Union Budget change limits block assessment period for third parties when undisclosed income pertains to a single tax year.
Section 295 currently requires that seized material relating to undisclosed income of a person other than the specified person be handed to that person's AO and that the other person undergo block assessment with the same block period; the Finance Bill proposes amending Section 295(2) to limit the period of block for such third parties, particularly where the undisclosed income pertains to a single tax year, with effect for searches or requisitions initiated on or after 1 April 2026.

Union Budget 2026-27 proposes using initiation of search as the trigger for block assessment and extending the period to eighteen months.
The amendment replaces the last search authorization date with the initiation of search (or requisition) as the reference for computing the block-assessment limitation period and increases that period from twelve months to eighteen months, effective for searches or requisitions initiated on or after 1 April 2026.

Penalties for certain compliance failures converted into graded fees with specified caps, effective April 1, 2026.
Select penalties for technical compliance failures are converted into prescribed graded fees: audit-reporting failures replaced by fees of Rs. 75,000 and Rs. 1,50,000 depending on delay; failure to furnish accountant reports for international or specified domestic transactions replaced by fees of Rs. 50,000 and Rs. 1,00,000; and failure to furnish statements of financial transactions or reportable accounts is converted into a fee with an introduced upper limit of Rs. 1,00,000 for the post-notice daily levy. The amendments take effect from the tax year beginning 1 April, 2026.

Union Budget changes penalty process: under-reporting penalties imposed within assessment order; interest charged post-appeal, effective April 2027.
Penalties for under-reporting or misreporting are to be imposed within the assessment order to avoid multiple proceedings; consequential amendments align penalty, dispute resolution and recovery provisions. Interest under the tax recovery provision will be charged only after an appellate order by the first appellate authority or tribunal in appeals from dispute resolution forum orders.

Increase in penalty for failing to comply with tax information requests from business premises to strengthen compliance.
Amendment to section 466 raises the maximum penalty for non-compliance with section 254 information directions from Rs. 1,000 to Rs. 25,000, to enhance deterrence and voluntary compliance. The enhanced sanction is to be imposed by specified tax officers and takes effect from 1 April 2026, applying to tax year 2026-27 and subsequent years.

Tax on unexplained income cut to 30% and penalty treatment moved into the misreporting under reporting regime.
The proposal reduces the special tax charge on income determined as unexplained under sections 102-106 from 60% to 30% by amending section 195 and omits the standalone 10% penalty under section 443, subsuming penalty treatment into the under reporting/misreporting regime of section 439(11); the changes take effect from 1 April 2026 for tax year 2026-27 and thereafter.

Union Budget expands taxpayer immunity to misreporting cases, allowing settlement by paying additional tax in lieu of penalty.
Section 440 is to be amended to allow immunity from penalty and prosecution where under reporting arises from misreporting, subject to existing eligibility and procedural conditions. Immunity requires payment of additional income tax equal to 100% of the tax on such income; for income determined as unexplained credits/investments/assets the additional tax payable for immunity is 120%. The amendment is effective 1 April 2026 for tax year 2026 27 onward.

Amendment expands tax immunity to cover under reporting that results from misreporting, subject to existing procedural conditions.
Amendment extends the existing immunity from penalty and prosecution to cases where under reporting of income results from misreporting, subject to existing conditions: payment of tax and interest within the demand period, no appeal against the assessment, timely filing of an immunity application within one month, and assessing officer decision on the application within three months.

Cooperative societies: deduction allowed on dividends from other cooperatives in new tax regime; limited federal cooperative relief.
Deduction is extended to dividends received by cooperative societies from other cooperative societies in the new tax regime, limited to amounts distributed to members. Notified federal cooperatives may claim a temporary deduction for dividends from companies for three years, restricted to investments made by the federal cooperative on or before 31.01.2026 and distributed to members. The amendment is effective from 1 April 2026 and applies to the tax year 2026-27 and subsequent years.

Union Budget expands deduction to include cattle feed and cotton seeds under section 149(2)(b) for primary co operative societies.
Amendment expands section 149(2)(b) to permit full deduction of profits and gains of a primary co-operative society where members supply cattle feed and cotton seeds to a federal co-operative society, Government, local authority, Government company, or corporation engaged in the same business, applying from the tax year beginning 1 April 2026.

