Union Budget 2026–27 Highlights: Economy, Tax & Key Reforms

The Union Budget for the year 2026 is the first budget prepared in Kartavya Bhawan which has been inspired by three Kartavya’s. The first kartavya focuses on the sustained economic growth by production and enhancing competitiveness of India in the Global Markets. The Second Kartavya focuses on the building capacity of people to make them string partners in India’s Growth and the third Karvataya focuses on sabka sath sabka vikas so that every community, family has access to resources, amenities and opportunity for meaningful participation.

Overview on Economic Condition

Key Numbers

Estimates

• The Government has estimated revenue receipts of Rs. 35.3 lakh Crores and capital receipts of Rs. 18.1 lakh crores for the year 2026-27.
• The revised estimate of 2025-26, fiscal deficit is expected to be 4.4% of the GDP and budgeted estimate for the 2026-27, fiscal deficit is estimated at 4.3% of the GDP.
• The Government has estimated revenue expenditure of Rs. 41.3 lakh Crores and capital expenditure of Rs. 17.1 lakh crores for the year 2026-27.
• Debt to GDP ratio for the budgeted estimates of 2026-27 is expected to be 55.6 percent of GDP as compared to 56.1 percent of GDP for 2025-26

Proposals for Economic Growth

1. Manufacturing, tech and Strategic Sector
   • Biopharma SHAKTI mission announced for developing India as a manufacturing hub for biopharma.
   • Launch of India Semiconductor Mission (ISM) 2.0 to scale production of Chips, domestic IP and supply claim with a increased outlay to Rs. 40,000 crores.
   • Government will launch a scheme that will support state governments to establish 3 chemical parks for enhancing domestic production
   • Various other schemes launched such as Integrated program for textiles, Initiative for rare earth permanent magnets, scheme to revive 200 legacy industries etc.  by government to strengthen the domestic manufacturing
2. Infrastructure & Connectivity
   • Government will develop new 7 high speed railway coridors  between major cities such as Mumbai, Pune, Chennai, Delhi, Varanasi for better connectivity.
   • Development of East-west freight corridor for efficient logistics.
   • 20 new waterways to be enacted to boost inland shipping
   • Allocation of Rs. 5000 crores over 5 years per city economic regions.
3. MSME & Investment
   • SME Growth fund of Rs. 10000 crores announced to create future champions.
   • Additional Rs. 2000 crores allocated to Self-Reliant India Fund to support Micro enterprises.
   • Government will setup dedicated REITs for recycling CPSE real estate assets to improve liquidity.
4. Other proposals
   • An outlay of ₹20,000 crore over the next 5 years, announced for Carbon Capture Utilization and Storage (CCUS) technologies.
   •  Incentive of Rs. 100 Crores for for a single bond issuance of more than ₹1000 crore for municipal bonds
   • Three new All India Institute of Ayurveda to be established

Key Highlights to change in Direct taxes

1. New Income Tax Act
   • New Income Tax Act, 2025 to take effect from 1 April 2026 with simplified structure and fewer provisions
   • New Forms and rules to be announced as per the New Income Tax Act, 2025
      
2. Changes related to Return fillings and Compliances
   • Revised return now can now be filed upto 31st March with payment of Nominal fees.
   • ITR filling due date for Business (Non Audit) is now 31st August instead of 31st July.
   • Automation of process of obtaining Lower or Nil deduction certificates instead of filing of application with assessing officer.
3. Changes in TDS and TCS
   • TDS on Supply of Manpower Services to be covered under Section 194C with TDS rate of 1% or 2%.
   • TDS on sale of property by NRI’s to be based on PAN driven system instead of TAN.
   • Reduction in TCS rate on sale of overseas tour program package to 2 % (from current 2-20%).
   • Reduction in TCS rate on LRS remittances for education and medical to 2 % (from current 5%).
   • Reduction in TCS rate on Scrap, Alcohol & Certain Goods to 2% (from current 5%)
4. Changes in MAT
   • MAT Credit relief to be allowed under only new schemes upto ¼ th of the tax liability under new regime.
   • Accumulation of MAT credit will not be allowed from 1st April 2026 and MAT is to be proposed as Final Tax with the reduced rate of 14% instead of current rate of 15%.
   • Exemption from Minimum Alternate Tax (MAT) to all non-residents who pay tax on presumptive basis.
5. Changes related to international taxation
   • A common safe harbour margin of 15.5 percent introduced for Information Technology Services clubbing Software development services, IT enabled services, knowledge process outsourcing services and contract R&D services relating to software development.
   • Threshold for availing safe harbour for IT services to be enhanced from 300 crore rupees to 2,000 crore rupees.
   • A safe harbour of 15 percent on cost to be provided if the company providing data centre services from India is a related entity
   • Tax Holiday till 2047 proposed for foreign companies on income earned by way procuring services from specific data centers, however the services must be provided through an Indian reseller entity.
6. Other changes
   • Buyback to be taxed as capital gains for all type of shareholders and promoters will be required to pay additional buyback tax.
   • Exemption from tax on Interest on Compensation received by persons (including legal heirs) under the Motor Vehicles Act, 1988 with effect from 1st April 2026.
   • STT on Futures to be raised to 0.05 percent from present 0.02 percent. STT on options premium and exercise of options to be raised to 0.15 percent from the present rate of 0.1 percent and 0.125 percent respectively.
   • Tax payers now can file updated return after reassessment proceedings with additional 10% tax rate over the rate applicable for relevant year to reduce litigations.
   • Definition of accountant for the purposes of Safe Harbour Rules to be rationalized.

Key Changes related to Indirect Tax

1. Changes related to Custom
   • Customs duty on goods imported for personal use  has been reduced from 20% to 10%.
   • Custom duty removed form 17 drugs or medicines for cancer patients.
   • Exemption given to capital goods used for manufacturing Lithium-Ion Cells for batteries to be extended.
   • The basic customs duty on import of sodium antimonate for use in manufacture of solar glass to be exempted.
   • The basic customs duty exemption given to capital goods used for manufacturing Lithium-Ion Cells for batteries to be extended.
   • The basic customs duty on import of sodium antimonate for use in manufacture of solar glass to be exempted
   • Custom duty on components and parts required for the manufacture of civilian, training and other aircrafts to be exempted.
   • One-time special measure to manufacturing units in SEZs to supply in Domestic tariff area at concessional rates of duty is proposed.
2. Changes related to GST
   • Place of supply for Intermediary services will now be location of recipient instead of location of service provider
   • Minimum refund threshold (₹1,000) for exports is proposed to be removed, aiding small exporters via courier/postal services.
   • Refund to be sanctioned on provisional basis to be allowed in case of inverted duty structure.
   • Issuance of Credit note by supplier and reversal of ITC by recipient would be sufficient for post sales discount. Post sales discount allowed as deduction from Value of supply without requirement of agreement.

Disclaimer

These updates are compiled for the general information of readers. Readers are advised to seek a professional opinion before initiating any action based on this document. We does not accept any responsibility for any loss arising out of such action.