses under the Liberalized Remittance Scheme (LRS) reduced from 5% to 2%.
* **Tax Deduction Certificate:**
* Scheme for small taxpayers to obtain a lower or nil deduction certificate through an automated process.
* **Tax Return Timeline:**
* The deadline for revising returns is extended from December 31st to March 31st, subject to a nominal fee.
* Individuals with ITR 1 and ITR 2 returns can continue to file till 31st July.
* Non-audit business cases or trusts can file till 31st August.
* **Tax Deduction at Source (TDS):**
* Supply of manpower services is specifically included under payments to contractors for TDS purposes.
* TDS rate on such services will be 1% or 2%.
* TDS on the sale of immovable property by a non-resident will be deducted and deposited through resident buyer's PAN-based challan.
* **Foreign Asset Disclosure Scheme:**
* A one-time 6-month scheme for small taxpayers to disclose foreign income or assets below a specific size.
* Two categories of taxpayers are eligible:
* (A) Those who didn't disclose overseas income/assets.
* (B) Those who disclosed income/paid tax but couldn't declare the acquired asset.
* For Category (A), the limit of undisclosed income/asset is ₹1 crore, with a 30% tax, 30% penalty, and immunity from prosecution if paid.
* For Category (B), the asset value can be up to ₹5 crore, with immunity from penalty and prosecution if a fee of ₹1 lakh is paid.
**Impact Analysis**
**Small Taxpayers (students, young professionals, relocated NRIs, etc.)**
* **Impact:** Benefit from the foreign asset disclosure scheme and the streamlined process for obtaining lower/nil deduction certificates.
* **Action Required:** Assess eligibility for the foreign asset disclosure scheme and comply with its requirements within the 6-month period if applicable.
**Taxpayers Receiving Interest from Motor Accident Claims Tribunal**
* **Impact:** No longer subject to income tax on awarded interest and TDS on the same has been eliminated.
* **Action Required:** No action required if meeting the criteria; no further tax obligations on such interest income.
**Taxpayers Availing Overseas Tour Packages or LRS for Education/Medical Purposes**
* **Impact:** Reduced TCS rates on overseas tour packages and education/medical expenses remitted under LRS.
* **Action Required:** Benefit from the reduced TCS rates; adjust financial planning accordingly.
**Taxpayers Supplying Manpower Services**
* **Impact:** Specifically included under TDS provisions for payments to contractors.
* **Action Required:** Comply with TDS requirements at the rate of either 1% or 2%.
**Non-Resident Sellers of Immovable Property**
* **Impact:** TDS on sale of immovable property will be deducted and deposited through the resident buyer's PAN-based challan instead of requiring TAN.
* **Action Required:** Ensure the resident buyer complies with TDS requirements using their PAN-based challan.
Key Entities Referenced
Union Budget 2026-2027: The annual financial statement presented to the Parliament of India, outlining the government's proposed revenues and expenditures for the fiscal year.
Income Tax: A direct tax levied by the government on the income of individuals and businesses.
Ministry of Finance: The government ministry responsible for the financial matters of India.
Liberalized Remittance Scheme (LRS): A scheme allowing residents of India to remit a certain amount of money abroad during a financial year for permitted current or capital account transactions.
Tax Collection at Source (TCS): A mechanism where the seller collects tax from the buyer at the time of sale of specified goods or services.
Ministry of Finance
EASE OF LIVING BY DIRECT TAX REFORMS :
UNION BUDGET 2026-2027
ANY INTEREST AWARDED BY THE MOTOR ACCIDENT
CLAIMS TRIBUNAL TO A NATURAL PERSON TO BE EXEMPT
FROM INCOME TAX
SCHEME FOR SMALL TAXPAYERS TO ENABLE OBTAINING
A LOWER OR NIL DEDUCTION CERTIFICATE BY A RULE-
BASED AUTOMATED PROCESS
TIME AVAILABLE FOR REVISING RETURNS EXTENDED
FROM 31st DECEMBER TO 31st MARCH, FOR A NOMINAL
FEE
ONE-TIME 6-MONTH FOREIGN ASSET DISCLOSURE
SCHEME FOR SMALL TAXPAYERS TO DISCLOSE INCOME
OR ASSETS
प्रव तथ: 01 FEB 2026 12:52PM by PIB Delhi
A range of proposals on Direct Taxes to ensure ‘Ease of living’ for taxpayers have been announced by
Union Minister for Finance and Corporate Affairs Smt. Nirmala Sitharaman during the Union Budget
2026-27 speech in Parliament today.
Ease of Living
The Budget proposes that any interest awarded by the Motor Accident Claims Tribunal to a natural person
will be exempt from Income Tax, and any TDS on this account will be done away with. It proposes to
reduce TCS rate on the sale of overseas tour program package from the current 5 percent and 20 percent to
2 percent without any stipulation of amount.
It aims to reduce TCS rate for pursuing education and for medical purposes under the Liberalized
Remittance Scheme (LRS) from 5 percent to 2 percent. Supply of manpower services is proposed to be
specifically brought within the ambit of payment to contractors for the purpose of TDS to avoid
ambiguity. Thus, TDS on these services will be at the rate of either 1 percent or 2 percent only.Ease for Taxpayers
A scheme for small taxpayers is proposed wherein a rule-based automated process will enable obtaining a
lower or nil deduction certificate instead of filing an application with the assessing officer. For the ease of
taxpayers holding securities in multiple companies, the budget proposes to enable depositories to accept
Form 15G or Form 15H from the investor and provide it directly to various relevant companies. It extends
time available for revising returns from 31st December to up to 31st March with the payment of a nominal
fee.
Relaxed Tax return Timeline
The Budget proposes to stagger the timeline for filing of tax returns. Individuals with ITR 1 and ITR 2
returns will continue to file till 31st July and non-audit business cases or trusts are proposed to be allowed
time till 31st August. TDS on the sale of immovable property by a non-resident is proposed to be deducted
and deposited through resident buyer’s PAN based challan instead of requiring TAN.
Focus on Small Taxpayers
To address practical issues of small taxpayers like students, young professionals, tech employees,
relocated NRIs, and such others, it aims to introduce a one-time 6-month foreign asset disclosure scheme
for these taxpayers to disclose income or assets below a certain size. This scheme would be applicable for
two categories of taxpayers namely, (A) who did not disclose their overseas income or asset and (B) who
disclosed their overseas income and/or paid due tax, but could not declare the asset acquired.
For category (A), the limit of undisclosed income/asset is proposed to be up to 1 crore rupees. They need
to pay 30 percent of Fair Market Value of asset or 30 percent of undisclosed income as tax and 30 percent
as additional income tax in lieu of penalty and would thereby get immunity from prosecution. For
category (B), asset value is proposed to be up to 5 crore rupees. Here, immunity from both penalty and
prosecution will be available with the payment of fee of 1 lakh rupees.
****
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