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Ministry of Finance | Central Board of Direct Taxes (CBDT) | Ministry of Corporate Affairs (MCA)
Union Minister of Finance Nirmala Sitharaman, during the presentation of the Union Budget 2026-27, proposed the Income Tax Act, 2025, which is set to come into effect on April 1, 2026. This new legislation is part of a broader structural reform momentum aimed at simplifying the tax regime and enhancing compliance. Simplified Income Tax Rules and redesigned forms will be notified in due course to allow taxpayers sufficient time for familiarization.
Reforms in Tax Administration and Compliance The budget introduces several significant administrative changes:
Accounting Standards Integration: A Joint Committee of the MCA and CBDT will be formed to incorporate Income Computation and Disclosure Standards (ICDS) into Indian Accounting Standards (IndAS), eliminating separate accounting requirements by the tax year 2027-28.
Buyback Taxation: To curb misuse by promoters, share buybacks will now be taxed as Capital Gains for all shareholders. Corporate promoters will face an effective tax of 22%, while non-corporate promoters will pay 30%.
TCS Rationalization: Tax Collected at Source (TCS) rates for scrap and minerals have been rationalized to 2%. For remittances under the Liberalised Remittance Scheme (LRS) exceeding ten lakh rupees, the rate is reduced to 2% for education and medical treatment.
Corporate Tax Adjustments In a move to incentivize the transition to the new tax regime, the budget proposes that the set-off of brought-forward Minimum Alternate Tax (MAT) credit be allowed only under the new regime, restricted to 1/4th of the tax liability. Furthermore, MAT is proposed to be made a final tax starting April 1, 2026, with the rate reduced from 15% to 14%. Accumulated MAT credit as of March 31, 2026, will remain available for set-off.
What is the primary objective of making MAT a “final tax” in the Income Tax Act, 2025? Making MAT a final tax starting April 1, 2026, aims to simplify the corporate tax structure by ending the further accumulation of MAT credit. By reducing the rate to 14% and limiting credit set-off to the new regime, the government is encouraging companies to move away from the older, more complex tax calculations and embrace a more streamlined, lower-rate direct tax system.
Policy Relevance
The 2025 Act represents a strategic pivot in India’s fiscal governance, focusing on administrative ease and closing tax arbitrage loopholes.
Curbing Promoter Arbitrage: The specific taxation of buybacks as Capital Gains is a targeted regulatory move to prevent promoters from utilizing buybacks as a tax-efficient alternative to dividends.
Incentivizing the New Regime: The restriction of MAT credit set-off to the new regime is a powerful fiscal nudge to migrate corporate India toward the simplified tax structure.
Global Aspirations for Advisory Firms: Rationalizing the definition of “accountant” for Safe Harbour Rules is intended to help Indian accounting firms scale up and compete globally, supporting the “Viksit Bharat” vision.
Financial Market Adjustments: The increase in Securities Transaction Tax (STT) on futures and options premium is intended to manage retail participation in high-risk derivative markets while generating additional revenue.
Relevant Question for Policy Stakeholders: How can the Ministry of Finance and CBDT ensure that the redesign of tax forms maintains a balance between “simpler understanding” and the data granularity required for effective AI-driven tax audits?
Follow the full news here: THE INCOME TAX ACT,2025 TO COME INTO EFFECT FROM 1ST APRIL, 2026