Budget 2026 Income Tax Rule Changes: Hidden tweaks, late ITR fees and immunity from prosecution; check all details you shouldn’t miss

Budget 2026 introduces major income tax rule changes, including extended ITR revision deadlines, reduced penalties, wider immunity from prosecution, and simplified compliance norms for individuals and businesses.

Budget 2026 did not make any changes to the income-tax slabs/rates but expanded immunity against tax notices on certain grounds. It also announced several key tax procedural updates, including increased time to file revised Income Tax Returns (ITRs), partial decriminalization of income-tax offences, penalty for failures filed as fee, and more.

Income-tax changes that came into effect from Budget 2026.

Extended Immunity Against Tax Notices

Budget 2026 expanded the scope of immunity from prosecution and penalty for making an under-reporting of income. Now you will also be granted immunity if you have made a misreporting of income subject to condition that –

You pay –

(i) The tax due on such under-reported or misreported income;

(ii) The penalty of either 100% or 120% of such tax;

(iii) An amount equal to such tax as income-tax.

You can claim immunity if –

• No appeal against the order has been filed; and
• You make an application for immunity within one month from the date on which the order was issued.

Also Read: Union Budget 2026: Check updates in income tax rates, slabs as Finance Minister Nirmala Sitharaman presents Annual Financial Statement

Extended deadline to file revised ITR along with Rs. 1,000 fee

Under the existing tax laws, taxpayers needed to file a revised return by 31st December of the assessment year. This deadline has now been changed to 31st March of the assessment year.

Taxpayers will be required to pay the following additional fees if they make use of the revised return filing deadline:

• Rs. 1,000 if your total income does not exceed Rs. 5 lakh
• Rs. 5,000 if your total income exceeds Rs. 5 lakh

Penalty Relabeled as Fee

Failure to furnish/reportable account under various provisions shall not be punishable with penalty but with a fee of Rs. 200 per day of default which shall not exceed Rs. 1 lakh in aggregate.

So filing your SFT late will now attract a fee of Rs. 200 per day of default up to Rs. 1 lakh.

Higher Penalties for Failures To Cooperate

Budget 2026 revised the penalty for failure to comply with requests for information by tax officers from a maximum of Rs. 1,000 to Rs. 25,000 in certain situations. The amendment specifies that:

“If any person required under this Act or any rule made there under to furnish information, attend, or produce any document or thing (not being land) for the purposes of any inquiry or investigation fails without reasonable cause to comply with such request”, the person shall be liable to pay penalty.

Partial decriminalisation of Income-tax offences

• Budget 2026 proposes decriminalisation of Income-tax offences partially by increasing the quantum of tax required to impose sentence of imprisonment.
• Offence requiring tax up to Rs. 10 lakh – Now, only fine which shall not lead to imprisonment.
• Offence requiring tax between Rs. 10 lakh to Rs. 50 lakh – Imprisonment now shall not exceed 6 months.
• Offence requiring tax above Rs. 50 lakh – Imprisonment now shall not exceed 2 years.

Budget reaction on income-tax changes

The overall sentiment in the market regarding Income-tax changes in Budget 2026 is positive. Taxpayers and experts believe that these changes will make compliance easier and reduce litigation risk. However, there is no reduction in tax rates. So taxpayers lost out on any direct tax benefits they were hoping for this budget.

These Income-tax changes in Budget 2026 may seem minor but they go a long way in simplifying income-tax laws and making the system more friendly for taxpayers especially the small and midsize taxpayers. Most penalties have been rationalized into fee so you will not have to worry about paying hefty penalties for honest mistakes or defaults.