As MSMEs continue to serve as the backbone of India’s economy—driving employment, innovation, and exports—expectations from Union Budget 2026–27 are firmly centred on easing compliance, improving liquidity, and providing greater tax certainty. With rising input costs, tighter working capital cycles, and evolving regulatory requirements, small and medium businesses are looking for targeted policy interventions rather than broad-based incentives.
Budget 2026–27 presents an opportunity to strengthen MSME competitiveness by simplifying direct tax provisions, rationalising GST processes, accelerating refund timelines, and reducing litigation exposure. Focused reforms in presumptive taxation, tax audits, dispute resolution, and export facilitation can significantly lower the compliance burden and free up resources for growth and expansion.
Beyond MSME-focused reforms, Budget 2026–27 is also expected to address broader tax and economic priorities aimed at improving India’s competitiveness and reducing compliance friction. With strong growth projections, rising investor confidence, and a high volume of pending tax disputes, the budget presents an opportunity to simplify direct tax rules, strengthen dispute resolution, and streamline GST provisions.
Outlined below are the key direct tax and GST expectations from Budget 2026–27, aimed at creating a more predictable, MSME-friendly tax environment and enabling businesses to scale sustainably.
Direct Tax Expectations
Targeted reforms aimed at simplifying taxation, easing audits, and encouraging voluntary compliance among MSMEs.
1. Higher Presumptive Taxation Thresholds
- Increase turnover limits under presumptive taxation schemes.
- Simplify eligibility conditions to cover a larger MSME base.
➡ Outcome: Lower compliance burden and improved voluntary compliance.
2. Rationalisation of Tax Audit Requirements
- Further enhancement of tax audit thresholds.
- Reduced documentation and reporting obligations.
➡ Outcome: Cost savings and focus on business growth.
3. Faster Dispute Resolution & Reduced Litigation
- Limit reassessment and scrutiny for small-value cases.
- Introduce fast-track dispute resolution for MSMEs.
➡ Outcome: Reduced uncertainty and litigation costs.
4. Certainty in Business Restructuring
- Simplified and tax-neutral restructuring provisions for MSMEs.
➡ Outcome: Flexibility to reorganise and scale operations.
GST Expectations
Reforms aimed at faster refunds, simplified compliance, and reduced GST-related disputes for MSMEs.
1. Faster GST Refunds & Liquidity Support
- Provisional refunds for inverted duty structure cases.
- Time-bound processing of all GST refunds.
➡ Outcome: Improved working capital and cash flow stability.
2. Export Facilitation for Small Exporters
- Removal of minimum value thresholds for export refund claims.
- Simplified refund procedures for courier and postal exports.
➡ Outcome: Enhanced competitiveness of MSME exporters.
3. Simplification of Commercial Practices
- Relaxation of conditions for post-sale discounts under GST.
➡ Outcome: Alignment with commercial realities and easier compliance.
4. Reduced GST Litigation
- Alignment of GST provisions with global principles for services.
- Clearer place-of-supply rules to minimise disputes.
➡ Outcome: Predictable tax outcomes for MSMEs engaged in services.
Overall Outcomes for MSMEs Expected:
Taken together, these expectations point towards lower compliance burdens, improved cash flows, and reduced tax-related uncertainty for MSMEs. A simpler and more predictable tax regime can enhance export competitiveness and support long-term business growth.
- Lower compliance and administrative costs
- Faster access to refunds and working capital
- Reduced litigation and uncertainty
- Improved export competitiveness
- Stronger contribution to employment and economic growth
Other Key Budget 2026–27 Expectations
Economic Context
- India’s economy is projected to grow at 7–7.5%, supported by consumption, infrastructure
spending, and policy reforms. - Strong M&A momentum (USD 61.3 bn in H1 2025) and rising foreign investment signal
investor confidence. - High tax litigation (5.4+ lakh pending appeals) highlights the urgent need for simplification and faster dispute resolution.
Direct Tax – Key Expectations
Business Restructuring
- Tax neutrality for fast-track demergers.
➜ Outcome: Faster reorganisations | Lower compliance | Growth enablement
Capital Gains Rationalisation
- Reduce holding period for slump sale.
➜ Outcome: From 36 months → 24 months
➜ Outcome: Alignment with other assets | Capital mobility
International Tax Competitiveness
- Clear MAT exemption for foreign companies under presumptive regimes.
➜ Outcome: Avoid MAT due to incidental income
➜ Outcome: Boost attractiveness for global operators
Transfer Pricing Certainty
- Simplify definition of Associated Enterprises.
➜ Outcome: Reduce ambiguity | Fewer disputes | Easier compliance
IFSC Incentives
- Dividend tax exemption for IFSC investors.
➜ Outcome: Attract long-term foreign capital
➜ Outcome: Strengthen India as global financial hub
GST – Key Expectations
Cross-Border Services
- Delete Section 13(8)(b) – IGST Act.
➜ Outcome: Place of supply based on recipient location
➜ Outcome: Global alignment | Reduced litigation
Commercial Discounts
- Amend Section 15(3)(b) – CGST Act.
➜ Outcome: Ease conditions for post-sale discounts
➜ Outcome: Align GST with business realities
Exporter Relief
- Omit Section 54(14) – CGST Act.
➜ Outcome: Remove minimum value threshold for refunds
➜ Outcome: Liquidity boost for SME exporters
Faster Refunds
- Provisional refunds for inverted duty structure.
➜ Outcome: Risk-based sanction
➜ Outcome: Faster working capital access
Expected Outcomes
- Reduced litigation & disputes.
- Faster refunds & improved cash flows.
- Lower compliance burden.
- Stronger investor & exporter confidence.
- Alignment with global best practices.
The Big Picture
A simpler, predictable, and growth-oriented tax ecosystem
→ Unlocks investment.
→ Supports MSMEs & exporters.
→ Reinforces India as a preferred global capital destination.
