Through changes to assessment and penalty procedures, alongside selective exemptions and relaxed safe harbour norms, the government is seeking to make the tax system less adversarial and more predictable—both for individuals and for multinational companies operating in India, a senior government official said on Monday.
The official, who spoke on condition of anonymity, said the budget has proposed several steps to ease compliance for taxpayers. These include giving an additional three months—until the end of March—to revise tax returns for the previous financial year, allowing taxpayers to update past returns even after reassessment proceedings have begun, and simplifying assessment and penalty procedures—changes that fundamentally alter how taxpayers interact with the tax department.
Under the proposed framework, a taxpayer facing reassessment can choose to file an updated return, pay the applicable tax and interest on any under-reported income, and close the case. Alternatively, the taxpayer may file an updated return with, say, lower additional tax due than the department’s claim, with the revised return forming the basis for further assessment and potentially reducing the disputed amount.
“The idea is to ensure that tax assessment proceedings are not adversarial, but collaborative for the purpose of paying your due legitimate tax,” the official said. “The tax authority aims to collect legitimate tax in the simplest manner possible.”
Amit Maheshwari, managing partner at tax and consulting firm AKM Global, said that earlier, separate assessment and penalty proceedings often led to prolonged litigation and uncertainty for taxpayers filing revised or updated returns, particularly after reassessment. This, he said, resulted in high disputes and compliance challenges, running counter to the government’s stated goal of simpler, voluntary tax compliance reflected in earlier budgets and court rulings.
The Finance Bill, 2026, introduces integrated assessment-penalty orders, extended timelines for revised returns until 31 March with a small fee, and immunity expansions for misreporting upon extra tax payment, while granting tax holidays until 2047 for foreign cloud providers, he said.
“Importantly, these changes cut litigation by promoting error correction and reduce compliance burdens. Though new incentives diverge from phasing out exemptions, they seek to strategically draw investments in alignment with India’s digital-industrial goals like data sovereignty and FDI attraction,” said Maheshwari.
The budget also offered targeted tax exemptions for certain data centre operations and relaxed safe harbour norms to reduce transfer pricing scrutiny on cross-border transactions between global companies and their Indian units, a move aimed at making these units globally competitive and at better integrating India into global value chains.
The easier safe harbour norms—a form of presumptive taxation based on agreed profit margins to avoid tax audits—are offered to global companies in data centre business, MNCs storing electronics components in bonded warehouses for manufacturing in India, and to foreign companies providing capital goods for toll manufacturing in a bonded warehouse in India.
The official quoted above explained that the tax exemptions announced are meant for “global entities which have uniqueness”, adding that the exemptions to data centres offer tax certainty to investors that their global income from operations outside India will not get taxed for operating a data centre in India. They will, however, need to provide services to Indian customers through an Indian reseller entity and those transactions will be subject to tax in India.
However, to a question on whether India’s tax policy is now being aligned with the overall industry policy goal of attracting investments, the official disagreed.
“I would rather say that the elements in tax policy that deter investments, any uncertainty, procedural hassles, disputes and different interpretations—all those are getting addressed so that companies can concentrate on what they can do the best, that is, running their business, enhancing investment, expanding themselves, etc.,” the official said.
Queries emailed to the finance ministry on Monday remained unanswered till press time.
To be sure, the tax incentives are offered in spite of the budget push to nudge Indian businesses to adopt the new concessional 22% corporate tax rate regime (excluding cess and surcharge), introduced in 2019, moving away from the regular tax regime under which the 30% or 25% headline rate depending on turnover, could come down significantly depending on the benefits claimed.
In the past one decade, the government has been sunsetting the deductions allowed under the old corporate tax regime to move towards the new, simpler one. Incentives, where needed, were sought to be given under schemes such as production-linked incentives (PLI) rather than complicating the tax system, on the premise that large industries are not built on the basis of tax breaks.
AKM Global’s Maheshwari said that the budget proposals on safe harbour norms would bring down transfer pricing disputes and improve tax certainty.
