Ahead of the Union Budget 2026–27, the Ministry of Finance has shared an update on the implementation status of several direct tax reforms announced in recent Budgets. The measures are aimed at improving tax certainty, easing compliance, and supporting investors, startups, and individual taxpayers.
The Finance Ministry outlined the progress through official posts on X, highlighting legislative changes that span capital markets, startups, infrastructure, and personal taxation.
Greater Tax Certainty for Alternative Investment Funds
One of the major reforms relates to the taxation of Alternative Investment Funds (AIFs). To provide clarity and certainty, the Finance Act, 2025, amended Section 2(14) of the Income-tax Act to explicitly classify securities held by Category I and Category II AIFs as capital assets.
As a result, income arising from the transfer of such securities will be taxed under “Capital Gains” rather than “Profits and Gains of Business or Profession.” This change takes effect from April 1, 2026, applicable to Assessment Year 2026–27, and aligns the tax treatment of Indian AIFs with that of Foreign Portfolio Investors (FPIs).
Extended Tax Benefits for Startups and Electronics Manufacturing
The government has also extended incentives to support startups and domestic manufacturing. Under amendments to Section 80-IAC, the deadline for incorporation of eligible startups has been extended to March 31, 2030.
Eligible startups can continue to claim a 100% tax deduction on profits for any three consecutive years out of their first ten years of operation.
In addition, to strengthen India’s position as a global hub for electronics system design and manufacturing, a new presumptive taxation regime has been introduced under Section 44BBD. The provision applies to non-resident entities providing services or technology to electronics manufacturing units and taxes them on a deemed profit of 25% of gross receipts.
Boost for Infrastructure, Shipping, and IFSCs
Infrastructure and logistics have received further policy support through the extension of the Tonnage Tax Scheme to inland waterways. By amending Section 115VD, inland vessels registered under the Indian Vessels Act, 2021, are now included in the definition of a “qualifying ship.” This reform, effective from April 1, 2026, is intended to promote inland water transport.
The government has also extended tax concessions available to entities operating in the International Financial Services Centre (IFSC) by five years, up to March 31, 2030. The extension covers ship-leasing units, insurance offices, and treasury centres of global companies operating in IFSCs.
Relief Measures for Individual Taxpayers
For individual savers, the Finance Ministry highlighted changes to the National Savings Scheme (NSS) and National Pension System (NPS) Vatsalya.
Withdrawals from NSS accounts made on or after August 29, 2024, are now fully exempt from tax. Under NPS Vatsalya, parents or guardians can claim an additional deduction of up to ₹50,000 under Section 80CCD(1B), over and above the standard Section 80C limit.
In property taxation, rules have been simplified by allowing taxpayers to claim nil annual value for two self-occupied properties without conditions, removing the earlier requirement to justify non-occupancy due to employment.
Steps to Reduce Litigation and Compliance Burden
To curb disputes and litigation, the Finance Act introduced a three-year block period for transfer pricing assessments and expanded the scope of Safe Harbour Rules.
The turnover threshold for Safe Harbour eligibility has been increased from ₹200 crore to ₹300 crore, and new sectors, including electric vehicle components, have been brought within its ambit.
Compliance requirements for small charitable trusts have also been eased by extending the validity of registration from five years to ten years.
Outlook Ahead of Budget 2026-27
The Finance Ministry’s update suggests that the government is focusing on stability, predictability, and simplification in direct taxation. With several reforms already legislated and coming into effect from April 2026, expectations are building around further rationalisation and taxpayer-friendly measures in the upcoming Budget.
Source: Economic Times