Budget 2026 introduces significant changes to the taxation of Sovereign Gold Bonds, with the exemption now limited to original subscribers who hold bonds to maturity. As per the latest amendment, the exemption applies only where the bond was subscribed at original issuance and held continuously until redemption on maturity, covering all Sovereign Gold Bonds issued by the Reserve Bank of India. The change standardises application across series and removes exemption for secondary-market purchases or interrupted holdings, taking effect from April 1, 2026 and applying to tax year 2026-27 and subsequent years. This restriction significantly narrows the previous broad exemption that covered all SGB transactions, making the tax treatment more aligned with other investment instruments.
Finance Minister Nirmala Sitharaman presented Union Budget 2026 on February 1, 2026, maintaining the status quo on taxation of capital gains and income from lotteries and prize winnings. According to reports from Moneycontrol, the Budget does not propose any changes to existing tax rates, rebate thresholds or exemptions applicable to these income categories, offering continuity to taxpayers amid broader discussions on tax reform. The Budget introduces a new income tax act effective April 1, 2026, with the government issuing simplified rules and redesigned forms aimed at ordinary taxpayers to reduce procedural complexity without altering the existing tax structure. However, Budget 2026 did not offer any significant relief for middle-class taxpayers since there were no adjustments to income tax slabs or rates and the standard deduction remains unchanged for this financial year, as reported by The Economic Times, disappointing many salaried taxpayers who were hoping for some relief.
Under the current income-tax framework, individuals are required to pay tax on capital gains arising from the transfer of capital assets such as equities, mutual funds, bonds and immovable property. As reported by Moneycontrol, the tax treatment varies based on the holding period and the nature of the asset, with gains classified as either short-term or long-term. Listed equities and equity-oriented mutual funds are taxed differently from debt instruments and real estate, with prescribed rates and exemptions already built into the system. However, Securities Transaction Tax (STT) rates have been significantly increased with futures now taxed at 0.05% and options premium at 0.15%, as reported by The Economic Times. The Budget also introduces PAN-based TDS for NRI property sales, eliminating the need for a TAN for non-residents selling immovable property.
Budget 2026 introduces several significant changes affecting investors and NRIs. Share buybacks are now treated as capital gains for all shareholders, with corporate promoters taxed at 22% and non-corporate promoters at 30% to curb tax arbitrage, as reported by The Economic Times. The TCS on overseas tour packages falls to a flat 2% with no threshold, while under the Liberalised Remittance Scheme, TCS on education and medical remittances also reduces to 2% from the earlier 5%. Additionally, TDS on manpower supply services is clarified at 1% or 2% as applicable, and customs duty on personal imports drops to 10% from 20%. However, interest deduction against dividend and mutual fund income has been removed, with no deduction allowed for interest expenditure incurred in relation to dividend income or mutual fund units, as reported by The Economic Times, making leveraged investing less attractive for small investors.
Budget 2026 introduces a major overhaul in share buyback taxation, shifting from dividend taxation to the capital gains framework. As per the FM's speech, "In the interest of minority shareholders, I propose to tax buyback for all types of shareholders as capital gains. However, to disincentivise misuse of tax arbitrage, promoters will pay an additional buyback tax." Under the current regime, shareholders were subjected to tax on entire buyback proceeds as dividends, with cost of shares allowed as capital loss. However, the new framework treats buyback proceeds as capital gains, aligning buybacks with the treatment of share sales in the market. For promoters, the effective tax liability is 30% comprising tax payable at applicable rates together with an additional tax, while for promoter companies, the effective tax liability is 22%. As noted by tax experts, this change particularly benefits domestic retail shareholders who previously faced higher dividend tax rates.
Experts say by retaining the current rebate limits and tax treatment for capital gains and prize winnings, Budget 2026 prioritises stability over fresh concessions. As reported by Moneycontrol, while taxpayers may not see additional relief in these areas, the absence of changes removes uncertainty and allows individuals to plan investments and one-off incomes within a familiar and well-established tax framework. However, Budget 2026 has introduced several changes that could adversely impact middle-class taxpayers, including higher STT rates on derivatives, new taxes on secondary market Sovereign Gold Bonds, and the removal of interest deduction on dividend and mutual fund income, as noted by The Economic Times. The decision maintains the effective tax rate on lottery and similar winnings at the same level as in previous years, while the new income tax act and simplified forms aim to improve compliance experience for ordinary taxpayers.