No Change in Income Tax Slabs, Share Buybacks to be Taxed as Capital Gains

In her Union Budget 2026, finance minister Nirmala Sitharaman did not mention any changes in the personal income tax, effectively retaining the existing slabs without any changes. However, the government has introduced several new exemptions and measures aimed at attracting global businesses and promoting exports.

Sitharaman spoke about the Income Tax Act, 2025, which will come into effect from April this year. 

“The simplified Income Tax Rules and Forms will be notified shortly, giving adequate time to taxpayers to acquaint themselves with its requirements. The forms have been redesigned such that ordinary citizens can comply without difficulty,” she said.

It aims to simplify India’s direct tax framework, reduce litigation, and consolidate provisions that had become fragmented over decades of amendments. The new Act contains 536 sections across 23 chapters and 16 schedules, compared to more than 800 sections and 47 chapters in the 1961 Act. This restructuring is intended to make the law easier for taxpayers and professionals to navigate.

The finance minister also proposed to tax buyback for all types of shareholders as capital gains. 

“However, to disincentivise misuse of tax arbitrage, promoters will pay an additional buyback tax. This will make the effective tax 22% for corporate promoters. For noncorporate promoters, the effective tax will be 30%,” she added.

Meanwhile, the government will now also raise the tax on Futures and Options from 0.02% and 0.1% to 0.05% and 0.15%, respectively.

Sitharaman also proposed extending the filing window for revising returns from December 31 to March 31, subject to a nominal fee. She also mentioned staggering ITR filings for individuals to July 31.

Tax Exemptions

In her speech, the finance minister proposed a tax holiday until March 31, 2047 for foreign companies providing cloud services to global customers through data centres located in India. In addition, a safe harbour of 15% on cost has been proposed for companies offering data centre services in India to related entities. 

Non-residents supplying capital goods, equipment or tolling services to toll manufacturers in bonded zones will be eligible for a five-year income tax exemption. Similarly, non-resident experts working in India under notified schemes will be exempt from tax on non-India-sourced income for a stay period of five years.

On the trade and tariff side, the government has proposed removing certain customs duty exemptions on items manufactured domestically or where imports are negligible. 

Talking about the energy transition and security, Sitharaman said, “I propose to extend the basic customs duty exemption given to capital goods used for manufacturing Lithium-Ion Cells for batteries, to those used for manufacturing Lithium-Ion Cells for battery energy storage systems too.”

Exemptions have also been proposed for imports of sodium antimonate used in solar glass and nuclear power, as well as for goods required in nuclear power projects until 2035. Capital goods needed for processing critical minerals in India will also be exempt.

In healthcare, basic customs duty exemptions will apply to 17 drugs and medicines, and seven additional rare diseases have been added to the list, with personal imports of drugs, medicines, and special foods exempt from import duties.