Budget 2026-27: Income Tax Act 2025 from April 2026, TCS cut to 2%, IT safe harbour widened
The Union Budget 2026-27, presented on 1 February 2026, confirmed that the new Income Tax Act, 2025 takes effect from April 2026 and cut TCS on overseas tour packages and on LRS remittances for education and medical treatment to 2%.
Summary
The Union Budget 2026-27, presented on 1 February 2026, confirmed that the new Income Tax Act, 2025 comes into effect from April 2026, with simplified rules and forms to follow. TCS on overseas tour packages falls to 2% (from 2â20%) and on LRS remittances for education and medical treatment to 2% (from 5%). Interest awarded by Motor Accident Claims Tribunals to individuals becomes tax-free with no TDS. The deadline for revising returns moves from 31 December to 31 March with a nominal fee, and a one-time six-month scheme will let small taxpayers disclose foreign income or assets. For IT services, software, ITeS, KPO and contract R&D are clubbed into one category with a 15.5% safe-harbour margin, and the safe-harbour threshold rises from ₹300 crore to ₹2,000 crore.
Key facts
- Income Tax Act, 2025
- Effective from April 2026
- TCS on overseas tour packages
- 2% (from 2â20%)
- TCS on LRS for education/medical
- 2% (from 5%)
- MACT interest
- Exempt; no TDS
- Revised returns
- Deadline extended from 31 December to 31 March, with fee
- Foreign assets
- One-time 6-month disclosure scheme for small taxpayers
- IT services safe harbour
- Single category, 15.5% margin; threshold ₹300 crore → ₹2,000 crore
Practice MCQs 4 questions
From when does the new Income Tax Act, 2025 come into effect, as confirmed in the Union Budget 2026-27?
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Correct answer: B â 1 April 2026
The Income Tax Act, 2025 comes into effect from 1 April 2026.
To what rate did the Union Budget 2026-27 cut TCS on LRS remittances for education and medical purposes?
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Correct answer: C â 2%
TCS on LRS remittances for education and medical purposes was cut to 2% from 5%.
The Union Budget 2026-27 raised the threshold for availing safe harbour for IT services from ₹300 crore to:
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Correct answer: B â ₹2,000 crore
The safe-harbour threshold for IT services was raised from ₹300 crore to ₹2,000 crore, with a common 15.5% margin.
Consider the following direct tax proposals in the Union Budget 2026-27: 1. Interest awarded by a Motor Accident Claims Tribunal to a natural person will be exempt from income tax. 2. The time for revising income tax returns is cut from 31 December to 30 September. Which of the above is/are correct?
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Correct answer: A â 1 only
Only 1 is correct. The time to revise returns was extended from 31 December to 31 March, with a nominal fee.