Rates for tax deduction at source for FY 2026-27 remain unchanged; 4% health and education cess applies to nonresidents.
Rates for deduction of income-tax at source from incomes other than salaries are specified in Part II of the First Schedule to the Finance Bill and are to be applied under the relevant sections of the Act. The rates and the Union surcharge remain the same as in the prior year, and a Health and Education Cess of 4% on income-tax including surcharge continues to apply to nonresidents and foreign companies.

Union Budget 2026 27 sets new income tax and advance tax rates for individuals, senior citizen thresholds, and graduated surcharge bands.
Part III of the First Schedule sets FY 2026 27 tax deduction and advance tax rates: Section 202 rates use a seven bracket scale to 30% (above Rs. 24,00,000) with an option to adopt Part III rates. Paragraph A offers a four slab regime for individuals and similar entities with adjusted thresholds for senior citizens; capital gains under specified sections are included. Surcharge bands of 10%, 15%, 25% and 37% apply by income band, subject to caps and special restrictions for dividend/capital gains, associations of companies and persons taxed under section 202. Marginal relief is provided.

Co-operative societies: existing tax rates unchanged; 7% and 12% surcharges apply with marginal relief; 22% option available.
In respect of co-operative societies, income-tax rates remain unchanged from FY 2025-26. A 7% surcharge on income-tax applies where total income exceeds one crore but does not exceed ten crore rupees, and a 12% surcharge applies where total income exceeds ten crore rupees; marginal relief is provided. A resident co-operative society that satisfies certain conditions may opt to pay tax at 22% under the Act, with a 10% surcharge on such tax.

Firms: tax rate unchanged; 12% surcharge applies above one crore rupees with a cap on excess liability.
For FY 2026-27, firms are taxed at the Paragraph C rate in Part III of the First Schedule (unchanged from FY 2025-26) and face a 12% surcharge where total income exceeds one crore rupees; however, the aggregate tax plus surcharge on income above one crore is capped so it does not exceed the tax on one crore by more than the excess income amount.

Local authorities face a 12% surcharge on income-tax for total income exceeding one crore, subject to a cap.
The rate of income-tax for every local authority is specified in Paragraph D of Part III and remains unchanged; a surcharge at the rate of 12% applies where total income exceeds one crore rupees, and the combined tax and surcharge on income above one crore is capped so it does not exceed the tax on one crore rupees by more than the excess amount.

Corporate tax rates updated for FY 2026-27, including surcharge tiers and health and education cess.
Union Budget 2026-27 sets company income-tax rates and related surcharge and cess treatment for FY 2026-27: domestic companies pay 25% if turnover/gross receipts for tax year 2024-25 are four hundred crore and under the section 199 regime, otherwise 30%, with an option to opt for 22% under section 200 (10% surcharge on that tax). Non domestic companies are taxed at 35% on ordinary income. Surcharge tiers and marginal relief rules remain, and a 4% Health and Education Cess applies on tax inclusive of surcharge without marginal relief for the cess.

Employer deduction for employee contributions will be tied to the return filing due date under section 263(1).
The Finance Bill, 2026 amends section 29(1)(e) to provide that the due date for claiming a deduction for employee contributions credited by the employer shall be the due date of filing of return of income under section 263(1); the amendment takes effect from 1 April 2026 and applies to tax year 2026-27 and subsequent years.

Interest income under Motor Vehicles Act now exempt for individuals and legal heirs from FY 2026-27 onward.
Interest payable as part of compensation under the Motor Vehicles Act, 1988 to an individual or the legal heir for death, permanent disability, or bodily injury is proposed to be exempt by addition to the Income-tax Act Schedule; the amendment is effective from 1 April 2026 and applies to the tax year commencing then and subsequent years.

Interest on compensation from Motor Accidents Claims Tribunal: no tax deducted at source for individuals, effective April 2026.
The Finance Bill, 2026 proposes that no tax shall be deducted at source on interest paid on compensation awarded by the Motor Accidents Claims Tribunal to an individual, removing the prior conditional threshold and providing relief to accident victims. The amendment is effective from 1 April 2026 (Clause 72).

Electronic TDS/TCS certificates: payees may file for lower or nil deduction; authority may issue or reject applications.
Permits payees to file applications electronically for certificates for deduction of income-tax at lower or nil rates before the prescribed income-tax authority, which may issue the certificate subject to prescribed conditions or reject incomplete or non compliant applications, thereby easing compliance burdens for small taxpayers under Section 395.

