This is an English translation of our Japanese article. The Japanese version and the official materials of the National Tax Agency and the Ministry of Finance are authoritative. Operational details may still be added by the National Tax Agency. For individual tax decisions, consult a tax office or a licensed tax accountant.
Last updated: 20 August 2026. Based on the Ministry of Finance FY2026 Tax Reform Outline and National Tax Agency leaflets published in April and August 2026. The amending act was enacted and promulgated on 31 March 2026.
The short answer. From the 2027 tax year, Japan's Blue Return special deduction becomes a three-tier system of 750,000 / 650,000 / 100,000 yen. Headlines focus on the increase, but the losses matter more. First, anyone filing on paper is capped at 100,000 yen (today paper filers can still claim 550,000). Second, simplified bookkeeping plus revenue above 10 million yen two years earlier means no deduction at all. Third, the 750,000 tier requires a notification form on top of double-entry bookkeeping and e-Tax filing. You have only two filing seasons to prepare.
What changes
The FY2026 tax reform reshuffled the tiers. In effect each amount moved up one step, and in exchange the requirements became electronic by default.
| Now (through 2026) | Requirement | From 2027 | Requirement |
|---|---|---|---|
| 650,000 yen | Double-entry bookkeeping plus e-Tax filing or qualified electronic books | 750,000 yen | Double-entry bookkeeping plus e-Tax filing plus qualified electronic books or digital seamless storage, plus a notification form |
| 550,000 yen | Double-entry bookkeeping (filing method irrelevant) | 650,000 yen | Double-entry bookkeeping plus mandatory e-Tax filing |
| 100,000 yen | Any other Blue Return filer | 100,000 yen | Any other filer, except simplified bookkeeping with revenue above 10 million yen two years earlier, who get nothing |
The structural shift is that e-Tax and qualified electronic books are no longer alternatives. Today either one earns you 650,000 yen. From 2027 e-Tax becomes the mandatory base, and electronic books sit on top of it.
The change applies to income tax for 2027, declared in the filing season of spring 2028. Local inhabitant tax follows one year later. The current rules are covered in Blue Return versus White Return.
Trap one: paper filers drop from 550,000 to 100,000
The National Tax Agency leaflet of August 2026 states it plainly: through the 2026 filing season a paper return could still claim the 550,000 yen deduction, but from 2027 the ceiling for paper filing is 100,000 yen.
Keeping proper double-entry books does not save you. If the return goes in on paper, the deduction is 100,000 yen. That is a 450,000 yen cut for identical bookkeeping effort.
Unaffected
Anyone already combining double-entry bookkeeping with e-Tax. The 650,000 yen continues automatically, and adding electronic books plus the notification form lifts it to 750,000.
Quietly worse off
Double-entry filers who still mail or hand in their return: 550,000 down to 100,000. Worst of all, those who claim 650,000 today through qualified electronic books alone while filing on paper face a 550,000 yen cut.
Nobody gains from doing nothing. The increase goes only to those who take on the new electronic bookkeeping burden; everyone else is flat or worse. See taxes for sole proprietors for the wider picture.
Trap two: simplified books plus revenue over 10 million yen means zero
The second change narrows the 100,000 yen tier. The April 2026 leaflet sets out the following.
| Revenue two years earlier | Before (simplified books) | After (simplified books) | After (double-entry plus e-Tax) |
|---|---|---|---|
| Above 10 million yen | 100,000 yen | Zero | 650,000 or 750,000 yen |
| 10 million yen or less | 100,000 yen | 100,000 yen | 650,000 or 750,000 yen |
The test uses revenue, not income, and it looks back two years. So the 2027 deduction is decided by 2025 revenue, a figure already fixed. There is no way to manage your way out of it now.
The two-year lookback mirrors the consumption tax base period. Anyone who has watched the 10 million yen threshold for invoice registration will be looking at the same year and the same number again. It coincides with the end of the invoice system's 20 percent special rule, so businesses near that line are hit twice.
Real estate income is treated differently. According to the leaflet, only those operating at business scale (the five-buildings-or-ten-units test) lose the deduction when revenue exceeds 10 million yen. Those below that scale keep up to 100,000 yen as before, but moving to double-entry bookkeeping will not raise their deduction above 100,000 yen either. Business income and real estate income are tested separately.
Two routes to 750,000 yen
On top of the new 650,000 requirements, you must satisfy either route below, and in both cases submit a notification form by the filing deadline.
Route 1: qualified electronic books
Your journal and general ledger for the year must be kept electronically, meeting the qualified standard from the very start of the tax period. Beyond the basic storage rules such as keeping system manuals and a monitor available, three conditions apply.
- An audit trail: corrections, deletions and additions leave a record that cannot be freely rewritten.
- Cross-referencing: figures can be traced between the journal and the general ledger.
- Search: records can be searched by transaction date, amount and counterparty.
The form is the notification for the 750,000 yen Blue Return special deduction and the understatement penalty relief relating to electronic storage of national tax books. The agency plans to rename it from "650,000" to "750,000" around March 2027. Anyone already claiming the 650,000 yen deduction through qualified electronic books does not need to file it again.
Route 2: digital seamless storage
This is the new option. Electronic transaction data must be exchanged and stored using a system that meets standards set by the Commissioner of the National Tax Agency, and be available for inspection on request.
