The government has moved amendments to the Finance Bill, 2026, in the Lok Sabha that offer significant relief to taxpayers. These amendments limit the new buyback taxation regime to share buybacks under Section 68 of the Companies Act, 2013, raise the turnover threshold for start-up tax holidays, and remove coercive recovery measures such as arrest and detention. The amendments, listed in the official “Notice of Amendments” to the Finance Bill, 2026, also introduce procedural safeguards in reassessment proceedings and validate certain administrative actions retrospectively.
A key change relates to the taxation of buybacks. The original proposal in the Bill sought to tax buybacks in the hands of promoters at higher rates through an “additional tax”. The revised amendment clarifies that this additional tax will apply only to buybacks undertaken in accordance with Section 68 of the Companies Act, 2013.
An tax expert said: “This is a taxpayer-friendly clarification in the Finance Bill 2026. By restricting the additional tax on buybacks only to those undertaken in accordance with Section 68 of the Companies Act, 2013, the government has effectively kept offshore entity buybacks and redemption of preference shares outside the higher tax net. This removes an unintended overhang on cross-border and alternative capital return structures.”
According to another tax expert, this is a welcome amendment in response to clarification sought by industry. “In the original proposal in the Finance Bill 2026, there was no clarity as to whether the additional tax on promoters on buyback of shares would apply even where such buyback of shares is done by companies that are not governed by the Indian Companies Act. By expressly limiting the higher tax on promoters only upon buybacks undertaken in accordance with Section 68 of the Companies Act, 2013, the government has removed this ambiguity and provided relief from any additional tax burden from cross-border capital return structures.”
The amendments also statutorily prescribe a minimum period of 30 days for an assessee to furnish a return of income in response to a notice issued under Section 148 of the Income-tax Act. “The amendment seeks to ensure that an assessee is provided with adequate and reasonable time to comply with reassessment notices, thereby introducing a clear statutory safeguard in the reassessment framework,” he said.
In a major relief on tax recovery, the government decided to remove arrest and detention as a mode of recovering tax arrears. The proposed amendment seeks to rationalise the recovery framework by dispensing with the coercive measure of civil imprisonment for recovering tax dues.
“While tax recovery officers will continue to have the power to attach property and assets, the elimination of arrest and imprisonment provisions reflects a shift towards decriminalisation of non-serious tax offences,” another tax expert said.
The Bill further seeks to align the Income-tax Act with the latest Department for Promotion of Industry and Internal Trade (DPIIT) start-up policy. As per the amendment, the turnover limit in sub-section (16) of Section 140 of the Income-tax Act, 2025, for the start-up tax holiday has been raised by substituting the word “one” with “three”, effectively increasing the threshold from ₹100 crore to ₹300 crore. “The change is in line with the February 2026 DPIIT notification that revised eligibility for regular start-ups to ₹200 crore and for deep-tech start-ups to ₹300 crore. The alignment ensures that fast-growing, innovation-driven companies no longer lose tax benefits merely because they scale rapidly… This harmonisation reflects the government’s intent to encourage scale, innovation, and long-term economic competitiveness,” he said.
On the litigation and administration front, the amendments introduce several validation clauses to reduce disputes arising from procedural lapses. A new Section 292BC has been inserted with retrospective effect from April 1, 2021, clarifying that any approval granted by an income-tax authority in assessment or reassessment proceedings shall be treated as administrative in nature and shall not be invalidated merely because of insufficiency of reasons recorded, any defect in the form or manner of communication, or the absence of a digital signature. Similar validation provisions have been introduced for proceedings under the new Income-tax Act, 2025, through the substitution of Section 522.
He highlighted the broader litigation reforms: “Procedural defects in communications issued by the tax department such as notices, orders, or summons will not invalidate proceedings. For instance, an order will no longer be treated as invalid merely due to the absence of a document identification number (DIN). Mandatory internal approvals required for assessment or reassessment by tax officers are proposed to be treated as administrative in nature… Overall, these measures are aligned with the government’s broader objective of reducing tax litigation and enhancing the efficiency of tax administration.”
