What does this Budget have for individual taxpayers? STT hike, TCS relief and other key measures

Higher STT rates in F&O trades

The government proposes to hike the STT in F&O trades in a bid to provide “reasonable course correction in F&O segment” in stock trading, while also generating additional revenue for itself. The STT on Futures is set to jump two-and-a-half times to 0.05% from 0.02%. STT on options premium and exercise of options will be hiked to 0.15% from the present rate of 0.1% and 0.125%, respectively.

The move is evidently aimed at deterring speculation in the F&O segment, which had seen an explosion of participation from retail investors. According to market regulator Securities and Exchange Board of India (SEBI), over 90% of individual traders in the segment incur losses. The move could lead to moderation in trade volumes in the segment, according to market watchers.

Encouraging equity investments from PROIs

PROIs will be allowed to invest in listed Indian companies’ equity instruments through the Portfolio Investment Scheme. The Budget has also proposed to double the investment limit for an individual PROI under the scheme to 10%, with an increase in the overall investment limit for all individual PROIs to 24% from the current 10%.

These measures are specifically aimed at boosting foreign investments and strengthening capital inflows. A PROI is any individual or entity that does not meet India’s residency criteria under the Foreign Exchange Management Act (FEMA). The changes will help bring in investments from non-Indian foreign nationals beyond non-resident Indians (NRIs) and Overseas Citizens of India (OCIs).

At present, a person resident outside India may hold foreign investment either as Foreign Direct Investment (FDI) or as Foreign Portfolio Investment (FPI) in any particular Indian company, with the investments subject to the entry routes, sectoral caps or the investment limits as defined in the FEMA regulations. With these measures, capital inflows are expected to receive a boost.

Relief in TCS on foreign education, treatment, tours

Tax collection at source (TCS) for pursuing education or getting medical treatment overseas for an aggregate amount of Rs 10 lakh per year will be brought down to 2% from the current 5% under the Liberalised Remittance Scheme, Sitharaman announced.

The measure is likely to lower the barrier for international education and medical treatment by lowering the upfront tax outgo. Although TCS is adjustable against the final tax liability, a cut in TCS rates means that a lower amount of taxpayer money will be locked away as tax, which in turn should improve cash availability for the taxpayer.

Additionally, the TCS rate on sale of overseas tour programmes will also be cut to 2% from the 5% (for up to Rs 10 lakh) and 20% (for aggregate amount exceeding Rs 10 lakh).

Tweaks in Income Tax rules for individuals to ease compliance

Simplified Income Tax rules and forms as per the Income Tax Act, 2025—which followed the comprehensive review of the Income Tax Act, 1961—will be “notified shortly”. According to Sitharaman, the forms have been redesigned in such a manner that ordinary citizens can comply without difficulty.

The time available for filing revised Income Tax returns is proposed to be extended by three months—to March 31 from December 31 following the tax year—with the payment of a nominal fee by the taxpayer. This revised return can be of original return or belated return. Taxpayers looking to avail this facility would have to pay a fee of Rs 1,000 or Rs 5,000, depending on whether the income is up to Rs 5 lakh or more than that.

As for the deadline for filing tax returns, while there is no change for individuals with ITR 1 and ITR 2 returns—which accounts for a majority of individual taxpayers—from the July 31 deadline, those that fall under the non-audit business categories—like individual business owners and professionals—will have an extra month till August 31.

Another relief for small taxpayers is a scheme under which a “rule-based automated process” will enable them to obtain a lower or nil deduction certificate, for which they currently have to file an application with the assessing officer. This certificate allows tax deducted at source (TDS) to be reduced or eliminated when the estimated annual income tax liability is expected to be lower than the standard TDS rate.

Also, for the ease of taxpayers holding securities in multiple companies, depositories will be allowed to accept Form 15G or 15H from the investor and provide it directly to various relevant companies. At present, these forms—requests that TDS not be deducted by the financial institution on the individual’s income from investment—are to be submitted to each of the financial institutions from where the taxpayer receives income.

Furthermore, TDS on the sale of immovable property by a non-resident will be deducted and deposited through the resident buyer’s Permanent Account Number (PAN)-based challan, instead of the Tax Deduction and Collection Account Number (TAN). Currently, resident individuals are required to get a TAN in order to buy immovable property from a non-resident.

One-time foreign asset disclosure scheme for small taxpayers

In a bid to address practical issues of small taxpayers like students, young professionals, IT employees, relocated NRIs, among others, the government will introduce a one-time six-month foreign asset disclosure scheme, under which such taxpayers can disclose income or assets below a certain size.

This scheme would be applicable for two categories of taxpayers—those who did not disclose their overseas income or asset, and those who disclosed their overseas income and/or paid tax, but could not declare the asset acquired.

For the former, the limit of undisclosed income or asset is proposed to be up to Rs 1 crore. They would need to pay 30% of the Fair Market Value of the asset or undisclosed income as tax, and 30% as additional income tax in lieu of penalty, which would give them immunity from prosecution. For the second category, the asset value is expected to be up to Rs 5 crore. In such cases, immunity from penalty as well as prosecution will be available with the payment of a fee of Rs 1 lakh.

Rationalisation of tax penalty, prosecution

With a multiplicity of tax proceedings hindering ease of doing business, the government plans to integrate assessment and penalty proceedings through of a common order for both. “There will be no interest liability on the taxpayer on the penalty amount for the period of appeal before the first appellate authority irrespective of the outcome of the appeal process. Further, the quantum of pre-payment is being reduced from 20% to 10% and will continue to be calculated only on core tax demand,” Sitharaman said in her Budget speech.

“As an additional measure for reducing litigation, I propose to allow taxpayers to update their returns even after reassessment proceedings have been initiated, at an additional 10% tax rate over and above the rate applicable for the relevant year. The assessing officer will then use only this updated return in his proceedings,” the Finance Minister added.

Additionally, the existing framework for immunity from penalty and prosecution in cases of underreporting is expected to be applied to cases of misreporting as well. However, in such cases, the taxpayer will need to pay 100% of the tax amount as additional income tax, over and above the tax and due interest.

“Penalties for certain technical defaults such as failure to get accounts audited, non-furnishing of transfer pricing audit report and default in furnishing statement for financial transactions, are proposed to be converted into fee. I propose to rationalise the prosecution framework under the Income Tax Act while maintaining a careful balance for deterrence in some serious offences,” Sitharaman said.

Moreover, non-production of books of account and documents, and requirement of TDS payment—where payment is made in kind—will be decriminalised, and minor offences will only attract fines and not prosecution. The remaining prosecutions will be graded in line with the quantum of the offence. They will entail only simple imprisonment of up to two years, with courts having the power to convert even those into fine.