Finance Act 2026: The Key Changes Companies Actually Have to Act On

The Income-tax Act, 2025 renumbered the law. The Finance Act, 2026 changed what it costs. Here is what a CFO or promoter has to act on, grouped by who it hits.

Last verified: 5 September 2026 · Applies to: Tax Year 2026-27

Contents

• Two different changes, often confused
• If you are a listed or large company
• If you are mid-market
• Changes that hit everyone
• If you have non-resident shareholders, payees or hires
• The slab table for Tax Year 2026-27
• A board-level action list
• Frequently asked questions
• How BVACA can help

Two different changes, often confused

Two things happened to Indian direct tax on 1 April 2026, and they should be kept apart in your head.

The Income-tax Act, 2025 came into force and repealed the 1961 Act. CBDT's position is that this was done "without altering the underlying tax policy", so it was a renumbering and restructuring exercise rather than a policy change. If you need the section cross-reference, it is in the old-to-new section mapping.

The Finance Act, 2026 is where the money moved. Rates, thresholds, procedural rights and the treatment of specific transactions changed. That is what this page is about.

Both operate on Tax Year 2026-27, being the financial year 1 April 2026 to 31 March 2027. Assessment year is no longer a statutory concept, which has its own consequences for your filing calendar and documentation, covered in the new tax year vocabulary.

If you are a listed or large company

MAT is now 14%, and it is a final tax

Minimum Alternate Tax, now at section 206 of the 2025 Act (the old section 115JB), came down from 15% to 14%.

The rate cut is the smaller half of the story. MAT is now a final tax: no further MAT credit accrues from 1 April 2026. Existing credit is available only to domestic companies in the new regime, and its use is capped at 25% of the liability in a year.

This is a balance sheet event, not just a tax computation event. A company carrying a large MAT credit asset has to ask two questions immediately. Is the credit still usable at all, given the domestic-company and new-regime conditions? And if it is usable, does the 25% annual cap mean it can realistically be absorbed within its life, or does part of it need to be written down?

Illustrative example. A domestic company in the new regime carries ₹8 crore (₹8,00,00,000) of MAT credit at 31 March 2026 and expects a normal tax liability of about ₹6 crore a year. The 25% cap means at most ₹1.5 crore of credit can be set off in a year, so absorbing ₹8 crore takes more than five years of steady profitability. No new credit accrues to replace it. That recoverability assessment belongs in the financial statements for the year, not in next year's tax return.

Buyback proceeds are taxed as capital gains, not dividend

The Finance Act, 2026 moved buyback proceeds back into capital gains treatment rather than dividend treatment in the shareholder's hands.

For a company planning a return of capital, this reopens the buyback-versus-dividend comparison that had settled the other way. The variables that now matter are the shareholder's holding period, cost of acquisition, and applicable capital gains rate, and for non-resident shareholders, the treaty position on capital gains.

Effective date: buyback proceeds are taxed as capital gains in the shareholder's hands from 1 October 2024 — that change came through the Finance (No.2) Act, 2024, not the Finance Act, 2026 as sometimes reported. Finance Act 2026 kept the position in place; it did not change the effective date. Buybacks completed before 1 October 2024 still fall under the old dividend-in-hand plus company-level buyback tax regime.

Securities Transaction Tax on derivatives went up

From 1 April 2026:

For a treasury function that hedges through exchange-traded derivatives, this is a direct cost increase per contract, not a tax computation entry. If your hedging policy was calibrated on the old rates, the break-even on rolling hedges has moved.

If you are mid-market

Transfer pricing safe harbour: 15.5% margin, ₹2,000 crore threshold

Two changes, and together they materially widen the population that can use safe harbour.

The IT services rates were consolidated at a single 15.5% margin, replacing the tiered structure. And the eligibility threshold rose from ₹300 crore to ₹2,000 crore.

That second number is the one to notice. A large band of Indian captive and offshore-delivery companies that were pushed out of safe harbour by the ₹300 crore ceiling are now inside it. The trade-off has not changed in character: safe harbour buys certainty and removes the benchmarking exercise, at the cost of accepting a margin that may be above what a defensible benchmarking study would support. What has changed is who gets to make that choice.

If your company was preparing for a transfer pricing audit cycle on the assumption that safe harbour was unavailable, that assumption needs re-testing before the documentation is finalised.