Inclusion of multi-state co-operative societies in the co-operative society definition for tax purposes from April 2026.
Amendment expands the statutory definition of co-operative society to expressly include societies registered under the Multi-State Cooperative Societies Act, 2002, thereby bringing multi state registered cooperatives within the legal category subject to provisions applicable to co-operative societies under the Act.

Advance pricing agreements now allow associated enterprises to file modified returns within three months for covered tax years.
Where income is modified as a result of an advance pricing agreement entered into with any person, that person or any associated enterprise may furnish a return or modified return limited to the agreement, within three months from the end of the month in which the agreement was entered into, in respect of tax years covered by such agreement entered on or after 1 April 2026 for tax years beginning 1 April 2026 and subsequent tax years.

Exemption for foreign companies on income from procuring data centre services if routed through an Indian reseller.
A foreign company is exempt from Indian tax on income arising from procuring data centre services from a specified data centre, provided services to India users are routed through an Indian reseller; a specified data centre must be set up under an approved scheme notified by the Ministry of Electronics and Information Technology and be owned and operated by an Indian company; the exemption applies from the tax year beginning 1 April 2026 through the tax year ending 31 March 2047.

Prospecting of critical minerals now qualifies for deferred tax deduction over ten years under expanded schedule provisions.
The schedule is amended to add critical minerals so that expenditure on prospecting and exploration of those minerals qualifies for the statutory deferred deduction available to resident taxpayers, with such expenses deductible over ten years from the year of commercial production and covering costs incurred in that year and up to four preceding years.

Exemption for foreign companies' income from supplying capital equipment to contract manufacturers in custom bonded areas.
An exemption is introduced for income of a foreign company from providing capital goods, equipment or tooling to an Indian-resident contract manufacturer located in a custom bonded area that manufactures electronic goods for the foreign company for consideration; the time-limited exemption applies up to the tax year 2030-2031 and takes effect from 1 April 2026, applying to the tax year 2026-27 and subsequent years within the stated period.

Non-resident cruise operations and electronics manufacturing services excluded from MAT when using presumptive taxation.
Amendment excludes certain specified non-resident businesses that opt for presumptive taxation from the scope of Minimum Alternate Tax, adding cruise ship operations and services or technology for establishing electronics manufacturing facilities for resident companies to the excluded categories, with prospective application to subsequent tax years.

Non-resident service providers: five-year exemption for foreign income when rendering services under notified Indian schemes.
An individual who has been a non-resident for five consecutive tax years immediately preceding their first visit to India to render services under a Scheme notified by the Central Government may be exempt, for five consecutive tax years commencing with that first tax year, from tax on income that accrues or arises outside India and is not deemed to accrue or arise in India, subject to prescribed conditions.

IFSC units and OBUs will get a longer 100% deduction period and post-expiry income taxed at 15%.
Proposed amendments extend the 100% deduction under section 147 for IFSC units from 10 consecutive years out of 15 to 20 consecutive years out of 25, and for OBUs from 10 consecutive years to 20 consecutive years; business income from IFSC after the deduction period will be taxed at 15%. The amendments apply from 1 April 2026 to the tax year 2026-27 and subsequent years.

Treasury centre dividend exclusion limited to cross border group loans in notified jurisdictions with parent listed abroad.
Amendment restricts the dividend exclusion for inter group advances or loans involving a Finance company or Finance unit by requiring the other group entity to be located in a notified jurisdiction outside India and the group's parent or principal entity to be listed abroad; the Central Government will notify eligible jurisdictions. It also defines "group entity" by reference to the IFSCA (Payment Services) Regulations, 2024, and defines "parent/principal entity" by voting power and board control tests; the changes apply from 1 April 2026 for tax year 2026 27 onward.

Minimum Alternate Tax: MAT rate cut to 14% and treated as final in the old regime with limited credit set off.
MAT in the old corporate tax regime will be treated as final tax and no new MAT credit will be allowed; the MAT rate is reduced to 14%. Existing MAT credit set off is limited: domestic companies may set off MAT credit only in the new regime up to 25% of annual tax liability, while foreign companies may set off to the extent normal tax exceeds MAT in the relevant year. These amendments apply from 1 April 2026 for tax year 2026 27 and subsequent years.