MAT Finality, TCS Rationalisation, SGB Recast and the New Income Tax Act, 2025
By Surekha Ahuja
Budget 2026: Reform Over Populism
Union Budget 2026 departs from headline-oriented announcements to deliver structural certainty. Headline tax rates remain unchanged, but amendments effective 1 April 2026 materially alter corporate taxation, overseas remittances, investment taxation, and compliance procedures.
This is not a rate-cut Budget.
It is a certainty-driven, system-strengthening Budget.
Key Amendments at a Glance
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New Income Tax Act, 2025 notified, effective April 2026
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MAT credit creation permanently discontinued after 31 March 2026
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TCS rates rationalised under the Liberalised Remittance Scheme
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Preferential tax treatment for Sovereign Gold Bonds withdrawn
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Targeted compliance relief for small and mid-sized taxpayers
MAT Credit Blockade: Corporate Tax Finality
Amendment:
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No MAT credit accrues for assessment years commencing on or after 1 April 2026
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Existing credits may only be used within remaining 15-year carry-forward period
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MAT rate fixed at 14%, final levy; 22% regime companies can utilise credits up to 25% of regular tax liability
Impact:
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MAT is transformed from provisional to terminal tax
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Corporates must audit legacy MAT credits and plan utilisation before expiry
Comment: Ensure internal systems reflect MAT expiry dates to avoid loss of credits.
TCS Rationalisation Under LRS: Liquidity Restoration
Amendment (Effective 1 April 2026):
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Overseas education & medical remittances: 2% (from 5%)
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Overseas tour packages: 5% (from 20%)
Impact:
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Immediate cash-flow relief for families funding overseas education or medical treatment
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TCS functions as intended: a reporting tool, not a cash-flow lock
Sovereign Gold Bonds: Arbitrage Eliminated
Amendment:
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Interest income now taxable under “Income from Other Sources”
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LTCG on secondary market transfers beyond 3 years taxed at 12.5% with indexation
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Redemption at maturity: limited CG exemption; interest taxable
Impact:
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Aligns SGBs with conventional financial instruments
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Withdraws tax-driven arbitrage
Comment: Review SGB redemption and interest accrual timing to optimise FY27 tax impact.
New Income Tax Act, 2025: Default New Regime
Amendment:
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Income up to ₹12 lakh fully tax-free through rebate
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Progressive slab rates thereafter; maximum 30% for income exceeding ₹24 lakh
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Old regime continues as limited alternative
Impact:
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Simplifies taxation
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Reduces dependency on exemptions
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Provides predictable rates
Comment: Taxpayers must update internal accounting systems and payroll compliance for FY27.
Compliance Relief Measures
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Revised returns permitted until 31 March 2027 (nominal fees)
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One-time filing for Forms 15G/H via depository
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Automated issuance of nil / lower TDS certificates for small taxpayers
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TDS on manpower supply capped
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MACT interest fully tax-free with no TDS
Compliance Timeline & Key Dates
| Compliance / Amendment | Action Required | Deadline / Effective Date | Comment / Clarification |
|---|---|---|---|
| MAT Credit Audit | Audit existing credits, plan utilisation | Before 31 March 2026 | Legacy MAT credits expire if not utilised |
| TCS Rationalisation (LRS) | Plan overseas remittances for education, medical, tours | Effective 1 April 2026 | Align remittances with new rates |
| SGB Holdings | Review redemption, interest accrual, and LTCG treatment | FY27 onwards | Plan redemptions and interest realisation for tax efficiency |
| New IT Act Forms | Update internal systems for filing and compliance | FY27 Q1 (Apr–Jun 2026) | Ensure payroll, TDS, and accounts align with new slabs |
| Revised Returns | File corrections / updates | Till 31 March 2027 | Covers errors, MAT credit adjustment, or SGB impact |
| Forms 15G/H | One-time depository filing | Till 31 March 2027 | Simplified mechanism; must ensure correct PAN details |
| TDS Compliance | Apply capped TDS on manpower / other provisions | FY27 onwards | Review existing agreements and payroll schedules |
| MACT Interest | Monitor full tax-free treatment | FY27 onwards | Verify interest disbursed is correctly exempted |
| Corporate Audit / Filing | Adjust returns for MAT finality, SGB impact, TCS | FY27 compliance cycle | Ensure all adjustments reflected correctly |
Market Reaction vs Structural Reality
While markets reacted to unchanged slabs, the real impact lies in structural reforms:
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₹15,000 crore liquidity unlocked via TCS rationalisation
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Corporate certainty restored through MAT finality
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Litigation risk systematically reduced
This is a system-stability Budget, not a sentiment-driven one.
Final Takeaway
Union Budget 2026 is a multi-year transition blueprint:
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Certainty over concessions
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Finality over deferral
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Neutrality over preference
Taxpayers: Plan in line with settled law.
Professionals: Pivot from optimisation to certainty-led compliance.
Early adaptation ensures structural benefits; delayed action increases compliance burden.
