Budget 2026: Tax reforms mark shift to trust-based regime, says CBDT chief

CBDT Chief Highlights Transformative Tax Shift

In a significant announcement following the Union Budget 2026 presentation, the Central Board of Direct Taxes (CBDT) chief emphasized that the latest direct tax reforms signal a major pivot towards a trust-based tax administration system. This move is designed to replace the earlier enforcement-heavy approach with one that prioritizes partnership, clarity, and certainty for taxpayers. The reforms lay the groundwork for a new Income Tax law set to take effect from April 1, 2026, promising simplified rules and forms to make compliance smoother for everyone from individuals to businesses.

The CBDT leader pointed out that these changes address long-standing pain points in the tax system, such as prolonged disputes and excessive litigation. By consolidating assessment and penalty proceedings, the government aims to shorten timelines that previously dragged on for four or five years. Several defaults have also been decriminalized, aligning with the broader Jan Vishwas initiative to build confidence among taxpayers. This shift is expected to encourage voluntary compliance while allowing authorities to focus on genuine evasion cases.

Key Reforms for Simpler Compliance and Certainty

At the heart of Budget 2026's tax proposals is a focus on easing the burden on small businesses, salaried individuals, and MSMEs. For instance, extended timelines for revised and updated returns give taxpayers more room to correct honest mistakes without facing harsh penalties. The time for filing revised returns has been pushed from December 31 to March 31, with just a nominal fee, making it less daunting for everyday filers. Salaried workers and senior citizens will benefit from simplified processes like easier Form 15G/15H filings through depositories, reducing procedural errors.

Companies transitioning to the new 22% tax regime will have their accumulated Minimum Alternative Tax (MAT) credits honored up to March 31, providing reassurance for legacy investments. Safe harbour provisions have been expanded, particularly for the IT/ITES sector, with higher thresholds and automated approvals to offer tax certainty without officer intervention. These measures are tailored to keep India attractive for investors, especially in sunshine sectors, by minimizing interpretational disputes and promoting predictability.

Finance Minister Nirmala Sitharaman's vision extends this trust-first philosophy across income tax, GST, and customs, emphasizing that intent matters in enforcement. Fees will replace penalties for minor lapses, and civil remedies will handle unintentional errors, reserving criminal action for deliberate fraud. the CBDT chief noted.

These structural changes are about comfort, clarity and certainty for the taxpayer. The budget reforms mark the second phase of the income tax overhaul, providing faster dispute resolution at every stage to close matters early and bring certainty to taxpayers,

Boosting Businesses and Investments Through Trust

MSMEs stand to gain significantly with deferred duty payments and system-driven clearances, improving liquidity and formalization. The budget also nurtures cooperatives by extending deductions for cattle feed and cotton seed, and offering a three-year exemption on dividend income for notified federations, provided it's passed on to members. This enhances capital efficiency and strengthens balance sheets in the sector. Securities Transaction Tax (STT) hikes on derivatives aim to curb excessive speculation, particularly among retail investors, as trading volumes had ballooned to 500 times India's GDP.

Technology will play a bigger role, with staggered return filing deadlines—individuals by July 31 and non-audit businesses by August 31—for better preparation. Rationalized TDS rates on manpower services and automated lower deduction certificates for small taxpayers further streamline operations. Over ₹99,000 crore in foreign asset disclosures already reflect growing compliance under this facilitative approach. By promoting foreign investment through clearer Advance Pricing Agreements and cross-border rules, the reforms position India as a more investor-friendly destination.

The absence of a sunset clause for the old tax regime ensures flexibility, even as 88% of individual taxpayers have opted for the new one. Draft rules are slated for release by month's end, keeping the momentum going.

In summary, Budget 2026's tax reforms represent a thoughtful evolution towards trust, simplification, and efficiency, promising reduced litigation, easier compliance, and sustained economic growth for all stakeholders.