Budget 2026: Govt scraps jail time for unintentional tax evasion, eases compliance rules

New Delhi (The Uttam Hindu) : Finance Minister Nirmala Sitharaman announced major income tax reforms in the 2026 Budget presented on Sunday. The government stated that taxpayers will no longer be viewed as criminals. Through this, the government aims to develop a trust-based tax structure in the country.

The Finance Minister said in his budget speech that under the new Income Tax Act, which will come into effect from April 1, if any discrepancy is found in someone's income or tax is unknowingly hidden, then instead of punishment, only a fine will have to be paid.

Additionally, the government will provide a six-month window for those with undeclared assets abroad to rectify their mistake. They can avoid legal complications by disclosing their assets under a special disclosure scheme. In his Budget 2026-27 speech, the Finance Minister stated, “Minor offenses will only attract fines. The remaining charges will be graded according to the severity of the offense. These will only attract simple imprisonment, with the maximum sentence reduced to two years, and courts will have the power to convert these penalties into fines.”

The Finance Minister stated that no interest will be charged on the penalty amount for the period of appeal before the First Appellate Authority, regardless of the outcome of the appeal process. Furthermore, the advance payment amount is being reduced from 20% to 10% and will be calculated only on the original tax demand. Furthermore, the Finance Minister announced significant relief regarding Income Tax Returns (ITRs). Correcting errors in ITRs will now be easier, and the government has announced additional time for this. Taxpayers will now be able to update their returns for a nominal fee.

The government has also simplified property purchases. If you purchase a home or land from an NRI, you won't have to go through the cumbersome process of obtaining a TAN number, and TDS can be deducted even without a TAN. Furthermore, small taxpayers will no longer have to run around to officials to claim NIL TDS, and the entire process will now be automated and digital.