Manpower supply is now "work" for contractor TDS

Manpower supply has been brought within the definition of "work" for contractor TDS, at the 1% and 2% rates.

This is a small rate item with a large operational tail. Staffing, facility management, security and contract-labour vendors that were previously being deducted from under a different provision now sit in the contractor bucket. The work is in the vendor master: reclassify the affected vendors, change the section code, and check that the quarterly return reflects the new classification. A wrong section code in a filed return is a mismatch that surfaces months later.

Changes that hit everyone

Appeal pre-deposit halved from 20% to 10%

The pre-deposit required to pursue an appeal came down from 20% to 10%.

For a company sitting on a large disputed demand, this changes the arithmetic of whether to litigate. A demand that was uneconomic to appeal because the pre-deposit alone would strand working capital may now be worth contesting. It is worth revisiting matters that were conceded, or not appealed, purely on cash-flow grounds while the appeal window is still open.

The reduced 10% pre-deposit applies at both the first appellate authority stage and the ITAT stage, and is capped at ₹20 crore per tax head — CGST, SGST and IGST count separately, so for a very large demand the effective ceiling is higher than a single ₹20 crore reading suggests.

Unexplained income: 60% down to 30%, but now with penalty

The rate on unexplained income under section 195 of the 2025 Act (the old section 115BBE) fell from 60% to 30%. It is now subject to penalty, which it previously was not in the same way.

Read the two halves together before treating this as relief. The headline rate halved; a penalty layer was added. Whether a given exposure is better or worse off depends on the penalty actually levied. Note also that this is the section 195 that means unexplained income under the new Act, not the old section 195 on payments to non-residents, which is now section 393(2), Table Sl. No. 17.

The related provision on unexplained credits is section 102 (the old section 68), which expressly reaches share application money, share capital and share premium. For a company that has raised equity, that is the provision that matters, and the documentation trail on the investor's source of funds is what answers it.

Due dates rationalised, with a new 31 August slot

The return due dates were rationalised and a 31 August slot introduced. For Tax Year 2026-27 the ladder is 31 July, 31 August, 31 October and 30 November 2027, by category, under section 263(1)(c).

The tax audit report is due one month before the relevant return date under section 63(5)(a), so the audit deadline now moves with the return category rather than sitting on a fixed date.

Revised return window extended to 31 March

The revised return window now runs to the end of the tax year, that is 31 March. In practice this gives a longer runway to correct a return after a late-arriving Form 130 or 131, a reconciled foreign tax credit, or an audit adjustment.

Automated lower and nil TDS certificates

Section 395(6) provides for automated, rule-based lower and nil deduction certificates. For a company whose receipts are subject to full-rate deduction against a thin margin, this is potentially a working capital improvement. The mechanics of the certificate route, including the trap that "section 197 certificate" is now a wrong citation, are set out in lower TDS certificates under section 395.

Penalties and prosecution softened

Imprisonment maxima were reduced and several defaults were converted to per-day fees. The direction is away from criminal exposure for procedural default and towards a metered financial consequence. A per-day fee is cheaper than prosecution but it compounds quietly, so a lapsed filing that nobody notices is still expensive.

If you have non-resident shareholders, payees or hires

Three changes worth flagging to anyone with cross-border structure.

MAT exemption for presumptive-basis non-residents. All non-residents taxed on a presumptive basis are exempt from MAT. This removes a long-standing anomaly for foreign companies with an Indian taxable presence computed presumptively.

Five-year exemption for non-resident experts. Non-India-sourced income of a non-resident expert under notified schemes is exempt for five years. Relevant where a group is bringing in senior technical or scientific talent on assignment.

The 5-year exemption sits under s.209 of the Income-tax Act, 2025, operationalised through Notification 42/2026 which lists the eligible expert categories (senior technical, scientific, R&D leadership) and the conditions on the assignment (Indian entity of a foreign group; secondment or employment contract of at least 24 months). The exemption runs from the first tax year of Indian residence — not from arrival.

TAN waiver from 1 October 2026 on property purchases from a non-resident. A resident individual or HUF buying immovable property from a non-resident may deposit TDS through their PAN-based challan instead of obtaining a TAN, under section 397(1)(c)(iii). Companies, LLPs and firms still need a TAN. This is an individual-side simplification, and it does not help a corporate buyer.

