Budget 2026 has announced several important changes aimed at simplifying tax administration, reducing litigation and making compliance easier for taxpayers.
The Finance Minister proposed to integrate assessment and penalty proceedings into a single, common order. This means taxpayers will no longer get separate orders for assessment and penalty, which often drag out disputes. Importantly, taxpayers will not have to pay interest on the penalty amount for the period during which their appeal is pending before the first appellate authority, regardless of the outcome.
To further reduce the burden on taxpayers, the government has reduced the prepayment requirement for filing appeals. The amount has been reduced from 20% to 10%, and will be calculated only on the main tax demand and not on penalty or interest. This is expected to significantly reduce the upfront costs of appealing and reduce the pressure of litigation.
In another major move, taxpayers will now be allowed to update their tax returns even after the reassessment proceedings have begun. They will have to pay an additional tax of 10% over and above the rate applicable for the relevant financial year. Once a taxpayer files this updated return, the Assessing Officer will use only the new updated return as the basis for reassessment. This gives taxpayers a last opportunity to voluntarily correct the discrepancies and avoid long drawn out disputes.
According to Lokesh Shah, Partner, CMS INDUSLAW, “Multiplicity of proceedings is recognized as a major hurdle to ease of doing business, and in this context, the Budget 2026 proposals seek to streamline dispute resolution by integrating assessment and penalty proceedings into a single order. Taxpayers will not face any interest liability on the penalty amount during the pendency of the first appeal, regardless of the appellate outcome, and the requirement of pre-deposit “Reduced from 20% to 10%, calculated only on basic tax demand.”
“Further, to reduce litigation, taxpayers will be allowed to file updated returns even after the reassessment proceedings are initiated, subject to additional 10% tax, the assessing officer will have to base the proceedings only on such updated returns,” Shah said.
The existing provisions of exemption from penalty and prosecution in cases of under-reporting will remain in place. The Budget also proposes to decriminalize certain offenses such as non-production of books or documents and TDS compliance issues where payment is made in kind. These will now be considered civil wrongs rather than criminal offences. Taxpayers will face only financial penalties instead of stringent action for minor offenses.
Overall, these changes reflect the Government’s effort to make the tax administration more efficient, less adversarial and more taxpayer-friendly, in line with the broader effort to improve the ease of doing business.
budget 2026
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