Budget 2026: Tax reforms mark shift to trust-based regime, says CBDT chief

The direct tax reforms announced in the budget are aimed at preparing the ground for a trust-based tax regime initiated with the new Income Tax Act effective from April 1, Central Board of Direct Taxes (CBDT) chairman Ravi Agarwal said.

The focus is on faster dispute resolution, decriminalisation and compliance over coercion, Agarwal told ET in an interview.

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The tax department is not here to punish or penalise, and taxpayers will get multiple opportunities to settle disputes early as assessment and penalty proceedings are being consolidated, he said.

A one-time window has been opened for disclosure of undisclosed foreign income and assets to help genuine cases come clean, yielding ₹99,000 crore in foreign asset disclosures so far, the CBDT chairman noted.

Explaining the hike in securities transaction tax (STT) on derivatives, he said it is intended to curb excessive speculation, especially among retail investors and overall transaction was about 500 times of India’s GDP.

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He said the proposed reforms in the minimum alternative tax (MAT) will push more companies to the new tax regime, adding that the government will honour all accumulated MAT credit up to March 31 for companies shifting to the new 22% tax regime.

He ruled out any sunset clause for the old regime, even with 88% of the individual taxpayers shifting to the new tax regime, giving taxpayers flexibility.

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The safe harbour provisions give tax certainty to the sunshine sectors, retaining the attractiveness of India for investors, Agarwal said.

“These structural changes are about comfort, clarity and certainty for the taxpayer,” he said, adding that the budget reforms mark the second phase of the income tax overhaul, after correcting the language part of the law earlier.

The Centre will come up with the draft rules by the end of this month, the CBDT chairman said.

He said the central feature of the reform package is faster dispute resolution. “Now, at each stage, the opportunity to resolve the dispute has been provided to the taxpayer,” he said. “The idea is to bring certainty and close matters early.”

The budget has consolidated assessment and penalty proceedings, cutting timelines that earlier stretched to four to five years, and decriminalised several defaults in line with the government’s Jan Vishwas agenda.

“Earlier, there was imprisonment up to seven years along with fine,” Agarwal said. “Now it is imprisonment or fine, depending on the gravity of the offence.”

The government has also opened a one-time compliance window for small taxpayers to disclose undisclosed foreign income and assets, aimed at taxpayers who missed reporting in earlier years.

“Over a period of time, through automatic exchange of information, we get about 35–40 lakh pieces of information every year from other countries,” the CBDT chairman said. “People now know that this information will come to the tax department.”

He said many non-disclosures were not wilful.

“Professionals or students, when they were studying abroad, had bank accounts or small balances which were never disclosed because people were not conscious of the provisions at that time,” he said.

The disclosure window allows taxpayers to come clean without fear of harsh consequences. “This is basically a window to provide that opportunity to them to report such transactions and come clean,” he said.