New Delhi, Mar 31: A new income tax framework along with key Budget provisions, including higher Securities Transaction Tax (STT) on futures and options (F&O) trades and reduced Tax Collected at Source (TCS) on overseas tour packages and select remittances, will come into force from April 1 with the start of the 2026-27 fiscal.
The Income-tax Act, 2025 will replace the six-decade-old Income-tax Act, 1961 from April 1, 2026, aiming to simplify and present tax laws in a more accessible and structured format. The new law introduces a unified “tax year” system, eliminating the distinction between assessment year and previous year, and allows taxpayers to claim TDS refunds even for delayed filings without penalties.
The Income Tax Department said compliance during the transition will be supported on its e-filing portal under both old and new regimes. Returns for AY 2026-27, relating to income governed by the old Act, will be filed using existing forms, while advance tax payments from June 2026 onwards will follow the new Act.
Among major changes, STT on F&O trades has been increased to curb speculative activity. Tax on futures contracts will rise to 0.05 per cent from 0.02 per cent, while options premium and exercise will attract 0.15 per cent, up from 0.1 per cent and 0.125 per cent respectively. The move is aimed at protecting small investors from losses in high-risk derivative trading.
Data shows that participation in equity derivatives has declined, with unique individual investors falling from 1.06 crore in FY25 to about 75.43 lakh in FY26 (till December 30, 2025). A Sebi study noted that retail investors incurred net losses exceeding Rs 1.05 lakh crore in FY25.
The Budget also reduces TCS on overseas tour packages to 2 per cent from 20 per cent, and on remittances under the Liberalised Remittance Scheme (LRS) for medical and education purposes to 2 per cent from 5 per cent, offering relief to the middle class.
Further, a 20-year tax holiday till 2047 has been introduced for foreign companies availing data centre services in India, ensuring their global income is not taxed domestically. This measure is expected to benefit domestic data centre providers by enabling them to attract global clients without tax concerns.
The policy ensures equal tax treatment whether foreign firms set up their own data centres or use Indian service providers, creating a level-playing field. India’s effective corporate tax rate currently stands at 25.17 per cent.
Additionally, the threshold for safe harbour provisions for IT and IT-enabled services has been significantly increased from Rs 300 crore to Rs 2,000 crore, a move expected to provide greater certainty and reduce litigation in the sector. (Agencies)
