In the Union Budget 2026 presented on February 1, 2026, The Finance Minister, Nirmala Sitharaman, retained the existing personal income tax slabs and rates under both the old and new tax regimes. At the same time, the Budget unveiled a significant reform in the taxation of share buybacks, replacing the dividend-based approach with a capital gains regime, a move aimed at improving outcomes for minority shareholders.
Key Buyback Tax Reforms
The new framework, effective from April 1, 2026, shifts the tax burden back to the capital gains category, allowing investors to deduct their acquisition costs from the proceeds.
• Retail & Minority Shareholders: Buyback proceeds will now be taxed as capital gains rather than “Income from Other Sources” (dividends). This means investors pay tax only on the actual profit, not the gross amount received.
o Long-Term Capital Gains (LTCG): Taxed at 12.5%.
o Short-Term Capital Gains (STCG): Taxed at 20% for listed shares.
● Promoter Buyback Tax: In order to prevent tax arbitrage on dividends, promoters will be subject to an additional levy, leading to effective tax rates of 22% for corporate promoters and 30% for non-corporate promoters.
o Corporate Promoters: Effective tax rate of 22%.
o Non-Corporate Promoters: Effective tax rate of 30%.
Income Tax Slabs for FY 2026-27
According to the Union Budget 2026, the government maintained the status quo for personal income tax by keeping the tax rates for the financial year 2026-27 (Assessment Year 2027-28) identical to the previous year. Under the New Tax Regime (NTR), income up to ₹4 lakh is exempt from tax, with rates increasing progressively: 5% for income between ₹4 lakh and ₹8 lakh, 10% for ₹8 lakh to ₹12 lakh, 15% for ₹12 lakh to ₹16 lakh, 20% for ₹16 lakh to ₹20 lakh, 25% for ₹20 lakh to ₹24 lakh, and a maximum of 30% for any income above ₹24 lakh. Meanwhile, the existing tax regime continues without modification, with a nil rate up to ₹2.5 lakh, 5% for the ₹2.5 lakh to ₹5 lakh bracket, 20% for income between ₹5 lakh and ₹10 lakh, and 30% for all income exceeding ₹10 lakh.
Note: Under the New Regime, an enhanced rebate under Section 87A makes income up to ₹12 lakh effectively tax-free.
Key Budget 2026 Highlights
• New ITA (Income Tax Act), 2025: Confirmed to take effect from April 1, 2026, aiming to simplify tax language and reduce litigation.
• STT Hike: Securities Transaction Tax on Futures was raised from 0.02% to 0.05%, and on Options from 0.1% to 0.15%.
• ITR Deadlines: The deadline for filing revised returns has been extended to March 31 with a nominal fee. Staggered deadlines were introduced: July 31 for ITR-1/2 and August 31 for non-audit business cases.
• TCS Reductions: Tax Collected at Source on overseas tour packages and LRS remittances for education/medical treatment was cut from a 5–20% range to a flat 2%.
• Sovereign Gold Bonds (SGBs): Exemption on capital gains at maturity is now restricted to original subscribers; secondary market buyers will face capital gains tax.
• Minimum Alternate Tax (MAT): The rate has been reduced to 14% (from 15%) to encourage companies to transition to the new corporate tax regime.
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