On the individual side more broadly, the Liberalised Remittance Scheme TCS rates changed from 1 April 2026: nil where education is funded by an education loan, 2% for education or medical above ₹10 lakh, 2% flat with no threshold on overseas tour packages, and 20% above ₹10 lakh on everything else including investment. The LRS limit itself is unchanged at USD 250,000 per individual per financial year. Founders and senior employees remitting abroad will feel this before the company does.

The slab table for Tax Year 2026-27

The new regime slabs at section 202(1) were not changed by the Finance Act, 2026.

Rebate under section 156(2): up to ₹60,000 where total income does not exceed ₹12 lakh, with marginal relief. Payroll teams should confirm their software is applying the section 156(2) rebate and the marginal relief correctly, because that is where salary TDS errors concentrate at the bottom of the range.

A board-level action list

Six things worth putting on an agenda this quarter.

1. Re-test the MAT credit asset. Usability under the domestic-company and new-regime conditions, and absorbability under the 25% cap. This is an audit-visible judgement.
2. Re-open any deferred buyback or dividend decision, once the buyback effective date is confirmed.
3. Re-test transfer pricing safe harbour eligibility against the ₹2,000 crore threshold before finalising documentation.
4. Reclassify manpower supply vendors in the vendor master and check the section code flows through to the quarterly return.
5. Revisit demands that were not appealed on cash-flow grounds, given the halved pre-deposit.
6. Recalibrate hedging economics for the higher STT on futures and options.

For companies without a full-time tax function, we run this as a structured review through our corporate finance and transaction tax advisory practice, and on an ongoing basis through fractional CFO support.

Frequently asked questions

What is the MAT rate for 2026?

14%, reduced from 15% by the Finance Act, 2026, under section 206 of the Income-tax Act, 2025 (the old section 115JB). More significantly, MAT is now a final tax: no further credit accrues from 1 April 2026, and existing credit is available only to domestic companies in the new regime, capped at 25% of the liability.

How is buyback taxed in 2026?

Buyback proceeds are taxed as capital gains rather than as dividend, following the Finance Act, 2026. That changes the buyback-versus-dividend comparison, because the shareholder's holding period, cost of acquisition and, for non-residents, the treaty position on capital gains now drive the outcome. Confirm the exact effective date before fixing a buyback timetable.

What is the transfer pricing safe harbour margin for 2026?

IT services safe harbour rates were consolidated at a 15.5% margin, and the eligibility threshold was raised from ₹300 crore to ₹2,000 crore. The wider threshold brings a substantial band of mid-market and captive service companies into the safe harbour option for the first time.

Has the appeal pre-deposit changed?

Yes. The pre-deposit came down from 20% to 10% under the Finance Act, 2026. For companies that chose not to appeal a demand because the pre-deposit would have stranded working capital, that decision is worth revisiting while the appeal window remains open.

Did the income tax slabs change in 2026?

No. The new regime slabs under section 202(1) were left unchanged by the Finance Act, 2026, running from nil up to ₹4 lakh to 30% above ₹24 lakh. The rebate under section 156(2) remains up to ₹60,000 where total income does not exceed ₹12 lakh, with marginal relief.

When are Tax Year 2026-27 returns due?

31 July 2027, 31 August 2027, 31 October 2027 or 30 November 2027 depending on category, under section 263(1)(c). The 31 August slot is new. Tax audit reports are due one month before the applicable return date under section 63(5)(a).

How BVACA can help

Bachhal Vijender & Associates works with promoters and finance teams on the items in the action list above: the MAT credit recoverability assessment and how it is presented in the financial statements, the buyback versus dividend comparison for a specific shareholder register, safe harbour eligibility against the new threshold, and the vendor master reclassification that the manpower supply change requires. Where a company is carrying an unappealed demand, we review whether the halved pre-deposit changes the answer. For businesses without a full-time tax lead, this can run as a quarterly review rather than as a year-end exercise.

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Author box: CA Vijender Singh Bachhal, Managing Partner, Bachhal Vijender & Associates (FRN 028355N), Panchkula. About the firm

Disclaimer: This article is general information current as at 5 September 2026, not advice for a specific situation. Tax and corporate law in India changed materially on 1 April 2026; verify the position before acting. Illustrative examples are not client matters.