A qualifying system handles either digital invoices following the specification managed by the Digital Agency or bank account settlement data, stored under three conditions: tamper prevention, integrity of the bookkeeping record, and a verifiable link between the transaction data and the electronic books. Software compliance can be checked against the JIIMA certification list referenced by the agency.
Route 1 concerns how you keep your own books; route 2 concerns how transaction data reaches you. Either way the accounting software has to support it. A hand-maintained spreadsheet cannot meet either standard.
What it costs or saves
The Blue Return deduction shrinks income itself, so it reduces income tax, inhabitant tax and National Health Insurance premiums alike (it does not apply to enterprise tax). The compounding makes the swing larger than the headline figure.
Assuming a 10 percent income tax bracket, 10 percent inhabitant tax and an 11 percent health insurance income rate (the Tokyo 23-ward level):
| Change | Deduction difference | Rough annual effect |
|---|---|---|
| 650,000 to 750,000 (added electronic books) | plus 100,000 yen | about 31,000 yen lighter |
| 550,000 to 100,000 (stayed on paper) | minus 450,000 yen | about 140,000 yen heavier |
| 650,000 to 100,000 (electronic books but paper filing) | minus 550,000 yen | about 172,000 yen heavier |
| 100,000 to zero (simplified books, revenue over 10 million) | minus 100,000 yen | about 31,000 yen heavier |
Rates include the 2.1 percent special reconstruction income tax. Health insurance rates vary by municipality and stop moving once the annual cap is reached. Try your own figures in the detailed calculator, and see how National Health Insurance is calculated for the premium side.
For a paper filer, in other words, switching to e-Tax alone can be worth more than 100,000 yen a year.
How to prepare
You have the 2026 and 2027 filing seasons. Because qualified electronic books must meet the standard from the first day of the tax period, aiming at 2027 means being ready on 1 January 2027. Starting in December will not work.
- Locate yourself: check whether your current deduction is 650,000, 550,000 or 100,000, whether you file by e-Tax or on paper, and whether your 2025 revenue exceeded 10 million yen.
- Move to e-Tax if you file on paper: this is the highest priority. The agency's online return preparation service will produce and transmit the return and the Blue Return financial statements, including the balance sheet, from a smartphone if you hold a My Number card.
- Check your accounting software against the qualified electronic books or digital seamless standards. Switching vendors takes time.
- Start bookkeeping under the new standard on 1 January 2027. A mid-year switch will not qualify for that year.
- File the notification by 15 March 2028, the deadline for the 2027 return. The two routes use different forms.
Accounting software purchases may qualify for Japan's digitalisation and AI adoption subsidy, which the leaflet itself flags. Small businesses can have up to 80 percent of the cost covered. Check the current application round with the Small and Medium Enterprise Agency.
Do this today
- Open last year's return and check which Blue Return deduction figure appears: 650,000, 550,000 or 100,000 yen.
- If you filed on paper, confirm that you can use e-Tax with a My Number card and a smartphone.
- Check whether your 2025 revenue exceeded 10 million yen. If it did and you keep simplified books, start moving to double-entry bookkeeping this year.
Frequently asked questions
When does the 750,000 yen deduction first apply?
To income tax for the 2027 calendar year, declared in the spring 2028 filing season. Through the 2026 tax year the maximum stays at 650,000 yen. Local inhabitant tax reflects the change one year later.
I file on paper and claim 550,000 yen. What happens if I do nothing?
Your deduction falls to 100,000 yen from the 2027 tax year. Double-entry bookkeeping is not enough on its own, because the new 650,000 tier requires e-Tax transmission. The National Tax Agency states that from 2027 the ceiling for paper filing is 100,000 yen. Switching to e-Tax is the single most important step.
Does simplified bookkeeping with revenue above 10 million yen really mean zero?
Yes. The test uses revenue rather than income and looks at the year two years earlier, so the 2027 deduction depends on 2025 revenue. For real estate income, only business-scale operations lose the deduction; smaller operations keep up to 100,000 yen. Business income and real estate income are tested separately.
Should I choose qualified electronic books or digital seamless storage?
Either one qualifies. If you already hold the notification for qualified electronic books and claim 650,000 yen, that route carries over without refiling the form. If your software already connects to bank accounts or digital invoices, seamless storage may involve less extra work. Start by asking which standard your accounting software supports.
I use cash-basis accounting. Can I claim 750,000 yen?
No. Taxpayers using the cash-basis special rule cannot claim the 650,000 or 750,000 yen deductions, although the 100,000 yen deduction remains available. This matches the current rules and does not change with the reform.
Sources
- National Tax Agency leaflet on the 750,000 yen Blue Return deduction (August 2026, requirements and notification forms)
- National Tax Agency leaflet for users of the 100,000 yen deduction (April 2026, the 10 million yen test and real estate income)
- Ministry of Finance, FY2026 Tax Reform Outline (pages 25 to 26)
- National Tax Agency No.2072, Blue Return special deduction (current requirements)
- National Tax Agency portal on electronic books and records
This article is general information and not tax advice. Consult a tax office or a licensed tax accountant for individual decisions. Operational details may be added or changed by future ordinances and agency guidance.