What happened
The Income-tax Act 2025 replaced the Income-tax Act 1961 with effect from 1 April 2026. Tax year 2026-27 is the first year under the new Act.
For foreign investors the immediate practical effects are new section numbers in every opinion, agreement and tax manual, and the use of “tax year” as the period of account.
The legislative timeline
| Date | Event |
|---|---|
| 1 Feb 2026 | Budget 2026-27 presented |
| 30 Mar 2026 | Finance Act 2026 (No. 4 of 2026) receives assent; sets rates for tax year 2026-27 |
| 1 Apr 2026 | Income-tax Act 2025 in force |
| June 2026 | Ordinance amending the tax laws |
| 17 Aug 2026 | Taxation and Other Laws (Amendment) Act 2026 (No. 21 of 2026) receives assent, replacing the ordinance; deemed in force from 1 April 2026 |
Section map for common provisions
| Provision | Section in the 2025 Act |
|---|---|
| IFSC unit deduction | s.147 |
| Start-up tax holiday (formerly s.80-IAC) | s.140 |
| TP accountant’s report | s.172 |
| Non-resident short-term gains on listed shares | s.196 |
| Non-resident long-term gains on listed shares | s.198 |
| Concessional corporate regime | s.200 |
| 15% regime for new manufacturing companies | s.201 |
| Minimum alternate tax | s.206 |
Note: Opinions, agreements and board papers drafted before April 2026 will refer to 1961 Act sections. Map each reference to the 2025 Act before relying on it for tax year 2026-27 onwards.
Main changes made by the Finance Act 2026
- MAT cut from 15% to 14% of book profit and made a final tax for old-regime companies; no new credit from 1 April 2026. See corporate tax.
- Buy-backs taxed as capital gains in the shareholder’s hands from 1 April 2026, with an additional promoter tax confined to Companies Act buy-backs. See withholding and capital gains.
- IFSC units given a 100% deduction for 20 consecutive years out of 25. The proposed 15% rate after the deduction period was not enacted.
- Data centres: notified foreign companies’ income from Indian data-centre services exempt to the tax year ending 31 March 2047, subject to conditions.
- Start-ups: the turnover limit for the s.140 holiday raised to ₹300 crore.
- Transfer pricing: the penalty for not furnishing the s.172 accountant’s report replaced with a fee.
- Securities transaction tax raised to 0.05% on futures and 0.15% on options.
Main changes made by the August 2026 amending Act
- Offshore funds managed from India: the 25-member, 10% single-investor and ₹100 crore corpus tests dropped; Indian residents may hold up to 5% of the fund.
- Foreign institutional investors: interest and capital gains on government securities exempt, subject to prescribed filings, from 1 April 2026.
- Electronics supply chain: the exemption for foreign suppliers of capital goods and tooling to electronics toll manufacturers in bonded zones extended to the tax year ending 31 March 2041.
Proposals still to watch
Budget 2026-27 proposed decriminalising further income-tax defaults, such as non-production of books, with only a fine for minor offences. It also announced a 15% cost-plus safe harbour for related-party data-centre services. Confirm with the authority whether each has been notified.
What to check next
- Update group tax manuals, intercompany agreements and treaty-claim templates to the new section numbers.
- Confirm which provisions of the August 2026 amending Act apply retrospectively from 1 April 2026 to transactions already completed.
- Re-run tax year 2026-27 forecasts for MAT, buy-back and IFSC changes.
- Check that payroll and withholding systems refer to the new Act for payments made from 1 April 2026.
- Track notification of the rules that several 2026 measures depend on before relying on them.