Budget 2026-27: Income Tax Act 2026, tax slabs, and STT hike

The Union Budget 2026-27 has arrived with a clear mandate -

1. Simplification through the formal operationalisation and implementation of the Income Tax Act, 2025, effective from April 1, 2026, and

2. Discipline through changes in the Securities Transaction Tax (STT) on Futures and Options (F&O) 

These moves will influence disposable income, savings decisions, and risk appetite for the salaried individuals, traders, and retail investors in India. 

Read on to understand the changes to the tax slabs in India after Budget 2026. The article also explores the impact of the New Income Tax Act, 2025, on salaries and the equity market post Budget 2026.

For decades, India’s income tax system has been governed by the six-decade-old Income Tax Act, 1961. This Act was becoming increasingly complex due to frequent amendments, heavy legal language, and scattered provisions. It made compliance difficult not only for businesses but even for regular salaried taxpayers. To address this, the Government enacted the Income Tax Act, 2025, to modernise the country’s direct tax framework. The Union Budget 2026-27 announced the formal rollout and implementation of this Act, making it effective from April 1, 2026.

As per the Income Tax Bill, 2025, which was reintroduced on 11 August 2025 and passed by both Houses of Parliament, a major change is the concept of the ‘Tax Year.’ Defined as the twelve-month period of the financial year commencing on April 1, it replaces the earlier terms ‘Assessment Year’ and ‘Previous Year’. The Act also aims to make the law simpler and easier to follow by: 

1. Reducing total sections from 819 to 536

2. Cutting chapters from 47 to 23

3. Including 16 schedules

4. Adding tables and formulas for easier interpretation 

These changes are expected to reduce confusion and make tax timelines easier for individuals to understand and track. The impact of the New Income Tax Act, 2025, on salaries will mainly be seen through clearer rules, a simplified filing structure, and a better understanding of timelines.

To improve compliance and reduce stress for taxpayers, the Budget keeps the ITR-1 and ITR-2 filing deadlines on July 31, extends the due date for non-audit business cases and trusts to August 31, and allows revised returns to be filed up to March 31 with a nominal fee. 

In an effort to reduce prolonged litigation and avoid repeated notices for minor issues, Budget 2026 proposes a more proportionate approach by:

1. Waiving interest on penalty amounts during the appeal period.

2. Reducing the pre-deposit requirement for appeals from 20% to 10% of the tax demand.

3. Allowing taxpayers to update returns even after reassessment begins by paying an additional 10% tax.

4. Allowing immunity for misreporting cases on payment of 100% additional tax.

5. Converting technical defaults (audit delays, reporting lapses) from penalties into fixed fees.

6. Limiting minor offences to monetary fines, and grading serious prosecutions with reduced maximum imprisonment of two years. 

Finally, Budget 2026 proposes a one-time 6-month foreign asset disclosure scheme that allows students, tech employees, relocated NRIs, and professionals abroad to correct past non-disclosures. 

Undisclosed income or assets up to ₹1 crore can be regularised by paying 30% of the fair market value of the asset or undisclosed income as tax + 30% additional tax, while cases up to ₹5 crore can be settled with a ₹1 lakh fee, both with immunity benefits. Non-disclosure of non-immovable foreign assets below ₹20 lakh will not attract a penalty, with retrospective immunity from 1 Oct 2024. 

Taken together, these changes aim to make the tax system feel less punitive for minor errors while remaining strict on intentional misreporting. It will create a system that is simpler to follow, easier to correct, and less stressful to live with. 

There are no changes to the income tax slabs under the new Budget 2026. The tax rates continue exactly as announced earlier, and remain applicable for Assessment Year 2026-27 under the new tax regime as follows:

While there are no changes to the tax slabs in India after Budget 2026, the equity market faced a reality check. To curb excessive speculation and protect retail investors from high-risk losses, the Union Budget 2026 announced a hike in the STT on derivatives. 

Effective from April 1, 2026: 

• STT on Futures: Increased from 0.02% to 0.05% 
• STT on Options Premium and Exercise: Raised from 0.1% and 0.125% to 0.15% 
   

The objective is to discourage short-term, high-frequency trading and promote long-term investing. For retail traders, this means higher transaction costs, which may reduce profitability in intraday and derivative trades. Scalpers and high-turnover traders may need to reassess strategies. Long-term equity investors, on the other hand, remain largely unaffected. 

This shift reinforces the government’s intent to stabilise the equity market post Budget 2026 and align trading behaviour with sustainable financial goals. 

With tax rules becoming simpler, HDFC Bank can help you plan better through: 

1. Tax-efficient investments 

Through HDFC Bank, you can access EEE (Exempt-Exempt-Exempt) instruments, such as the Public Provident Fund (PPF) or the Sukanya Samriddhi Yojana. These options can provide value in the old regime’s deductions.

2. Online tax calculators 

Updated with the new Budget 2026 tax slab, these tools help you compare the old vs. the new regimes in seconds.

The Union Budget 2026-27 marks a turning point. With the simplification of the tax code through the Income Tax Act 2025, the Government is putting more money into the hands of the salaried class. Simultaneously, by increasing the cost of speculative trading, it is nudging investors toward a more stable, investment-oriented future.

*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.