The New Direct Tax Law: What Corporate India Should Prepare For

India’s new direct tax law is live. Here’s what corporate India must fix right now.

By Fiscal Metrics Research18 August 2026 300

The New Direct Tax Code: What Corporate India Should Prepare For — · *Unsplash*

Ask a CFO what changed on 1 April 2026 and you may get a shrug. The rates didn’t move. The 22 per cent concessional regime survived. Nobody woke up owing more tax on the same profit.

That shrug is the problem.

The Income-tax Act, 2025 replaced the six-decade-old 1961 Act on 1 April 2026, with the Income-tax Rules, 2026 notified by the Central Board of Direct Taxes on 20 March 2026 to operationalise it. The official framing has been consistent throughout: same policy, better plumbing. Some 819 sections became 536. The form set has been pruned from roughly 390 to 190. “Previous year” and “assessment year” have collapsed into a single “tax year”.

None of which is where the money is. The money sits in a handful of substantive changes that arrived alongside the rewrite, most of them through the Finance Act, 2026, and in the deeply boring operational work of remapping an entire tax function onto a statute whose section numbers no longer match anything in the company’s files.

The MAT Change Nobody Put on the Cover Slide

Start here, because this one lands on the balance sheet.

Minimum Alternate Tax has come down from 15 per cent to 14 per cent with effect from tax year 2026-27. That sounds like relief. Read the next line.

For domestic companies that have stayed in the old regime rather than moving to the 22 per cent option, MAT is now effectively a final tax: no fresh MAT credit accrues, and existing credit cannot be utilised going forward. Companies that shift to the concessional 22 per cent or 15 per cent regimes may use accumulated credit, but only up to 25 per cent of normal tax liability in a given year, with the unused balance carried forward for fifteen years. Foreign companies get a different formula, and MAT non-applicability has been extended to all foreign companies under presumptive regimes. The 9 per cent rate for eligible IFSC units is untouched.

Now translate that into accounting. A company sitting on a large MAT credit as a deferred tax asset, comfortable in the old regime and in no hurry to move, may have to justify that asset’s recoverability or write it off. That is an audit committee conversation, not a line on a compliance calendar, and it needs modelling now rather than in the week before results.

“The rates didn’t change, so the risk looks small. But a statute can leave your tax bill exactly where it was and still rewrite your balance sheet, your merger model and your vendor master — all in the same quarter.”

Restructuring: Two Traps Worth Reading Twice

The eight-year clock on carried-forward losses no longer resets when you merge. Losses inherited in an amalgamation or business reorganisation can be carried forward only for eight years from the year in which they were first computed for the original predecessor entity. If the predecessor has already burned five of those eight years, the successor inherits three. Deal models built on the older assumption are not conservative; they are wrong.

The second trap is less discussed. The new Act recognises demergers undertaken under sections 230 to 232 of the Companies Act, 2013 for the purposes of tax neutrality. Fast-track demergers under section 233, the Regional Director route that exists precisely to avoid the NCLT, sit outside that framework and may not qualify. A restructuring chosen for speed could quietly cost you neutrality. Check the route before the scheme is filed, not afterwards.

Transfer Pricing Gets a Genuine Simplification

Chapter X has moved to sections 161 to 174. The renumbering is cosmetic. The block assessment mechanism is not.

Where the Transfer Pricing Officer determines an arm’s length price for a transaction and prescribed conditions are met, that determination can be applied to similar international or specified domestic transactions across a three-year block. For multinationals that have relitigated the same intra-group service charge every single year for a decade, this is the most genuinely useful thing in the statute.

It is an election, not a default. The taxpayer has to opt in, and it only helps where the underlying transaction is genuinely stable year on year. Documentation obligations, the accountant’s report, and the advance pricing agreement and safe harbour routes all continue as before. The point for boards is simple: somebody has to actively decide whether to opt in, and that decision belongs on this year’s agenda rather than next year’s.

TDS: The Quiet ERP Project

Every withholding provision now lives in a single consolidated section, organised into three tables by category of payee — residents, non-residents, and any person — with a separate table listing the circumstances in which no deduction is required. Each row carries the nature of the payment, the threshold, the person responsible, and the rate.

