Budget 2026: What Must Be Fixed Before New Income Tax Act Begins

We are ignoring the true issue while everyone is talking about new slabs and tax rate reductions. The 64-year-old Income Tax Act of 1961 will give way to the new Income Tax Act, 2025 on April 1, 2026.

The Real Challenge Before Budget 2026

Only a few weeks before they go into effect, the precise regulations, paperwork, and filing processes have not yet been made public.

Over 5.49 lakh tax appeals are now pending before the Commissioner (Appeals) and appellate bodies. We are adding a full transition to a new legislation, which is overwhelming the system.

Transition Pressure on an Already Overloaded System

This transition dilemma is anticipated to be addressed by the government in Budget 2026. Following the Budget presentation, industry experts anticipate receiving notifications about new forms, filing methods, and FAQs. Additionally, some transition support—perhaps guidelines or clarifications—to assist taxpayers in navigating the new legislation is anticipated. Millions of honest taxpayers run the danger of unintentional non-compliance if they do not have enough time to prepare.

Less than 20% of taxpayers still use the previous tax system after the government successfully transferred over 80% of them to the new, simpler tax system. That is a significant victory. Instead of making frequent adjustments, it is anticipated that the government would preserve stability under this system.

TDS Complexity Remains the Biggest Pain Point

Tax Deducted at Source (TDS) is the true pain. Rent, professional fees, contractor payments, and commissions are just a few of the almost 37 resident payment types that exist today, each with a distinct rate. The majority of conflicts arise simply because the tax agency and payer cannot agree on which category applies. Even if the actual implementation takes some time, tax experts expect the government would at least declare its desire to streamline these groups. Isha Jaiswal, a CA and creator of digital content, said that this would indicate policy direction and lessen confusion.

Limited Scope for Further Tax Relief

“Last year’s rise in the standard deduction to Rs 75,000 was beneficial for salaried workers. However, it may be unreasonable to anticipate large further rate reduction or deduction increases in this budget, considering that Budget 2025 offered considerable personal tax relief. Isha Jaiswal said, “At most, we could see targeted assistance for certain middle-income bands or minimal modifications to current policies.”

It is more reasonable to anticipate that the government will provide implementation instructions for the new Act, including comprehensive FAQs and explanations that aid experts and taxpayers in comprehending the changeover.

Appeal Backlog Hurting Ease of Doing Business

Eliminating the never-ending wait for appeal rulings is necessary for true ease of doing business. There are now 5.49 lakh tax appeals pending before the Commissioner (Appeals). This implies that millions of small companies and people have money mired in legal issues, often for years. Imagine operating a small business and having your working capital of Rs 5–10 lakhs tied up in a tax appeal for three years.

Through impersonal appeals and higher filing fee caps, the government has been working to clear this backlog.

What Can Realistically Be Expected

It is impractical to expect all of these matters to be resolved by April 1st, however. Isha Jaiswal said, “What we may fairly anticipate is an announcement of increased appellate infrastructure—more benches, more staff, or possibly time-bound objectives for disposing of old cases.”

The government has already started the process of decriminalizing several tax provisions for MSMEs and independent contractors. Although it is impractical to eliminate all compliance obligations, this tendency is probably going to continue. Continued simplification—possibly fewer forms or the merging of certain filing requirements—is more realistic to anticipate.

GST Challenges Still Persist

“The hope about GST-TDS overlap is that the government may at least recognize the problem and establish a committee to investigate it, even if complete exemption is not granted. Isha Jaiswal said that significant structural changes usually need many budget cycles.

GST has been in place for eight years, yet fundamental issues still exist. If the value of their cargo falls below minimal standards, small exporters are not eligible for reimbursements. Companies have to wait months for Input Tax Credit reimbursements for justifiable costs. These are well-known problems that have been brought up time and time again.

GST 2.0 and the Road Ahead

“Realistically, we could see some relief measures—perhaps somewhat reduced standards or somewhat speedier refund processing timeframes.” Isha Jaiswal said, “Given the government’s income concerns and verification hurdles, expecting fast 15-day reimbursements or total elimination of all limitations may be overly optimistic.”

The crucial point is that GST 2.0 was only implemented in 2025–2026. This budget is unlikely to include significant new structural adjustments announced by the administration.

Execution Will Decide Success

Consolidation—more clarity on current rules, perhaps some rate optimization in certain areas, but not a whole overhaul—is what we may fairly anticipate.

Whether or if Budget 2026 lowered tax rates by 5% will not be known. One criterion would be used to evaluate it: did India successfully implement its new tax legislation, or did we cause havoc for millions of taxpayers?

Why Implementation Matters More Than Cuts

With half as many parts, a more logical structure, and clearer language, the new Income Tax Act is really better. However, a badly executed good law is worse than a well-executed bad law.

“Considering the government’s past performance, it is reasonable to anticipate a budget that prioritizes stability and execution above grandiose declarations. Isha Jaiswal said that the Finance Minister will probably put the new Act’s seamless implementation ahead of additional changes.

The Bottom Line for Taxpayers

Even simple clarification on transition processes would be more beneficial than ostentatious rate reductions for millions of middle-class families, small business owners, and salaried professionals. That is the unglamorous but crucial effort that will decide whether India’s tax structure accelerates or decelerates our economic narrative.

Frequently asked questions

1. When will the new Income Tax Act of 2025 take effect?

On April 1, 2026, the Income Tax Act of 1961 will be superseded by the new Income Tax Act, 2025, which will take effect for the assessment year 2026–2027.

2. Will the new Act alter income tax rates?

There have not yet been any significant announcements on tax rates. Over 80% of taxpayers are already covered by the streamlined tax system, which the administration is likely to keep stable.

3. What is Budget 2026 so important to taxpayers?

Budget 2026 is important because it will probably include the transition instructions, forms, filing processes, and frequently asked questions (FAQs) required to successfully execute the new tax legislation and prevent unintentional non-compliance.

4. In the existing tax system, what is the largest obstacle to compliance?

One of the main causes of disagreements is the intricate TDS structure, which has over 37 distinct resident payment types. Experts anticipate that the government will announce a future reorganization of these classifications.

5. Will unresolved income tax appeals be settled by April 2026?

It is not feasible to resolve all 5.49 lakh outstanding appeals by April 1, 2026. Nonetheless, the government may declare time-bound disposal goals or more appellate infrastructure.

Conclusion

Budget 2026 is more about execution, stability, and clarity than it is about eye-catching tax cuts. The government must prioritize achieving a seamless transition with the new Income Tax Act, which is scheduled to go into effect on April 1, 2026, by promptly disseminating regulations, forms, FAQs, and compliance processes.

Certainty is more important to taxpayers than concessions, particularly middle-class families, MSMEs, and independent contractors. A well-executed legislation may actually make conducting business easier, liberate cash that is trapped, and lessen disagreements. In the end, the effectiveness of Budget 2026 will be determined by how smoothly India transitioned to its new tax system rather than the amount of taxes reduced.

Disclaimer:
This article is for informational purposes only and does not constitute legal or tax advice. Readers should consult a qualified tax professional before making any financial or compliance decisions.