Income Tax Budget 2026: No Change in Slabs, New Tax Law from April 1 — Legal, Constitutional and Policy Analysis

Introduction: Budget 2026 and the Stability Signal

The Union Budget 2026–27, presented by Finance Minister Nirmala Sitharaman—her ninth consecutive Budget—has sent a clear policy message: tax stability over populism. While expectations of slab rationalisation ran high, the government chose continuity, announcing no change in income tax slabs, while confirming that the New Income Tax Act, 2025 will come into force from 1 April 2026, replacing the six-decade-old Income Tax Act, 1961.

This Budget marks a significant moment in India’s fiscal evolution, prioritising simplification, procedural reform, and targeted relief, rather than rate cuts.

Constitutional Framework Governing Taxation

Article 265: No Tax Without Authority of Law

Article 265 of the Constitution mandates that “no tax shall be levied or collected except by authority of law.” The proposed implementation of the New Income Tax Act, 2025 directly flows from this constitutional requirement, reaffirming Parliament’s exclusive competence over taxation under Entry 82 of the Union List (Seventh Schedule).

The replacement of the Income Tax Act, 1961 reflects legislative intent to modernise tax administration without violating constitutional continuity.

New Income Tax Act, 2025: A Structural Reset

Replacing a 60-Year-Old Law

The New Income Tax Act, 2025—effective from 1 April 2026—seeks to:

  • Simplify statutory language

  • Reduce litigation-prone provisions

  • Align tax administration with digitised compliance systems

Importantly, the new Act does not alter slab rates, reinforcing predictability for taxpayers and investors.

No Change in Income Tax Slabs: Policy Rationale

New Tax Regime Slabs (Unchanged)

  • ₹0–₹4 lakh: Nil

  • ₹4–₹8 lakh: 5%

  • ₹8–₹12 lakh: 10%

  • ₹12–₹16 lakh: 15%

  • ₹16–₹20 lakh: 20%

  • ₹20–₹24 lakh: 25%

  • Above ₹24 lakh: 30%

Old Tax Regime Slabs (Status Quo)

  • Up to ₹2.5 lakh: Nil

  • ₹2.5–₹5 lakh: 5%

  • ₹5–₹10 lakh: 20%

  • Above ₹10 lakh: 30%

From a constitutional standpoint, Article 14 (equality before law) permits differential tax treatment so long as classification is reasonable. Courts have consistently held that tax policy choices lie within legislative wisdom unless manifestly arbitrary (R.K. Garg v. Union of India).

Procedural Relief: Extension of ITR Filing Deadline

Statutory Change under Section 139

The Finance Minister proposed extending the revised return filing deadline from 31 December to 31 March, subject to payment of a nominal fee. This reform aligns with:

  • Ease of compliance

  • Reduction of penal litigation

  • Greater alignment with global best practices

This amendment strengthens procedural fairness under Article 14, especially for salaried taxpayers and small businesses.

Major Exemptions and Rate Rationalisation

Motor Accident Compensation

Interest awarded by the Motor Accident Claims Tribunal (MACT) to a natural person will now be:

  • Fully exempt from income tax

  • Free from TDS

This aligns with Supreme Court jurisprudence recognising compensation as restorative, not income (CIT v. Ghanshyam (HUF)).

Reduction in TCS Rates

Under the Liberalised Remittance Scheme (LRS):

  • TCS for education and medical purposes reduced from 5% to 2%

  • TCS on overseas tour packages reduced from 5% / 20% to 2%

This rationalisation promotes Article 21 values by reducing financial barriers to education and healthcare.

Relief for NRIs and Overseas Residents

Simplifying Cross-Border Compliance

Key measures include:

  • PAN-based TDS deposit for property purchased from non-residents

  • One-time six-month foreign asset disclosure scheme for small taxpayers

  • Immunity from prosecution for non-disclosure of foreign assets below ₹20 lakh

  • MAT exemption for non-residents paying presumptive tax

These measures align with international tax certainty principles and reduce compliance friction.

Customs and Indirect Tax Relief with Income Impact

Health and Strategic Sectors

  • Import duty exemption on 17 medicines, including cancer drugs

  • Duty exemption on drugs for 7 rare diseases

  • Continued exemption on capital goods for lithium-ion battery manufacturing

Though indirect in nature, these changes reduce household expenditure, reinforcing substantive equality under Article 14.

Judicial View on Tax Policy Deference

Indian courts have consistently refrained from interfering with budgetary choices:

  • R.K. Garg v. Union of India – Economic legislation deserves judicial restraint

  • Federation of Hotel & Restaurant Association v. Union of India – Tax policy lies within Parliament’s domain

The absence of slab changes is thus legally unassailable.

Conclusion: A Budget of Stability, Not Spectacle

The Income Tax proposals in Budget 2026 reflect fiscal discipline over populist relief. By freezing slabs, simplifying procedures, and rolling out a new tax statute, the government has chosen predictability, compliance ease, and legal certainty.

For taxpayers, the message is clear: no immediate relief, but fewer disputes and clearer rules ahead.


Location: Pune, Maharashtra, India

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