Budget 2026 Proposes Income Tax Penalty Reforms and Immunity Provisions

Budget 2026 introduces key changes to income tax rules, focusing on easing compliance and reducing litigation. It offers immunity from penalties or prosecution for under-reporting or misreporting income if taxpayers pay additional tax amounts—100% extra for general misreporting and 120% for unexplained income. Penalties now differentiate between genuine errors (50% of tax due) and deliberate misreporting (200%). The Budget also proposes fees for late ITR revisions and partial decriminalisation of certain prosecution provisions.