Budget 2026: Income Tax Act from April 1, higher FPI limits, STT hike headline FM's reform express

Union Budget 2026 marked a significant shift in India’s tax and financial sector architecture, with Finance Minister Nirmala Sitharaman announcing a series of reforms aimed at simplifying compliance, deepening capital markets and improving ease of doing business. The centrepiece of the overhaul is the Income Tax Act, 2025, which will come into force from April 1, 2026, replacing the six-decade-old Income Tax Act of 1961.

New tax law

Presenting the Budget in Parliament, Sitharaman said the new law has been drafted in record time and focuses on clarity and simplicity rather than revenue extraction. The Act is revenue-neutral, with no changes to income tax slabs or rates, but substantially reduces complexity by cutting the number of sections and introducing clearer language. Redesigned tax forms and simplified procedures are expected to lower compliance costs and reduce litigation.

Overseas individual investors

Alongside the new tax law, the government announced a key reform to boost foreign participation in Indian equities. Overseas individual investors will now be allowed to raise their shareholding in listed Indian companies through the Portfolio Investment Scheme, with the individual investment limit increased from 5% to 10% and the aggregate cap raised from 10% to 24%. Market participants view the move as a structural positive that could broaden the shareholder base and attract more stable, long-term foreign capital, particularly at a time when global portfolio flows remain volatile.

TDS for NRIs

The Budget also addressed long-standing compliance issues faced by non-resident Indians. In a major relief, TDS on property purchases from non-residents can now be deducted and deposited using the buyer’s PAN-based challan, eliminating the need to obtain a separate Tax Deduction Account Number (TAN). Tax experts say the change will significantly reduce procedural friction in what are often one-time transactions, without weakening tax oversight.

STT on futures trading

In capital markets, the government signalled a tougher stance on speculative activity by announcing a hike in Securities Transaction Tax (STT). STT on futures contracts has been raised from 0.02% to 0.05%, while the levy on options premium has increased from 0.1% to 0.15%. While the increase is modest, it is expected to raise transaction costs for high-frequency and short-term traders. Analysts believe the move reflects the government’s intent to balance market liquidity with financial stability as retail participation in derivatives continues to rise.

Minimum Alternate Tax

On the corporate tax front, Sitharaman proposed a reduction in the Minimum Alternate Tax (MAT) rate to 14% from 15%, easing the tax burden on companies that report profits under accounting standards but pay little or no regular income tax. The government also aligned the taxation of share buybacks with the capital gains framework for all shareholders, though promoters will face an additional levy to prevent misuse.

Customs duty

The Budget delivered broad-based relief on the customs side as well. Basic customs duty has been exempted on 17 essential cancer drugs and medicines, a move expected to lower treatment costs for patients. Additional exemptions were announced for inputs used in battery energy storage systems, solar glass, aviation components and nuclear power projects, reinforcing the government’s push for domestic manufacturing and clean energy.

Taken together, the tax and financial sector measures in Budget 2026 underscore a clear policy direction: simplify laws, reduce compliance burden, attract long-term capital and maintain market discipline. While the absence of headline tax cuts may disappoint some, policymakers are betting that predictability, clarity and targeted relief will deliver more durable gains for the economy.