Introduction

In a major push for structural reform, Finance Minister Smt. Nirmala Sitharaman announced pivotal changes to the direct tax landscape during the Union Budget 2026-27 presentation. Emphasizing simplification and compliance, the government introduced the timeline for the new Income Tax Act, 2025, alongside significant rationalization of Tax Collected at Source (TCS) and Securities Transaction Tax (STT).

Key Reforms Overview
New IT Act

Effective April 1, 2026

TCS on Education/Medical

Reduced to 2%

TCS on Scrap/Minerals

Rationalized to 2%

STT on Futures

Increased to 0.05%

Share Buyback

Taxed as Capital Gains

The New Income Tax Act, 2025
  • Implementation Date: The new Act will officially come into effect from 1st April 2026.
  • Simplification: Rules and forms have been redesigned to be more user-friendly for ordinary citizens, with notifications to be issued well in advance to ensure taxpayers have time to adapt.
TCS and Remittance Updates

Significant relief has been provided under the Liberalised Remittance Scheme (LRS) and for specific goods:

  • LRS Remittances: For amounts exceeding ₹10 lakh, the TCS rate is reduced to 2% for education and medical treatment purposes. (Note: It remains 20% for other purposes).
  • Goods: TCS rates for alcoholic liquor, scrap, and minerals are rationalized to 2%. The rate for tendu leaves is slashed from 5% to 2%.
Share Buybacks & Securities Transaction Tax (STT)

Share Buyback Taxation

To prevent tax arbitrage, buybacks will now be taxed as Capital Gains for all shareholders. Additionally, promoters will face an additional tax burden:

  • Effective tax for Corporate Promoters: 22%
  • Effective tax for Non-Corporate Promoters: 30%

STT Hike

Trading costs are set to rise with increases in STT:

  • Futures: Increased from 0.02% to 0.05%.
  • Options (Premium & Exercise): Increased to 0.15%.
Corporate Tax & MAT Changes
  • Minimum Alternate Tax (MAT): Proposed to become a final tax with no further credit accumulation starting April 1, 2026. The rate is reduced from 15% to 14%.
  • Credit Usage: Companies shifting to the new regime can use brought-forward MAT credit to offset up to 1/4th of their tax liability.
Source Information

Original Source: Ministry of Finance via PIB Delhi.

Link: Read Official Press Release

Direct Tax Reforms 2026: New Income Tax Act, TCS Relief, and Buyback Changes - Image 1

Frequently Asked Questions

Q. When does the new Income Tax Act come into force?
It is slated to come into effect from 1st April 2026.
Q. What is the new TCS rate for foreign education payments?
For remittances exceeding ₹10 lakh for education or medical treatment, the TCS rate has been reduced to 2%.
Q. How has the STT on Futures changed?
The Securities Transaction Tax on Futures has been raised from 0.02% to 0.05%.
Q. How will share buybacks be taxed now?
Buybacks will be taxed as Capital Gains in the hands of the shareholders, replacing the previous system.
Q. What is the change regarding MAT credit?
MAT credit accumulated till March 31, 2026, can be used to offset up to 1/4th of the liability in the new tax regime, but no new credit will accumulate after that date.