Income Tax Rules: The budget doesn’t provide any direct income tax exemptions, but several changes have been made. Taxpayers found to have income irregularities or concealed taxes will no longer face jail time.
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Income Tax Rules: The middle class was expecting the most income tax relief. This did not happen. However, several changes have been made to income tax regulations. These are specifically aimed at simplifying the tax filing process, reducing litigation, and avoiding unnecessary fines and jail sentences, especially in cases where the mistake was not intentional, but rather due to the complexity of the rules, technical errors, or lack of knowledge.
In fact, during the budget speech, the Finance Minister announced that the new Income Tax Act 2025 will come into effect on April 1, 2026. The Finance Minister also stated that it has become easier than ever for NRIs to sell their property. Previously, NRIs had to obtain a special number, TAN (Temporary Accounting Number), to deduct and deposit TDS when selling property. This caused inconvenience to individuals.
But the Budget has simplified the process considerably. Indian property buyers will now deduct TDS and remit it through invoices containing their PAN. This will eliminate the need for NRIs to obtain a TAN.
Easy for NRIs
Foreign income or assets have not been disclosed. Furthermore, NRIs who have disclosed their foreign income and paid taxes on it, but failed to disclose the full extent of their assets, will now be granted relief. They can settle their cases by simply paying a fine. This means that those who fail to disclose small assets abroad have received significant relief, and those who conceal such income will not face imprisonment.
Indeed, many people own small assets abroad but fail to disclose them in their tax returns. Such individuals have been granted relief in the budget. Now, those whose non-immovable assets abroad are worth less than ₹20 lakh, even if they have not disclosed them, will not face any action. Meaning, they will not be penalized. Those who have declared foreign income but failed to declare their assets will no longer face any penalties or prosecution for failing to declare foreign immovable assets worth less than ₹20 lakh, effective October 1, 2024.
Now, NRIs have two options.
NRIs who have not disclosed their foreign income or assets (the limit for such taxpayers is set at ₹1 crore), will be required to pay 30 percent of the value of their undisclosed income or assets, plus an additional 30 percent. Paying this amount will prevent them from facing any penalties or legal action.
For those who have declared foreign income but failed to declare their assets, the limit will be up to ₹5 crore. In such cases, paying a fee of just ₹1 lakh will provide complete relief from both penalties and prosecution.
Relief for Technical Errors
Finance Minister Nirmala Sitharaman has proposed streamlining and rationalizing penalties and prosecution procedures in the direct tax system in the Budget. Assessment and penalty proceedings will now be settled through a single, common order, reducing duplication. No interest will be charged on the penalty amount during the appeal period.
The initial appeal fee has been reduced from 20% to 10%. To reduce litigation, taxpayers will be allowed to update their returns even after reassessment, paying an additional 10% tax along with the applicable tax. In cases of incorrect information, paying 100% of the tax, interest, and additional tax will provide relief from penalties or legal action.
Technical errors, such as failing to audit accounts, failing to submit transfer pricing reports, or failing to provide financial information, will now attract a nominal fee instead of a penalty. Failure to provide accounting books or documents, or failing to deduct TDS on payments in kind, will no longer be considered offenses.
Efforts to decriminalize the Income Tax Act
The government has taken a major step towards decriminalizing the Income Tax Act. According to the new rule, if a taxpayer is found to have discrepancies in their income or concealed taxes, they will no longer face a jail sentence. The case can be settled by simply paying a fine. This new change will be part of the new Income Tax Act, which will come into effect on April 1, 2026.
Minor cases will only be subject to a fine, and even in serious cases, the maximum sentence has been reduced to two years, which the court can convert into a fine. Previously, the maximum sentence for serious cases under the Income Tax Act was up to seven years, with a limit of three years in some cases.
According to the new rule, the deadline for filing ITR-1 and ITR-2 will remain July 31st. Non-audited business entities and trusts will have until August 31st to file their returns.
