Direct Tax Alert: 

On 1 February 2026, Finance Minister Nirmala Sitharaman presented the Union Budget 2026-27, signalling a strong push towards growth and self-reliance, aligned with India’s ambition to become the world’s third-largest economy. The Lok Sabha passed the Finance Bill, 2026, along with over 30 amendments on 25 March 2026, taking a significant step toward a more flexible and growth-oriented regulatory environment in India. The amendments look to strengthen taxpayer rights during reassessment, decriminalise recovery, rationalise the transitional shift from the Income Tax Act, 1961 (ITA 1961) to the Income-tax Act, 2025 (ITA 2025) and interest rate governance for pre-2026 years. The Bill shall now be presented before the Rajya Sabha, and upon its approval, the Finance Act, 2026, shall come into place.

We, at BDO India, have summarised the key aspects of the amendments in the Finance Bill 2026 and provided our comments on its impact hereunder:

KEY AMENDMENTS PROPOSED IN THE FINANCE BILL, 2026

1. Minimum time to respond to reassessment notice specified as 30 days – Under existing provisions, the maximum time limit for filing a return of Income in response to a reassessment notice was specified as 3 months from the end of the month in which such notice is issued. However, no minimum time period was prescribed. Accordingly, the Finance Bill, 2026, has proposed a minimum period of 30 days within which the taxpayer can furnish the return. The said amendment shall be effective from 30 March 2026 under ITA 1961, whereas from 1 April 2026 under ITA 2025.
2. Decriminalisation for the purpose of recovery by tax recovery officer (TRO) – The power of TRO to arrest the taxpayer-in default and his detention in prison are removed as other modes of recovery are considered to be sufficient. The said amendment shall be effective from 30 March 2026 under ITA 1961, whereas from 1 April 2026 under ITA 2025.
3. Reopening of assessment in pursuance of a Court order – ITA 1961 permitted the issuance of a notice of reassessment at any time to give effect to any finding or direction contained in a Court order under any other law. However, this did not explicitly cover a Court order under ITA 1961. The reopening of an assessment would now be permitted to give effect to any finding or direction contained in a Court order in any proceeding under ITA 1961. The notice for reopening of assessment in such cases should be issued within a period of 3 months from the end of the quarter in which the certified copy of the order of the authority or the Court is received by the tax authorities. This provision shall be effective from 1 February 2026 under ITA 1961.
4. Circumstances in which approval shall not be treated invalid: It is proposed to clarify that any approval given in relation to assessment proceedings shall be deemed to be administrative and supervisory in nature and shall not be invalidated merely on the grounds of lack of detailed reasoning, defect in form, manner of communication and absence of digital signature. The said clarification shall be effective from 1 April 2021 under ITA 1961, whereas under ITA 2025, it shall be effective from 1 April 2026.
5. Scope of buy-back tax restricted – The Finance Bill, 2026, proposed to tax consideration on buy-back of shares as capital gains and differentiated tax treatment for promoters.  It is proposed to restrict the scope of the additional promoter-level tax only to buy-backs undertaken in accordance with section 68 of the Companies Act, 2013. The said amendment shall be effective from 1 April 2026.
6. Revised turnover limits for start-ups – Previously, for the purpose of claiming tax holiday by the startups, the key eligibility condition was that the annual turnover must not exceed INR 1000mn. The Department for Promotion of Industry and Internal Trade (DPIIT)1 has revised the turnover limit for an entity to be recognised as a startup to INR 2000 mn. Also, a new category of startups called Deep Tech Startups was introduced with a higher turnover limit of INR 3000 mn.  Accordingly, with effect from 1 April 2026, the annual turnover threshold has now been revised and raised to INR 3000 mn.
7. Benefits to Offshore Banking Units (OBUs) in International Financial Service Centre (IFSC): The Finance Bill, 2026, proposed to extend the benefit of deduction on income from an OBU of a scheduled or foreign bank in a Special Economic Zone from 10 years to 20 years. The said benefit shall now be available even in cases where the initial 10-year period exemption has expired on 31 March 2025. The said amendment shall be effective from 1 April 2026.
8. Cross-Act set-off of refunds against tax demands - Both the ITA 1961 and the ITA 2025 permit set-off of refunds only against demands under the same Act. For a smooth transition, it is now proposed to allow set-off of refunds against demands, irrespective of which statute the refund/demand originates. The said amendment shall be effective from 30 March 2026 under ITA 1961, whereas from 1 April 2026 under ITA 2025.
9. Interest rate applicability – The Finance Bill, 2026, proposed that the interest rate to be charged after 1 April 2026 on refunds or defaults for Fiscal Year 2025-26 and earlier periods shall be as per the rate prescribed under ITA 2025. It is proposed to clarify that the section of ITA 1961 will continue to apply for the Fiscal Year 2025-26 and earlier years. However, the rate after 1 April 2026 will be as per ITA 2025.

BDO INDIA COMMENTS

The amendments passed by the Lok Sabha reflect the Government's stated objectives of trust-based tax administration, reduced litigation and alignment of tax law with evolving practical scenarios. The amendments carry forward the larger mission of ensuring a seamless legislative transition from the ITA 1961 to ITA 2025 by addressing interpretational gaps, preventing revenue leakage and providing certainty to taxpayers and administrators during a period of significant structural change in India's direct tax architecture.