Conceptually, this is far cleaner than hunting through thirty scattered sections. Operationally, it means every hard-coded section reference in an accounts payable system, every vendor master field, every internal note that says “deduct under 194J” now points at a provision that no longer exists. Master data does not update itself. And withholding is one of the few tax failures that compounds monthly, with interest, long before anyone from the department calls.

Enforcement Has Moved Online, Officially

Section 247 now expressly covers “virtual digital space” — email servers, cloud storage, online trading and investment accounts — and permits an authorised officer to override an access code during a search where the code is not available. The Ministry of Finance, answering Parliament, has said this mirrors what section 132 of the 1961 Act already permitted, that passwords are the modern equivalent of locks, and that the section says nothing whatsoever about artificial intelligence.

Take the clarification at face value. The practical point survives it. Corporate email, shared drives and finance-team messaging platforms are now expressly named as places where records live. Retention policies, privilege protocols and a documented position on what sits where deserve a fresh look, ideally with the general counsel in the room and not only the tax team.

The softer news is that the Finance Act, 2026 has rationalised penalties and prosecution considerably. Certain offences involving amounts up to ten lakh rupees have been decriminalised. Several penalties for compliance failures, including delays in furnishing audit reports and transfer pricing documentation, have been reframed as fixed or daily fees subject to caps. And penalty orders for under-reporting must now be passed along with the assessment order rather than as a separate proceeding months later. Fewer parallel proceedings is a real, unglamorous improvement.

Three Small Changes with Outsized Nuisance Value

First, the separate form previously required to opt into the concessional regime has been done away with. The option is now exercised at the time of filing the return. One trap removed, one new dependency created: the return itself is now the election, so a filing error is a regime error.

Second, treaty relief. A non-resident claiming benefits must hold a valid Tax Residency Certificate and furnish the prescribed additional information, and that form is now mandatory even where the TRC already contains everything required. Indian payers running withholding on cross-border payments should assume the paperwork bar has gone up, not down.

Third, GAAR. A CBDT notification dated 31 March 2026 keeps income arising from the transfer of investments made before 1 April 2017 outside the General Anti-Avoidance Rules. For legacy holding structures, that is a welcome piece of certainty.

The Incentives, and Why They Arrived in August

Parliament passed the Taxation and Other Laws (Amendment) Bill, 2026 in the second week of August, replacing an ordinance promulgated on 5 June 2026. It cuts the conditions applicable to eligible offshore investment funds and their managers from thirteen to five, extends the tax holiday for foreign companies supplying Indian electronics contract manufacturers, and grants a fifteen-year exemption to foreign companies warehousing electronic components in customs-bonded facilities for supply to Indian manufacturers, replacing what had been a two per cent presumptive charge. Data centre exemptions run to 2047. IFSC units now get twenty years of holiday out of twenty-five, with a 15 per cent concessional rate afterwards. The start-up turnover threshold has trebled to three hundred crore rupees.

The pattern is not subtle: predictability, aimed squarely at capital that has options about where to land.

Revenue is not the constraint. Net direct tax collections stood at 8.11 lakh crore rupees as of 10 August 2026, up 23.09 per cent year on year, against a full-year target of 26.97 lakh crore. Corporate tax contributed 2.70 lakh crore of that, growing close to twenty per cent. A government collecting this comfortably can afford targeted generosity.

What to Actually Do This Quarter

Four things, ordered by how expensive it is to get them wrong.

Model the MAT credit position under both regimes and take a documented view on the deferred tax asset. Re-run every live or contemplated restructuring against the eight-year rule and the section 233 question. Decide formally, with a paper trail, on transfer pricing block elections. And finish the unglamorous mapping exercise across systems, templates, contracts, board notes and tax provision working papers.

One last thing worth internalising. The 1961 Act continues to govern everything up to 31 March 2026 under the repeal and savings provisions in section 536, which means most finance teams will be running two statutes in parallel for the next couple of years — old law for assessments and appeals, new law for everything current. The first return under the new law gets filed in 2027.

That deadline feels comfortably distant. The positions it will report are being taken right now.