Union Budget 2026-27 Sets 30% Tax Rate on Unexplained Income in Cash Credits and Investments

(INDIA) — India’s Union Budget 2026-27, presented on Feb. 1, 2026, puts a new compliance deadline clock in motion for taxpayers with “unexplained income,” cutting the proposed tax rate to a flat 30% starting April 1, 2026 (FY 2026-27; returns filed in 2027).

For NRIs and globally mobile families, the dates matter because India’s scrutiny of cash credits and unexplained investments can collide with U.S. reporting rules if you are a U.S. tax resident under IRS tests.

The proposal also matters for investor-visa applicants who want clean, well-documented funds and tax records.

📅 Deadline Alert: The proposed 30% Tax Rate applies for the tax year beginning April 1, 2026 (FY 2026-27), which generally means returns filed in 2027 will be the first filings affected.

Union Budget 2026-27: what changed for “unexplained income”

The Budget proposes reducing the tax on unexplained income from 60% to 30%. The scope includes unexplained credits and investments (cited in the Budget as sections 102–106 in the new law framework).

The effective date is clear: April 1, 2026. That makes FY 2026-27 the first year impacted.

Scope: what counts as unexplained income, and how the 30% applies

“Unexplained income” generally includes:

• Cash credits recorded in books where the source cannot be explained.
• Investments that do not match declared sources of funds.
• Other amounts treated as deemed income when documentation is missing.

Under the proposal, the 30% rate applies to the value of the unexplained amount. The Budget language also states there are no deductions or allowances against that amount.

In practice, that can surprise taxpayers who assume they can net expenses.

This is especially relevant for NRIs with India activity like property, private lending within family networks, or frequent cash movements. It can also affect investor-visa applicants who need to show lawful source of funds.

Penalties and enforcement: what’s at stake if records don’t match

The Budget pairs the 30% rate with penalties tied to the fair market value (FMV) of undeclared assets.

• For smaller undeclared assets up to Rs 1 crore, the proposal includes a 30% penalty on FMV, plus 30% of additional tax.
• For larger or partially disclosed assets, penalties can go up to Rs 5 crore.

The Budget also signals process changes. It describes a “trust & simplify” direction, including:

• Assessment and penalties in a single order
• Lower appeal pre-deposit from 20% to 10% of the core tax demand

Why this matters for U.S. immigration and U.S. tax filings

Many NRIs and visa holders move between resident and nonresident status in the U.S. The IRS residency rules can make you a U.S. taxpayer on worldwide income even if the income is earned in India.

IRS guidance starts with Publication 519 on alien residency status (Publication 519).

If you are a U.S. tax resident (often the case for H-1B, L-1, O-1, and many green card holders), India issues can trigger U.S. compliance items, including:

• Reporting foreign interest, capital gains, or other income on Form 1040
• Possible foreign tax credit claims on Form 1116 when Indian tax is paid
• Foreign asset reporting such as FBAR (FinCEN Form 114) and Form 8938 for specified foreign financial assets

The IRS international hub is here: international taxpayers

If you are an NRI filing as a U.S. nonresident, you may be on Form 1040-NR. Many students on F-1/J-1 are nonresidents for up to five calendar years under the substantial presence exemption rules described in Publication 519.

Deadline summary table (FY 2026-27; filed in 2027)

The Budget materials also describe extended ITR timelines. Use these as your planning dates for FY 2026-27 filings.

Other Budget 2026 items NRIs should note

Several related items can affect cross-border taxpayers:

• No change to new-regime slab rates cited in the Budget (top rate remains 30% above the highest bracket shown).
• Capital gains exemption remains Rs 1.25 lakh, with indexation not restored for real estate/debt funds, per the Budget summary.
• Share buybacks shift toward capital gains treatment, with higher stated rates for promoters in the Budget summary.
• “Immunity” concept for small undisclosed foreign assets below Rs 20 lakh (non-immovable), with retrospective effect from Oct. 1, 2024. The Budget summary also cites 30% tax + 100% additional on value as of March 31, 2026.

Disaster relief and special circumstances

India and the U.S. both periodically issue deadline relief for floods, earthquakes, and other disasters. Watch for CBDT/Income Tax Department notifications.

On the U.S. side, IRS postponements are posted on IRS.gov disaster pages under the general international taxpayers portal when they affect filing or payment timing.

Information in this article is current as of Feb. 1, 2026.

What to do now (practical prep list)

• Reconcile cash credits and capital introductions with bank statements and confirmations before FY 2026-27 ends.
• Build a source-of-funds file for large investments, property transactions, and family transfers.
• If you are U.S.-tax-resident, map India items to U.S. forms early. Pull IRS forms from forms and publications.
• If you paid tax in India, discuss Form 1116 timing and documentation with a cross-border CPA.
• If you hold foreign accounts, confirm whether FBAR and Form 8938 thresholds apply.