Finance Bill 2026: 15 Key Tax Changes Explained
The Lok Sabha passed the Finance Bill 2026 on March 25, 2026 — and while the core proposals mostly held, several sections were meaningfully rewritten before the final vote. Buyback taxation, capital gains exemptions, startup thresholds, reassessment timelines, armed forces pensions — the changes span a wide range. What follows is a complete point-by-point breakdown of every modification made in the Finance Bill 2026 as passed by Lok Sabha, compared against what was originally tabled.
When the Finance Bill 2026 first came in, it proposed moving buyback proceeds entirely out of the "dividend" category. Under the revised framework, consideration received on a buyback gets taxed as capital gains — done by omitting Section 2(40)(f) [corresponding to Section 2(22)(f) of ITA 1961] and substituting sub-sections (2) and (3) of Section 69 of ITA 2025 [corresponding to Section 46A of ITA 1961].
Promoters, given their distinct role in buyback decisions, were always going to feel this more. The bill proposed an effective tax rate of 30% for individual promoters and 22% for promoter companies on capital gains from buybacks. But the original Finance Bill was silent on whether a surcharge would apply on that additional tax — and that silence was a problem.
The Finance Bill as passed by Lok Sabha plugs this gap. Section 3(6) now carries a reference to the additional tax under Section 69, which means a flat 12% surcharge applies on buyback additional tax, regardless of the total income level. No threshold. Flat rate.
For context: Section 3(4) handles surcharges on special income categories like dividends or capital gains under Sections 196, 197, and 198 of ITA 2025 [corresponding to Sections 111A, 112, and 112A of ITA 1961], capped at 15%. Normal income surcharges under Paragraph F of Part III of the First Schedule can reach as high as 37%. Buyback additional tax now sits in its own bracket — 12%, flat.
Section 69(2) has been amended to make one thing explicitly clear: the additional tax under Section 69 of ITA 2025 only kicks in when the buyback happens under Section 68 of the Companies Act, 2013.
Section 68 is the main provision covering a company's power to purchase its own securities — drawn from free reserves, securities premium account, or proceeds from shares or specified securities. Most people think of this as the standard buyback route. But the Companies Act also allows buybacks through Sections 230 to 232, Section 235, and Section 242(2)(b) — and that distinction matters.
If a buyback happens through any of those alternative routes and not Section 68, capital gains still get computed and taxed under Section 69. But the additional tax? That won't apply. This alone can significantly shift tax exposure in complex corporate restructuring transactions.
Under Section 10(37A) of ITA 1961, individuals and Hindu Undivided Families who held specified capital assets as of June 2, 2014, and transferred them under the Andhra Pradesh Capital City Land Pooling Scheme (Formulation and Implementation) Rules, 2015 — framed under the Andhra Pradesh Capital Region Development Authority Act, 2014 — were entitled to a capital gains exemption.
When ITA 2025 took over, no equivalent provision was carried forward. From Tax Year 2026–27, affected individuals and HUFs under the land pooling scheme had no statutory exemption at all. Honestly, that was a significant oversight in the transition.
The Finance Bill (Lok Sabha) fixes this by inserting Sl. No. 38D in Schedule III of ITA 2025. The exemption is back — but it isn't open-ended. It's time-bound: only those who receive the reconstituted plot or land on or before March 31, 2031, under the scheme will qualify, subject to prescribed conditions. Five years. That's the window, and eligible persons should plan accordingly.
Section 245(1) of ITA 1961 gave tax authorities the power to set off any refund owed to a taxpayer against amounts that taxpayer owes — but only "under this Act," meaning only ITA 1961 dues. If the same taxpayer had outstanding dues under ITA 2025, the Assessing Officer had no statutory authority to adjust the refund against those dues. That was a real gap during the transitional period.
The Finance Bill (Lok Sabha) amends Section 245(1) to fix this. Refunds under ITA 1961 can now be set off against dues under either ITA 1961 or ITA 2025. And the mirror image works too — Section 438 of ITA 2025 has been amended so that ITA 2025 refunds can be adjusted against amounts owed under either statute. Symmetrical. Clean. No more transitional blind spots.
Section 254(3) of ITA 1961 already required ITAT orders to go to both the assessee and the Principal Commissioner or Commissioner. That part stays. What's changing is the delivery route to the jurisdictional authority.
A new sub-section (3A) added to Section 254 requires that for all orders passed on or after October 1, 2026, the ITAT must transmit its order electronically to the jurisdictional PCIT or CIT through the designated portal. The assessee continues receiving the order the usual way.
Section 363 of ITA 2025 — the equivalent provision — gets a similar update, effective April 1, 2026, through substitution of sub-section (10). Same requirement: electronic transmission via the designated portal. Most people gloss over this shift, but it matters for accountability and timeliness in the entire communication chain.
Section 144B of ITA 1961 governs how scrutiny assessments under Section 143(3), best judgment assessments under Section 144, and income escaping assessments under Section 147 run under the faceless regime. Sub-section (6) covers how communications are authenticated and delivered — spanning the NFAC, assessment unit, verification unit, technical unit, and review unit.
