Union Budget 2026–27 continues the Government’s medium-term strategy of high public investment, fiscal consolidation, digital governance, and manufacturing-led growth. The Budget focuses on strengthening infrastructure, green transition, MSME development, and technology adoption, while rationalising direct and indirect tax frameworks to improve compliance and global competitiveness.

The Finance Bill, 2026 also facilitates the transition to the Income-tax Act, 2025 and introduces structural reforms in GST and Customs to ease business operations and promote exports.

1. Macroeconomic and Fiscal Framework

The Budget projects real GDP growth of around 7%, supported by sustained public investment and service sector resilience. Fiscal deficit is targeted at 4.3% of GDP in FY 2026–27, continuing fiscal consolidation. Public capital expenditure has been increased to ₹12.2 lakh crore, with effective capex at ₹17.1 lakh crore.

Debt-to-GDP ratio is estimated at 55.6%, with a calibrated reduction path to 50±1% by 2030. Gross market borrowings are estimated at ₹17.2 lakh crore, while net tax receipts are projected at ₹28.7 lakh crore.

Overall, public investment remains the primary growth driver, balanced with fiscal prudence.

2. Sectoral Focus Areas

• • The Budget provides targeted policy and financial support to key growth sectors.
  • Green energy and climate action receive enhanced incentives for renewable power, EV infrastructure, hydrogen, and energy storage.
  • Infrastructure and urban development allocations support roads, railways, ports, housing, sanitation, and smart cities.
  • Digital economy and technology are promoted through AI adoption, cybersecurity, fintech, and public sector digitisation.
  • MSMEs and exports benefit from simplified compliance, digital onboarding, and credit facilitation.
  • Healthcare and life sciences receive support for manufacturing, research, and infrastructure.
  • Agriculture and rural development are strengthened through irrigation, connectivity, food processing, and agri-tech initiatives.
  • These measures are expected to generate medium- to long-term earnings and valuation upside across sectors.

3. Direct Tax Reforms

(a) Transition to Income-tax Act, 2025: The Finance Bill specifies tax rates under the new Act while retaining the 1961 framework for the current assessment year. The new regime provides a higher basic exemption limit of ₹4,00,000.

(b) Tax Rates and MAT: Individual slabs largely remain unchanged. MAT for domestic companies under the old regime is proposed to be reduced from 15% to 14%. Certain high-rate incomes under Sections 102–106 are reduced from 60% to 30%.

(c) Securities Transaction Tax: STT on options and futures is increased, impacting derivative trading costs.

(d) Capital Gains on Buy-back: Proceeds from buy-back of shares are shifted from dividend taxation to capital gains taxation, with higher burden on promoters.

(e) IFSC Incentives: Tax holiday for IFSC units and OBUs is extended by 10 years, followed by concessional taxation at 15%.

(f) Transfer Pricing: Time limits for TPO orders are clarified. Modified returns are permitted for APA cases. Safe harbour rules are expanded, with higher turnover thresholds and new provisions for data centres.

(g) Return Filing and Assessments: Due date for non-audit cases is extended to 31 August. Revised returns are permitted till assessment year end. New fees are introduced for delayed revisions. DRP-related assessment timelines are clarified.

(h) Penalties and Prosecution: Penalty immunity is extended to misreporting cases on payment of additional tax. Penalty integration is mandated from April 2027. Several offences are decriminalised with reduced imprisonment terms.

(i) Provident Fund: Clarifications are introduced on PF trust recognition. Excess employer contribution provisions are rationalised.

(j) Business Incentives: Tax exemptions are provided for foreign companies supplying capital goods for electronics manufacturing, data centre services, and notified non-resident professionals.

(k) TDS and TCS Rationalisation: Electronic issuance of lower deduction certificates is introduced. TAN requirement is removed for certain non-resident property transactions. TDS on manpower supply is clarified. TCS rates are rationalised to a standardised 2% for multiple transactions.

(l) Other Amendments: Deductions for co-operative societies are expanded. Non-profit mergers are exempted from accreted income tax. New exemptions are introduced for defence pensions and land compensation.

4. GST Amendments

• • Place of supply for intermediary services is shifted to the location of the recipient, enabling export benefits.
  • Requirement of linking post-sale discounts to original agreements is removed.
  • Provisional refunds are allowed for inverted duty structure cases.
  • The Central Government is empowered to designate appellate authorities for NAAAR-related matters.
  • These changes aim to reduce working capital blockage and litigation.

5. Customs and Trade Reforms

• • Validity of advance rulings is extended from three to five years.
  • Customs jurisdiction is extended to offshore fishing activities. A new Section 56A introduces a special framework for fishing beyond territorial waters.
  • Movement of warehoused goods is simplified without prior permission.
  • Baggage Rules, 2026 are introduced, replacing the 2016 rules.
  • Deferred duty payment timelines are relaxed.
  • Defence-related imports for MRO activities are exempted.
  • Numerous customs tariff entries are rationalised, omitted, or revised across agriculture, chemicals, pharmaceuticals, electronics, steel, textiles, and specialty industries.
  • Select pharmaceutical intermediates and controlled substances attract higher duties, while many industrial inputs are omitted to reduce costs.

6. Sectoral Impact

• • MSMEs and startups benefit from compliance simplification and credit access.
  • Textiles, ITES, and export-oriented units gain from infrastructure and trade facilitation.
  • Green energy and heavy manufacturing receive sustained capex support.
  • Healthcare and pharma benefit from customs rationalisation and R&D support.
  • Agriculture and food processing gain from tariff adjustments and rural investment.
  • Tourism is supported indirectly through infrastructure and connectivity spending.
  • Overall, the Budget strengthens domestic manufacturing, exports, and value chains.