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Union Finance Minister Nirmala Sitharaman on Sunday announced several tax-related measures in the Union Budget 2026 to make the income tax system simpler and provide relief to taxpayers.

While presenting the Budget in Parliament, she said the government aims to create a more citizen-friendly tax system and reduce compliance burdens.

One major relief announced was for accident victims. The Finance Minister said that interest awarded by the Motor Accident Claims Tribunal to individuals will now be fully exempt from income tax. She also confirmed that no TDS will be deducted on such interest payments, ensuring families receive the full compensation amount.

She said, "Any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax, and any TDS from this account will be done away with".

In another key move, Sitharaman announced a sharp cut in Tax Collection at Source (TCS) on overseas spending. The TCS rate will be reduced to 2 per cent from the current rates of 5 per cent and 20 per cent. The reduced rate will apply without any minimum spending limit, making foreign travel transactions easier for taxpayers.

The Finance Minister also proposed a reduction in TCS under the Liberalised Remittance Scheme (LRS) for education and medical expenses. For these purposes, the TCS rate will be lowered from 5 per cent to 2 per cent, providing relief to families sending money abroad for studies or treatment.

To bring clarity in tax deductions, she announced that manpower supply services will be included under contractor payments for TDS. This means TDS on such services will be charged at 1 per cent or 2 per cent, helping reduce confusion and disputes.

Sitharaman also introduced a scheme for small taxpayers, offering immunity from prosecution for non-disclosure of small foreign assets. Individuals who failed to disclose non-immovable foreign assets worth less than Rs 20 lakh will be granted immunity from prosecution.

This rule will apply retrospectively from October 1, 2024.

Additionally, the Finance Minister said the Income Tax Act, 2025, will come into effect from April 1, 2026. She added that simplified tax rules and new return forms will be notified soon, giving taxpayers time to adjust to the changes.