[Opinion] Budget 2026 – A Shift from Disputes to Discipline

Kamlesh Chainani, Viraj Kurani, Harshula Khatri & Riya Sanjay Boob – [2026] 183 taxmann.com 102 (Article)

Moving with the meticulous plan of sowing the seeds of financial stability and laying the grounds for businesses to be future ready, the Hon’ble Finance Minister, keeping in mind the overarching theme of a Viksit Bharat, on 1February 2026, presented a blueprint of government’s commitment to long‑term structural reforms, fiscal discipline, and inclusive development. The measures come at a time of global uncertainty around tariff and trade, among others.

Budget 2026 appears to have hit the bullseye with measures to reduce litigation by addressing legislative and procedural lacunae, encouraging voluntary compliance, and easing procedural burdens. Moreover, the Hon’ble Finance Minister also finally dropped anchors to the safe harbours that were awaited for a long time, for the technology sector, while introducing tax holidays for data center services and electronic manufacturing services. This proposal could well turn out to be the ‘Dhurandar’ among all.

In this article, we have discussed the key proposals focused on movement towards compliance and trust-based taxation regime in India:

1. Timelines For Filing Revised Return of Income

Per the current provisions of the Income-tax Act, 1961 (‘the Act’), as well as Income-tax Act, 2025, the revised return of income could be filed only within 9 months from the end of the relevant tax year.

It is proposed to extend the time limit for filing the revised return of income from existing 9 months to 12 months from the end of relevant tax year, subject to payment of a prescribed additional fee, where the return is revised after the completion of 9 months from the end of relevant tax year. This will allow the taxpayers greater flexibility in rectifying omissions or incorrect statements, including that of belated returns.

This proposal is intended to be applicable from tax year 2025-26 onwards – meaning that for even the FY 2025-26, taxpayers would be able to file their revised returns till 31 March 2027, with an additional fee.

2. Reassessment and Expanded Updated Return Provisions

Per the current provisions of the Income-tax Act, 1961 (‘the Act’), as well as Income-tax Act, 2025, filing an update return was not possible for ‘a return of loss’ or ‘where assessment/reassessment is pending or has been completed in respect of the relevant tax year’.

It is proposed that the updated return can now be filed in cases where (a) the updated return has an effect of reducing the loss or (b) reassessment notice is issued.

If an updated return is filed after receiving a reassessment notice, the taxpayer will have to pay an additional income-tax of 10%. This will be over and above the additional tax payable on the aggregate of tax and the interest due on filing the updated return. The additional tax rates will continue to be 25%, 50%, 60% and 70% for the first, second, third and fourth year respectively, as applicable. It is further proposed that the additional income offered to tax would not form a basis for imposition of penalty for under-reporting/misreporting.

The above scope widening in terms of enabling filing of updated return in reassessment cases, would incentivise voluntary disclosures by the taxpayer since payment of such additional tax of 10% should be a clear choice where 200% penalty for under-reporting as a consequence of misreporting, is in question.