Finance Minister Nirmala Sitharaman, presented her ninth consecutive Union Budget, unveiled a series of procedural reforms aimed at easing tax compliance and improving clarity for individuals and businesses. A key highlight was the announcement of the Income Tax Act, 2025, which will come into force from April 1, 2026.
Alongside this, the Union Budget 2026 introduced targeted relief for international travellers and students through lower TCS rates, while also rationalising return filing timelines to reduce last-minute pressure across taxpayer categories.
TCS Relief for Overseas Travel and Education
In a major move to ease cash flow pressures, the Tax Collected at Source (TCS) on overseas tour packages has been reduced to 2%, down from the earlier rates of 5% and 20%, and without any minimum transaction threshold.
Similarly, under the Liberalised Remittance Scheme (LRS), TCS on remittances for overseas education and medical expenses has been lowered from 5% to 2%, providing relief to students and families funding international studies and treatment.
Extended and Staggered Tax Filing Timelines
To reduce compliance stress, the Finance Minister proposed additional flexibility in return filing. The deadline for submitting revised returns has been extended from December 31 to March 31, subject to a nominal fee.
Tax filing dates will now follow a staggered structure:
- July 31 for individual taxpayers filing ITR-1 and ITR-2
- August 31 for non-audit business cases and trusts
This approach is expected to distribute system load more evenly and provide taxpayers with additional preparation time.
Simplified TDS Process for NRI Property Transactions
The process for purchasing property from Non-Resident Indians has been streamlined. Resident buyers will now be able to deduct and deposit TDS using a PAN-based challan, removing the requirement to obtain a Tax Deduction Account Number (TAN).
This change is aimed at reducing procedural complexity and shortening transaction timelines in cross-border real estate deals.
Tax Exemption on Motor Accident Compensation Interest
The Budget proposed that interest awarded by the Motor Accident Claims Tribunal to any natural person will be fully exempt from income tax. Additionally, the requirement for TDS on such interest payments has been removed, ensuring claimants receive the full benefit without tax deductions.
Clearer TDS Treatment for Manpower Services
To eliminate classification ambiguity, the supply of manpower services has been explicitly brought under ‘payments to contractors’. This sets the applicable TDS rate at 1% or 2%, depending on the category, reducing uncertainty and improving compliance predictability for service providers.
Closing Note
The Income Tax Act, 2025 will take effect from April 1, 2026, with the Finance Minister confirming that detailed rules and revised return forms will be notified shortly. The shift signals a broader move toward a more structured, transparent, and taxpayer-oriented compliance framework.
