Budget 2026: From ITR Deadlines to Cloud Tax Holiday, Key Income-Tax Changes

The Union Budget for FY 2026–27 introduces a wide-ranging set of changes to India’s direct tax framework, combining extended compliance timelines for taxpayers with tougher penalties and revised rules for capital markets, NRIs, and technology companies.

Finance Minister Nirmala Sitharaman said the deadline for filing ITR-1 and ITR-2 will continue to remain July 31, providing certainty for individual taxpayers. However, she announced that taxpayers will now have more time to correct errors, with the window to revise income-tax returns extended till March 31, subject to payment of a small fee.

At the same time, the Budget signals a stricter approach to non-compliance. Sitharaman said the penalty for misreporting income has been raised to 100% of the tax amount, significantly increasing the cost of incorrect disclosures. She also announced that non-disclosure of non-immovable assets, which previously did not attract penalties, will now be penalised.

Also read: Budget 2026 tightens compliance, simplifies IT taxation, extends ITR revision window

To encourage voluntary compliance, the government will introduce a six-month foreign asset disclosure scheme targeted at small taxpayers, offering a limited window to declare overseas assets. In addition, the sale of immovable property by non-residents will now attract tax deducted at source (TDS), tightening oversight of cross-border real estate transactions.

The Budget also brings relief for outbound travellers, with tax collected at source (TCS) on overseas tour packages reduced to 2%, from the earlier range of 5% to 20%.

Significant changes were announced for investors and capital markets. Sitharaman said share buybacks will now be taxed as capital gains for all categories of shareholders, aligning their treatment with other equity income. She also announced that securities transaction tax (STT) on futures contracts will be increased to 0.05%.

Also read: Budget 2026: Sitharaman sets 2030 target to turn Indian cashew and cocoa into 'premium global brands'

For the technology and services sector, the finance minister reiterated the government’s push towards tax simplification. Safe harbour provisions will be valid for five consecutive years at the taxpayer’s choice, while the government will work to conclude advance pricing agreements (APAs) for IT services within two years.

In a long-term policy signal for the digital economy, Sitharaman proposed a tax holiday till 2047 for foreign companies providing cloud services through data centres located in India. These companies will be required to serve Indian customers via an Indian reseller entity, reinforcing the government’s focus on local value creation.