Budget 2026: New tax reliefs and penalties announced
What's the story
Finance Minister Nirmala Sitharaman has announced major reforms in the Budget 2026, aimed at simplifying tax administration and reducing litigation. One of the key proposals is to combine assessment and penalty proceedings into a single order. This would eliminate separate orders for assessments and penalties, which often prolong disputes. Further, taxpayers won't have to pay interest on penalty amounts during the period their appeal is pending before the first appellate authority, regardless of its outcome.
Appeal changes
Prepayment requirement for filing appeals slashed
In a bid to ease the burden on taxpayers, the government has also slashed the prepayment requirement for filing appeals. The amount has been reduced from 20% to 10%, and will only be calculated on the core tax demand, excluding penalties or interest. This is expected to significantly reduce the upfront cost of pursuing appeals and ease litigation pressures.
Return updates
Taxpayers can now update returns after reassessment proceedings have begun
Another major change proposed in Budget 2026 is allowing taxpayers to update their tax returns even after reassessment proceedings have begun. They will have to pay an additional 10% tax on top of the rate applicable for the relevant financial year. Once this updated return is filed, the assessing officer will base the reassessment only on it, giving taxpayers a final chance to voluntarily correct discrepancies and avoid prolonged disputes.
Immunity provisions
Decriminalization of certain offenses proposed
The existing provisions of immunity from penalty and prosecution in cases of under-reporting will continue. The Budget also proposes decriminalizing certain offenses like non-production of books or documents, and TDS compliance issues where payments are made in kind. These will now be treated as civil lapses instead of criminal offenses. For minor offenses, taxpayers will only face monetary fines instead of harsher actions. The budget has also proposed penalty equal to 100% of the tax amount for income tax misreporting.