Section 195 (old 115BBE)
Unexplained income taxed at 30%, not 60%
- Before
- 60% plus 25% surcharge on income under sections 68–69D, and a further 10% penalty
- Now
- 30% under section 195; the separate 10% penalty (443) is omitted
IT Act 1961 → 2025 / Finance Act 2026
Finance Act 2026: what changed in the new Income-tax Act
The Finance Act 2026 amended the Income-tax Act, 2025 before it took effect on 1 April 2026. These 35 changes are more than renumbering — each links to the old-vs-new section page.
Verified against the Income-tax Act, 2025 as amended (portal text, August 2026) · applies from tax year 2026-27 unless stated
Several of these changes (prosecution, immunity, updated return after reassessment, penalty-demand interest) were also made to the 1961 Act from 1 March 2026.
Tax rates 6Business income and deductions 4Returns, fees and TDS 8Assessment and litigation 11Penalties and prosecution 3Exemptions (Schedules) 3
Tax rates
Section 206 (old 115JB)
MAT cut to 14%
- Before
- 15% of book profit
- Now
- 14% of book profit; IFSC units 9%
Section 206(1), (3)–(5) (old 115JAA)
No MAT credit for MAT paid from 2026-27
- Before
- MAT paid created a credit, carried forward 15 years
- Now
- No credit for MAT paid from tax year 2026-27; brought-forward credit usable only up to 25% of tax payable for companies moving to the 22%/15% regimes
Section 69 and 2(40) (old 46A, 2(22)(f))
Buy-back is capital gains again, with extra tax for promoters
- Before
- From 1 Oct 2024, buy-back consideration taxed as dividend; cost allowed as capital loss
- Now
- Capital gains for all shareholders; promoters pay additional 2% / 9.5% (domestic company) or 10% / 17.5% (others) on STCG / LTCG
Section 394 (old 206C)
TCS rates rationalised to 2%
- Before
- Mixed rates (1%, 5%, 20% slabs)
- Now
- Liquor, tendu leaves, scrap, minerals 2%; LRS education/medical 2%; overseas tour packages flat 2%
Section 93 (old 57)
No deductions against dividend and MF income
- Before
- Interest up to 20% of dividend/MF income deductible
- Now
- No deduction against any dividend or mutual fund income (Sch VII Sl. 20/21 funds); commission allowed only for interest on securities
Business income and deductions
Section 29(1)(e) (old 36(1)(va))
Late PF/ESI of employees allowed if paid by return due date
- Before
- Disallowed if deposited after the PF/ESI due date (Checkmate Services, SC 2022)
- Now
- Deductible if credited on or before the return due date
Section 22 (old 24)
₹2 lakh home-loan cap covers pre-construction interest too
- Before
- Cap applied to interest; pre-construction instalments debated
- Now
- Clarified: the ₹2 lakh self-occupied cap covers current and pre-construction interest together
Section 150
New deduction for federal co-operatives' dividend income
- Before
- Section 150 was an interpretation clause (CBDT maps 80PA here)
- Now
- Deduction for dividends received by notified federal co-operatives (investments recorded by 31 Jan 2026) to the extent passed on to members, up to tax year 2028-29
Section 2(40) (old 2(22)(e))
Group finance company loan exclusion tightened
- Before
- Exclusion (v) from deemed dividend for loans via a Finance Company/Finance Unit with an overseas-listed parent
- Now
- Also requires the other group entity to be outside India; the country to be notified by the Central Government
Returns, fees and TDS
Section 428(c) (old 271B)
Tax audit default becomes a fee
- Before
- Penalty: 0.5% of turnover, max ₹1,50,000
- Now
- Fee ₹75,000 (delay up to one month) / ₹1,50,000 thereafter
Section 428(d) (old 271BA)
Transfer pricing report default becomes a fee
- Before
- Penalty ₹1,00,000 (section 447 as enacted)
- Now
- Fee ₹50,000 / ₹1,00,000; section 447 omitted
Section 263(5), 428(b) (old 139(5))
Revised return window 12 months, with a fee after 9 months
- Before
- Revised return till 31 December (9 months)
- Now
- Up to 12 months from end of tax year; fee ₹1,000 / ₹5,000 if filed after 9 months
Section 263(6)(b)(ii), 267(5)(ii) (old 139(8A), 140B)
Updated return allowed even after a reassessment notice
- Before
- No updated return once reassessment started
- Now
- Can be filed in response to a section 280 notice, with an extra 10% additional tax
Section 427(3), 454 (old 271FA)
Fee for late SFT
- Before
- Penalty ₹500/day, ₹1,000/day after notice (section 454 as enacted)
- Now
- Fee ₹200/day up to ₹1,00,000 (427(3)); penalty only after a notice under 508(7): ₹1,000/day up to ₹1,00,000
Section 395(6), 393(6) (old 197, 197A)
Automated lower TDS certificates; 15G/15H via depositories
- Before
- Manual applications
- Now
- Automated route for certificates from 1 April 2026; 15G/15H with depositories from 1 April 2027
Section 263(1) (old 139(1))
New 31 August due date for non-audit business returns
- Before
- 31 July for all non-audit cases
- Now
- 31 August for business/profession cases not requiring audit (and their partners); 31 July for others
Section 393(4) Sl. No. 7 (old 194A(3))
More interest payments outside TDS
- Before