Sub-clause (b) of Section 144B(6)(i) has been amended — with retrospective effect from April 1, 2022 — to let these units authenticate electronic records through electronic communication itself. It's not just a procedural tweak — actually, it goes deeper than that. This retrospective date means electronic authentications by these units going all the way back to April 2022 now have solid statutory footing, which could quietly validate a large number of proceedings that might have faced technical challenges otherwise.
Under Section 148 of ITA 1961, when the Assessing Officer issues a reassessment notice, the assessee must file a return within the period specified in that notice. The existing provision set only a maximum — three months from the end of the month in which the notice was issued. A minimum? Nothing. The law said nothing about that floor.
And that gap was being exploited — notices going out with unreasonably short response windows. The Finance Bill (Lok Sabha) amends both Section 148 of ITA 1961 and Section 280 of ITA 2025 to fix this. Thirty days minimum. That's the new floor — and for taxpayers who've faced impossibly tight windows before, this one matters.
Section 150 of ITA 1961 has always worked as an exception to the standard limitation rules in Section 149. Section 150(1) let notices under Section 148 go out "at any time" to give effect to findings or directions from courts or appellate authorities — even if the usual limitation window had closed. Broad power. But not unlimited.
Section 150(2) already blocked this power from reviving assessment years that were time-barred when the original order under appeal was made. But two gaps remained. First, the provision didn't cover situations where proceedings had been initiated but no order had been passed. Second — and this is the part most people missed — there was no deadline for how quickly the Section 148 notice had to follow the court's direction. None.
The Finance Bill (Lok Sabha) closes both. A new clause (b) in Section 150(2) blocks the Section 150(1) power when the assessment year was already time-barred at the time assessment proceedings were initiated — not just when an order was passed. And a new sub-section (3) sets the clock: notice must go out within 3 months from the end of the quarter in which the certified copy of the court or authority's order is received by the jurisdictional PCIT or CIT.
Section 283 of ITA 2025 — the parallel provision — gets the same amendments.
Courts have knocked down tax authority approvals on two main grounds repeatedly. One is the rubber-stamp problem — an authority simply writes "Yes" or "approved" without demonstrating any real application of mind to the facts. Judicial precedent has consistently struck these down; the approving authority has to actually engage with the material. The other ground is authentication failure — approvals missing signatures, dates, or proper authentication under Section 282A of ITA 1961 and Rule 127A of Income-tax Rules, 1962, have been held invalid even when issued electronically, taking down entire proceedings with them.
And there's been genuine divergence in judicial opinion on whether these approvals are administrative or quasi-judicial in nature. Some courts demand a reasoned, meaningful application of mind; others are more lenient. That inconsistency has created uncertainty on both sides — for taxpayers and for the department.
The Finance Bill (Lok Sabha) inserts a new Section 292BC into ITA 1961 and a new sub-section (3) into Section 522 of ITA 2025. Both provisions validate electronically granted approvals — even without sufficient reasons or proper authentication including a digital signature. The validation covers only electronically issued approvals. But given how many digital approvals have been challenged in recent years, this protection is a significant one.
Schedule VII of ITA 2025 covers persons whose entire income is exempt from income tax, subject to prescribed conditions. The Finance Bill (Lok Sabha) adds the New Development Bank at Sl. No. 49 — subject to information being provided in the prescribed form and manner.
The NDB is a multilateral development bank set up in 2015 by the five BRICS nations — Brazil, Russia, India, China, and South Africa — to raise resources for infrastructure and sustainable development projects across emerging markets and developing countries. It works through loans, guarantees, equity participation, and other financial instruments, and cooperates with international organisations and financial entities to provide technical assistance for projects it supports.
Section 80-IAC of ITA 1961 lets eligible startups — companies or LLPs — claim a 100% deduction on profits from eligible business operations for 3 consecutive years out of the first 10 assessment years from incorporation. One condition for qualifying: turnover in the relevant year couldn't exceed Rs. 100 crores.
In February 2026, the DPIIT revised the startup recognition threshold to Rs. 200 crores via notification G.S.R. 108(E), dated February 4, 2026. It also introduced Deep Tech Startups as a new category, with a higher threshold of Rs. 300 crores.
The Finance Bill (Lok Sabha), effective April 1, 2026, brings the tax law in line. Section 140 of ITA 2025 [corresponding to Section 80-IAC of ITA 1961] now carries a turnover limit of Rs. 300 crores — up from Rs. 100 crores. Any startup whose turnover in the relevant tax year stays within Rs. 300 crores is now eligible for the Section 140 deduction. For the startup ecosystem, this is one of the more consequential shifts in the entire Finance Bill 2026.
Section 536 of ITA 2025 handles the repeal of ITA 1961 and the transition mechanics. The formal repeal took effect from April 1, 2026, while preserving ongoing proceedings, rights, and obligations under the old law.
