A key theme that emerged from the finance minister’s speech was the decisive shift towards reducing litigation. Her speech identified the issue of rationalising penalties and prosecution. The Budget sought to integrate assessment and penalty proceedings through a common order. There would be no interest liability that would be applicable to the taxpayer on the penalty for the period of appeal before the first appellate authority, irrespective of the outcome of the appeal process. Integrating assessment and penalty proceedings, reducing the appeal pre-deposit to 10 per cent (from 20 per cent), decriminalising minor defaults, and expanding the scope of updated returns signal a shift towards predictable resolution.
The Budget also extends immunity from penalties and prosecution owing to under-reporting to cases of misreporting income. Despite the high cost (set at 100 per cent of the tax involved), it offers businesses a clear exit from criminal exposure in cases that fall in the grey area. This quintessential policy uplift mirrors the NITI Aayog paper on decriminalising tax offences.
Building on the 2019 corporate-tax reform aimed at simplifying taxation, an overhaul of minimum alternate tax (MAT) has been proposed to accelerate migration to the concessionary tax regime. The set-off of brought-forward MAT credit will be available only to companies opting for the new regime and is capped at one-fourth of their tax liability. Further, MAT is proposed to be converted into a final tax with effect from April 1, 2026, ending a further accumulation of MAT credit, accompanied by a reduction in the MAT rate from 15 per cent to 14 per cent. This will mean a clean slate as the 2025 law triggers.
Sector-specific certainty through a unified safe-harbour regime for information-technology (IT) services, faster advance pricing agreements, and tax carve-outs till 2047 for global data centres enhance India’s competitiveness within IT and global value chains, besides augmenting foreign direct investment. Memorandums of clarification on the nature of these carve-outs, along with an impact analysis for the announcement vis-à-vis investment in data centres, should be on the government’s 2027 agenda.
The 100 per cent tax holiday for Gujarat International Finance Tec-City (GIFT City) has been extended to 20 years of the 25. After the tax holiday, the business income for these units will be taxed at a concessionary 15 per cent (earlier the tax rate ranged between 25 per cent and 38 per cent). These amendments will be effective from April 1, 2026, applying to the tax year 2026-27 and subsequent years. These changes reflect a larger, strategic effort to position GIFT City as an ace in the global financial landscape.
Significantly, the Budget attempts to resolve jurisdictional controversies often dismissed as technical, such as jurisdictional and faceless assessment conflicts, defects due to the direct identification number, and the split verdict of the Supreme Court, with an objective of commencing the new Act from April 1, 2026, on an unambiguous footing. While similar amendments proposed to the 1961 Act are being labelled as “clarificatory” and introduced with non-obstante (notwithstanding) language, their retrospective application will be tested in courts.
Though the Budget has been a reformative exercise, there is an interesting multilateral issue the Budget has not clarified: India’s plans to adopt the global minimum tax under Pillar Two. With 60 countries having adopted Pillar Two in some form, the hay for Indian policymakers is set to continue.
Overall, the Budget themes paint it as a reformative exercise to yield tangible benefits for the economy. These measures align tax policy with growth stability and capital formation, strengthening India’s position as a long-term investment hub. The direct tax proposals strengthen India’s business environment by reinforcing certainty, lowering compliance friction as the country prepares to operationalise the Income-Tax Act, 2025, from April 1, 2026. The minister also announced that simplified Income Tax Rules and forms will be notified shortly. These initiatives of the government will prove to be a holy grail of certainty for investors, while administrators will keep sharpening their focus on reforming the provisions further under the Income-Tax Act.
The author is partner at BMR Legal
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