- Co-operative bank interest not excluded; MACT interest excluded up to ₹50,000
- Now
- Interest paid to co-operative banks excluded; MACT compensation interest paid to individuals excluded whatever the amount
Assessment and litigation
Section 522 (old 292B)
DIN and approval defects no longer invalidate assessments
- Before
- Mistakes saved only if in substance in conformity; approval challenges common
- Now
- DIN-quoting errors saved if the order is referenced by it; approvals treated as administrative
Section 471(1) (old 274)
Penalty needs a show-cause notice
- Before
- Reasonable opportunity of being heard
- Now
- Hearing must be by way of a show-cause notice
Section 411 (old 220)
No interest on penalty demand until first appeal
- Before
- Interest ran from the demand
- Now
- No interest on a section 439 penalty demand until the first appeal order (section 359), or the Tribunal's order (section 363) in DRP cases
Section 283 (old 150)
Give-effect notices within three months
- Before
- Notice could be issued at any time
- Now
- Within three months from end of the quarter in which the order is received
Section 438 (old 245)
Refunds adjustable against old-Act demands
- Before
- Silent on cross-Act set-off
- Now
- Refunds under the 2025 Act can be set off against 1961 Act dues
Section 440 (old 270AA)
Immunity extended to misreporting cases
- Before
- Misreporting excluded from immunity
- Now
- Waiver and immunity on paying additional tax of 100% (120% for unexplained income)
Section 279(3) (old 147/148)
Reassessment notices by the jurisdictional AO
- Before
- Faceless/jurisdictional issue litigated
- Now
- Notices and procedure under sections 280–281 handled by an AO other than the faceless centre and units
Section 280(1)(c) (old 148)
At least 30 days to respond to a reassessment notice
- Before
- Up to three months, no minimum
- Now
- Not less than 30 days and not more than three months from the end of the month of the notice
Section 296(1) (old 158BE)
Block assessment time limit extended
- Before
- 12 months from the end of the quarter of the last authorisation
- Now
- 18 months from the end of the quarter in which the search was initiated
Section 166(7) (old 92CA(3A))
New TPO deadline
- Before
- 60 days before the assessment limitation date
- Now
- 31 January (if limitation is 31 March) or 31 October (if 31 December)
Section 413(1) (old 222)
No arrest as a recovery mode
- Before
- TRO could order arrest and detention
- Now
- Arrest and detention dropped; attachment, sale and receiver remain
Penalties and prosecution
Section 472–494 (old 275A–280)
Prosecution: simple imprisonment, tiered by tax
- Before
- Rigorous imprisonment, minimum terms (e.g. 3 months–2 years; second offence up to 7 years)
- Now
- Tax over ₹50 lakh: up to 2 years; ₹10–50 lakh: up to 6 months; below: fine only; second offence 6 months–3 years
Section 481 (old 276D)
Failure to produce accounts no longer an offence
- Before
- Rigorous imprisonment up to 1 year
- Now
- Only wilful non-compliance with a 268(5) direction; simple imprisonment up to 6 months
Section 446
New crypto-asset reporting penalty
- Before
- Section 446 was the tax audit penalty
- Now
- ₹200 per day for late crypto-asset statements; ₹50,000 for inaccuracies
Exemptions (Schedules)
Section Sch III S.No. 38A–38D, Sch IV S.No. 13A–13C, Sch VII S.No. 49
New exemptions in Schedules III, IV and VII
- Before
- Not covered
- Now
- Disability pension, MACT compensation interest, land acquisition compensation, AP land pooling (Sch III); electronics tooling, notified-scheme visitors, data centres (Sch IV); New Development Bank (Sch VII)
Section 140(16) (old 80-IAC)
Start-up deduction turnover limit tripled
- Before
- Turnover up to ₹100 crore
- Now
- Turnover up to ₹300 crore; incorporation before 1 April 2030
Section 147 (old 80LA)
IFSC/OBU deduction period doubled
- Before
- 10 consecutive years (OBUs); 10 out of 15 (IFSC units)
- Now
- 20 consecutive tax years (OBUs); 20 out of 25 (IFSC units); no deduction for units formed by splitting up from 1 April 2026
Frequently asked
What did the Finance Act 2026 change in the Income-tax Act, 2025?
Finance Act 2026 (Act No. 4 of 2026) amended the new Act before it took effect on 1 April 2026. Key changes: unexplained income rate cut from 60% to 30%, MAT cut to 14%, buy-back taxed as capital gains again, audit and TP report penalties turned into fees, late employee PF/ESI allowed till the return due date, and prosecution softened to graded simple imprisonment.
From when do the Finance Act 2026 amendments apply?
Most apply from 1 April 2026, i.e. tax year 2026-27, the first year of the Income-tax Act, 2025. Some items, such as 15G/15H through depositories, apply from 1 April 2027.
What is the MAT rate after Finance Act 2026?
14% of book profit under section 206 of the Income-tax Act, 2025 (9% for qualifying IFSC units).
Is buy-back taxed as dividend after Finance Act 2026?
No. From 1 April 2026 buy-back is capital gains under section 69; promoters pay additional tax.