Clause (2)(g) of Section 536 deals with interest computation for tax years beginning before April 1, 2026, where the actual refund or payment happens on or after that date. The Finance Bill (Lok Sabha) amends this clause to clarify exactly how interest gets calculated during this overlap.
Here's how it works: the ITA 1961 mechanism for computing interest is retained. But the rate applied isn't the ITA 1961 rate — instead, the rate prescribed under the corresponding provisions of ITA 2025 applies. And that substituted rate kicks in from the date it's modified under ITA 2025. So for any pending proceedings from earlier tax years, interest from April 1, 2026 to the actual payment date gets calculated using the ITA 1961 structure at ITA 2025 rates. Old framework, new rate.
Section 222 of ITA 1961 let the Tax Recovery Officer issue a certificate in Form No. 57 specifying tax arrears owed by a defaulting assessee. After issuing the certificate, the TRO could recover the amount through several modes:
The TRO could also run recovery proceedings under this section even if other recovery modes were already active simultaneously.
The Finance Bill (Lok Sabha), with effect from March 30, 2026, omits "arrest of the assessee and detention in prison" from the list of recovery modes entirely. From that date, the TRO cannot arrest or detain a taxpayer for tax recovery purposes. Consequential changes have been made to the Second Schedule of ITA 2025 — "Procedure for Recovery of Tax" — removing all references to arrest and detention from the relevant rules. Section 413 of ITA 2025 receives the same amendment, dropping arrest and detention as a recovery mode there too. It's a meaningful civil liberties shift — and honestly, long overdue.
Section 147 of ITA 2025 provides a 100% tax deduction on income from an Offshore Banking Unit of a scheduled or foreign bank operating in a Special Economic Zone — for 10 consecutive tax years. Finance Bill 2026 had already extended this benefit to 20 consecutive years.
But here's the practical problem that was raised. Certain OBUs had their original ten-year deduction period expire as of March 31, 2025. Under the existing framework, they wouldn't qualify for the extended benefit — because there'd be a break in deduction continuity. No continuity, no extension.
The Finance Bill (Lok Sabha) amends Section 147 to address this directly. Such OBUs can now claim a fresh deduction for 10 consecutive tax years starting from the tax year beginning April 1, 2026. The previous year 2025–26 won't be covered — but from April 2026 onward, these units get back into the deduction window.
The Finance Bill 2026, as originally introduced in Lok Sabha, proposed inserting a new entry 38A in Schedule III to exempt disability pension — including both the service element and the disability element — for disabled Indian armed forces officers, effective tax year 2026–27.
But practical difficulties in implementation were flagged. And so, the Finance Bill (Lok Sabha) deferred the applicability date. Entry 38A will now apply from whatever date the Central Government notifies. Until that notification comes, the entire disability pension — both the disability element and the service element — for disabled officers of the Indian armed forces stays exempt from income tax. The protection is intact; only the formal statutory date of the new entry has been pushed back.
The Finance Bill 2026 brings a series of phased amendments to the First Schedule of the Customs Tariff Act, 1975. These changes are spread across multiple Schedules of the Finance Bill, each with its own effective date. The table below lays out the timeline:
Separately, the Fourth Schedule carries corrections to tariff item codes — "4104 21 90", "4104 31 90", and "4104 91 90" have been replaced with "4106 21 90", "4106 31 90", and "4106 91 90" respectively. These weren't policy changes. The original Finance Bill had incorrect, non-existent HSN codes — and this amendment simply aligns everything with the correct and existing tariff classification framework. A clean-up, essentially.
That's every change the Finance Bill 2026 brought in as passed by Lok Sabha — all 15 points, table included, nothing skipped.
The Finance Bill 2026 was passed by Lok Sabha on March 25, 2026. It amends buyback taxation, capital gains rules, startup deduction limits, reassessment procedures, and more under ITA 1961 and ITA 2025. Several proposals from the original bill were modified or clarified before final passage.
Under Finance Bill 2026, buyback proceeds are taxed as capital gains, not dividends. A flat 12% surcharge applies on the additional tax. Promoters face a 30% effective rate; promoter companies face 22%. The additional tax applies only when buyback follows Section 68 of the Companies Act, 2013.
Finance Bill 2026 raised the eligible startup turnover limit from Rs. 100 crores to Rs. 300 crores under Section 140 of ITA 2025. This covers Deep Tech Startups too, aligning with DPIIT's revised threshold notified in February 2026 via G.S.R. 108(E).
Yes. Finance Bill 2026 inserted entry 38A in Schedule III to exempt disability pension — both service and disability elements — for disabled Indian armed forces officers. The exemption's applicability date will be notified by the Central Government; until then, the full disability pension remains tax-free.
Finance Bill 2026 amends the First Schedule of the Customs Tariff Act, 1975 in phases across four Schedules. Changes take effect from the President's assent, April 1, May 1, and a second set from May 1, 2026. Incorrect HSN codes were also corrected in the Fourth Schedule.
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