TAN requirement relaxed for resident individuals and HUFs acquiring property from non-resident sellers, effective October 1, 2026.
The Finance Bill, 2026 amends section 397(1)(c) to provide that resident individuals and Hindu undivided families are not required to obtain a tax deduction and collection account number (TAN) to deduct tax at source on any consideration for transfer of immovable property under section 393(2); the amendment takes effect from 1 October 2026.

Investors can file declarations for no TDS with depositories for listed securities and mutual fund units.
Permits filing of a written declaration for no deduction at source with the depository for incomes under section 393(6) (dividend, interest from securities, income from mutual fund units); depository will forward the declaration to the payor. Eligibility is limited to investors holding securities or units in the depository where securities are listed on a registered Indian stock exchange. The time for payors to furnish received declarations to the prescribed income-tax authority is changed from monthly to quarterly. Effective 1 April 2027.

Supply of manpower: TDS to be treated as payment for work, applying contractor TDS rates.
The Bill amends the definition of work to include supply of manpower so that payments for manpower are subject to the TDS rates applicable to payments for work (1% where payee is individual or HUF; 2% otherwise), resolving uncertainty between contractor/work TDS entries and fees for professional or technical services; the amendment is effective 1 April 2026.

Non-life insurance businesses: amendment allows deduction when previously unpaid TDS is later deducted and paid.
The Bill proposes inserting a new sub paragraph in paragraph 4 of Schedule XIV so that amounts added back for non compliance with TDS timing under section 35(b)(i) and (ii) will be allowed as a deduction in the tax year in which the tax was actually deducted and paid; this aligns paragraph 4 with the existing paragraph 4(2) treatment for section 37 and takes effect from 1 April 2026 for tax year 2026-27 onward.

Compensation for compulsory land acquisition under the RFCTLARR Act exempt from income tax from April 1, 2026.
The Income tax Schedule is amended to exempt income from awards or agreements made on account of compulsory acquisition of land under the RFCTLARR Act (excluding those specifically excepted under that Act), codifying that such compensation is not taxable under the Income tax Act and resolving prior ambiguity.

Disability pension exemption for armed forces and paramilitary personnel limited to those invalided out due to service-related disability.
Exemption is limited to disability pension for Armed Forces members invalided out due to bodily disability attributable to or aggravated by service, covering both service and disability elements and excluding pensions paid on retirement; the same exemption is extended to paramilitary personnel and takes effect from 1 April 2026 for tax year 2026-27 onward.

Due dates for filing income tax returns extended for non-audit businesses, partners and certain trusts to ease compliance.
Rationalisation of due date deadlines restructures filing timelines by class of taxpayer to provide additional time for business or professional assessees whose accounts do not require audit, partners (and specified spouses) and certain trusts. The amendment sets 30 November for one specified class, 31 October for audited entities, 31 August for non audit business cases and partners/spouses in non audit situations, and 31 July for all other assessees, while preserving 31 July for certain individual return forms; parallel explanatory amendments for trusts are enacted and the changes are given prospective effective dates in 2026.

Revised income-tax returns: filing window extended to 12 months; fee proposed for revisions after nine months.
The proposal increases the time limit for filing a revised income-tax return from nine to twelve months from the end of the relevant tax year to allow those who file belated returns late to still revise returns; a fee is proposed for revised returns filed after nine months, with corresponding amendments and staggered commencement dates across the two income-tax statutes applying to the relevant tax and assessment years.

Updated tax returns may be allowed when a taxpayer reduces a previously claimed loss, per proposed Finance Bill changes.
Section 263(6) permits an updated return within 48 months but bars updated returns that are returns of loss, limits reductions in tax liability or increases in refund, and restricts filing during or after assessment, reassessment, search, survey or prosecution. The Finance Bill, 2026 proposes to amend section 263(6) to allow filing an updated return where the taxpayer reduces the amount of loss claimed in a duly filed return of loss, and to make parallel amendments to the Income-tax Act, 1961.

Updated tax returns allowed in response to reassessment notices, with extra tax payable and penalty exclusion for that income.
Permits furnishing an updated return in response to a reassessment notice within the notice period, precludes alternative filing in response to that notice, maintains existing restrictions on updated returns, and requires payment of prescribed additional income tax; where filed in pursuance of the notice an extra 10% of aggregate tax and interest is payable and that income will not form the basis for penalty.