Union Finance Minister Nirmala Sitharaman on Sunday announced a set of tax changes in the Union Budget 2026-27 that seek to make the system easier to navigate and lighter on individual taxpayers.
Presenting the Budget in Parliament, Sitharaman said the government’s priority is to simplify income tax rules and reduce friction for citizens. The proposals focus on personal relief, overseas spending, and clearer compliance norms.
Relief for accident victims and overseas spending
One of the most significant changes concerns compensation awarded by Motor Accident Claims Tribunals.
Sitharaman announced that interest paid to a natural person on such compensation will no longer attract income tax. Any tax deduction at source linked to this interest will also be removed.
“Any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax and any TDS from this account will be done away with,” she said.
The move ensures that accident victims and their families receive the full benefit of compensation, without deductions reducing the final amount.
The Budget also lowers the tax burden on foreign travel. The tax collection at source on overseas tour programme packages will be reduced to 2 per cent. At present, rates range between 5 per cent and 20 per cent.
The Finance Minister said the reduced rate will apply without any spending threshold, making the process simpler for travellers.
Families sending money abroad for education or medical treatment will also see relief. Under the Liberalised Remittance Scheme, the TCS rate for these purposes will be brought down from 5 per cent to 2 per cent.
“I propose to reduce TCS rate for pursuing education and for medical purposes under the Liberalized Remittance Scheme, popularly known as LRS,” Sitharaman said.
Clearer rules, immunity for small foreign assets
The Budget also addresses long-standing confusion around tax deduction at source on manpower services.
Sitharaman said such services will be clearly included under payments to contractors for TDS purposes. The applicable rate will be either 1 per cent or 2 per cent, depending on the case. The aim is to reduce disputes and provide certainty to businesses.
In another relief measure, small taxpayers with limited foreign holdings have been given protection from prosecution.
Individuals who failed to disclose non-immovable foreign assets valued at less than Rs 20 lakh will be granted immunity. The provision will apply retrospectively from October 1, 2024.
The Finance Minister also said the Income Tax Act, 2025, will take effect from April 1, 2026. Simpler rules and new tax forms will follow, with time for taxpayers to get used to the changes.