India implements key direct tax reforms ahead of Union Budget 2026-27, easing compliance, supporting startups, AIFs, infrastructure, and investors.
New Delhi : The Indian Government has completed the rollout of several major direct tax reforms announced in recent Union Budgets, aimed at enhancing investment certainty and easing compliance for taxpayers. With the Union Budget 2026-27 around the corner, the Ministry of Finance highlighted the progress of these legislative changes on X. The reforms, covering areas from startup incentives to infrastructure funding, are intended to streamline India’s tax framework while providing relief to individual savers and institutional investors.
Key reforms focus on the tax classification of income for Alternative Investment Funds (AIFs). The Finance Act, 2025, amended Section 2(14) to explicitly recognize securities held by Category I and II AIFs as capital assets. This ensures that income from the transfer of such securities is taxed as capital gains rather than business profits, effective from April 1, 2026, for Assessment Year 2026-27. The move aligns domestic AIFs with Foreign Portfolio Investors, providing greater certainty of taxation.
To support startups, Section 80-IAC was amended to extend the incorporation deadline for eligible startups to March 31, 2030. These startups can claim 100% profit deduction for three consecutive years within the first ten years of operations. For electronics manufacturing, a presumptive taxation regime under Section 44BBD was introduced for non-residents providing services or technology to electronics units. These entities will be taxed on a deemed profit of 25% of gross receipts, positioning India as a global hub for electronics system design and manufacturing.
The Tonnage Tax Scheme has been extended to inland vessels by amending Section 115VD. A “qualifying ship” now includes inland vessels registered under the Indian Vessels Act, 2021, effective April 1, 2026, promoting inland water transport. Tax concessions in the International Financial Services Centre (IFSC) were also extended by five years to March 31, 2030, benefiting ship-leasing units, insurance offices, and treasury centres of global companies.
Also read : Gold Prices Surge in India: 24K, 22K & 18K Rates Update for Delhi, Mumbai, Chennai, Bengaluru
For individuals, withdrawals from National Savings Scheme (NSS) accounts on or after August 29, 2024, are now fully tax-exempt. Under NPS Vatsalya, parents or guardians can claim an additional deduction of up to ₹50,000 under Section 80CCD(1B), on top of the standard Section 80C limit. Property taxation has also been simplified, allowing taxpayers to claim nil annual value for two properties unconditionally, removing the need to prove non-occupancy due to employment.
To reduce disputes, the Finance Act introduced a three-year block period for transfer pricing assessments, expanded Safe Harbour rules with the turnover threshold rising from Rs 200 crore to Rs 300 crore, and included new sectors such as EV components. Compliance for small charitable trusts was eased by extending registration validity from five to ten years.
These reforms mark a significant step in easing tax compliance, promoting investment, and supporting startups, infrastructure, and manufacturing while aligning India with international best practices in taxation.