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Ministry of Finance | Income Tax Department | Motor Accident Claims Tribunal (MACT)
During the Union Budget 2026-27, Finance Minister Nirmala Sitharaman announced a suite of direct tax proposals specifically designed to enhance “Ease of Living” for taxpayers. Key among these is the exemption of any interest awarded by the Motor Accident Claims Tribunal (MACT) to a natural person from Income Tax, with the removal of associated TDS. Additionally, Tax Collected at Source (TCS) rates for overseas tour packages and remittances under the Liberalised Remittance Scheme (LRS) for education and medical purposes have been significantly reduced from 5%-20% to a flat 2%.
Simplifying Compliance for Small Taxpayers The budget introduces several “ease of compliance” measures to reduce administrative friction:
Rule-Based Automation: A new scheme allows small taxpayers (students, young professionals) to obtain lower or nil tax deduction certificates through an automated process, bypassing the manual application to an assessing officer.
Centralized Declarations: For investors with securities in multiple firms, depositories can now accept and distribute Form 15G or 15H directly to relevant companies.
Extended Revision Window: The deadline to revise tax returns has been extended from December 31 to March 31, subject to a nominal fee.
Staggered Filing Deadlines: Filing timelines have been staggered, with ITR 1 and 2 filers continuing till July 31, while non-audit business cases and trusts are extended to August 31.
One-Time Foreign Asset Disclosure Scheme To address reporting issues for students, tech employees, and relocated NRIs, a one-time 6-month disclosure window has been proposed.
Category A (Undisclosed Income/Asset): For assets up to ₹1 crore, taxpayers can pay 30% tax plus 30% additional tax (in lieu of penalty) to gain immunity from prosecution.
Category B (Procedural Non-Disclosure): For assets up to ₹5 crore where tax was paid but the asset wasn’t declared, immunity from penalty and prosecution is available for a flat fee of ₹1 lakh.
What is the “Category B” benefit under the new Foreign Asset Disclosure Scheme? Category B addresses taxpayers—often relocated NRIs or tech employees—who have already paid due taxes on their overseas income but failed to technically declare the acquired asset in their Indian tax returns. Under the 6-month window, these individuals can rectify their filing and gain full immunity from both penalty and prosecution by paying a nominal fee of ₹1 lakh, provided the asset value is below ₹5 crore.
Policy Relevance
The 2026-27 tax reforms represent a shift toward a non-adversarial and trust-based tax environment.
Rationalizing Remittance Costs: Reducing TCS to 2% for education and medical treatment aligns fiscal policy with social goals, lowering the financial burden on families supporting students or patients abroad.
Deterrence vs. Compliance: The disclosure scheme acknowledges that many small taxpayers fail to report foreign assets due to technical ignorance rather than intent to evade. Providing a “pathway to compliance” reduces the burden on the judicial system.
Ambiguity Reduction in Services: Specifically bringing “manpower services” under the ambit of payment to contractors (TDS at 1-2%) eliminates long-standing classification disputes between taxpayers and the department.
Administrative Efficiency: Shifting TDS on immovable property sales by non-residents to a PAN-based challan instead of requiring a TAN simplifies high-volume property transactions for resident buyers.
Relevant Question for Policy Stakeholders: How can the Income Tax Department utilize the data from “automated nil-deduction certificates” to build a predictive risk-profile for small taxpayers that further reduces the need for scrutiny audits?
Follow the full news here: EASE OF LIVING BY DIRECT TAX REFORMS