Background: Union Budget 2026–27
The Government of India will present the Union Budget for the financial year 2026–27 in the Lok Sabha on 1 February 2026, outlining its fiscal strategy, revenue measures, and expenditure priorities. The Union Budget remains a critical policy instrument for steering economic growth, strengthening public finances, and addressing sector-specific challenges, while supporting emerging areas such as technology, artificial intelligence, and robotics.
India’s economy is expected to continue its strong growth trajectory in FY 2025–26, with estimated real GDP growth of around 7.4%. In this context, Union Budget 2026–27 is expected to strike a prudent balance between growth promotion and fiscal consolidation, while ensuring policy stability and long-term structural reforms.
Despite global uncertainties arising from geopolitical tensions, inflationary pressures, and tightening monetary conditions, the Indian economy has shown resilience. Continued government focus on infrastructure development, manufacturing, digitalisation, and formalisation of the economy has been instrumental in sustaining momentum.
The Budget is expected to address key stakeholder expectations through simplification of tax and compliance frameworks, rationalisation of tax structures, targeted support to MSMEs, promotion of exports, and encouragement of private sector investment. Measures aimed at improving ease of doing business, cash flows, and competitiveness of enterprises remain critical.
As India advances towards its vision of becoming a USD 5-trillion economy, Union Budget 2026–27 presents an opportunity to reinforce investor confidence, enhance productivity, and align fiscal and policy initiatives with the country’s long-term economic and developmental objectives.
Key Expectations
As India approaches the Union Budget 2026–27 (scheduled for 1 February 2026), expectations are high for a budget that sustains economic momentum while strengthening tax certainty, compliance ease, and global competitiveness. With India’s growth outlook remaining positive—supported by resilient domestic consumption, continued infrastructure focus, and policy-driven reforms—stakeholders look forward to measures that enhance investment confidence and reduce friction in day-to-day compliance.
A key area of expectation is tax simplification and reduction in litigation, especially given the continuing volume of pending tax disputes and the need for faster disposal of appeals. With the Income-tax Act, 2025 set to be operational from 1 April 2026, taxpayers and professionals also expect clear transition guidelines, simplified procedures, and reduced ambiguity to avoid fresh disputes.
On the corporate side, businesses anticipate reforms supporting restructuring and capital reallocation. One important expectation is granting tax neutrality for fast-track demergers, as the current framework does not explicitly provide the same, creating uncertainty. Similarly, rationalisation of the holding period for slump sale transactions—reducing the long-term threshold from 36 months to 24 months—would align with other asset classes and encourage efficient asset transfers.
From an international tax standpoint, clarity is expected on MAT exemptions for foreign companies under presumptive taxation, especially where incidental income exists alongside eligible business income. Further, simplifying and making the definition of Associated Enterprises more objective could reduce transfer pricing disputes and compliance complexity for multinational groups. Stakeholders also expect a more competitive tax environment for IFSCs, including potential relief on dividend taxation for IFSC investors to attract long-term foreign capital.
On the GST front, industry is looking for measures that improve liquidity and reduce disputes—such as revisiting the place of supply provisions for intermediary services, simplifying treatment of post-sale discounts, and easing export refund restrictions. Faster and risk-based refund mechanisms, including for inverted duty cases, could significantly improve working capital for MSMEs and exporters.
Overall, Budget 2026 is expected to strengthen a tax ecosystem that is simpler, predictable, and aligned with global best practices, supporting individuals, MSMEs, exporters, and large businesses alike—while reinforcing India’s position as a preferred destination for investment and growth.
Sector-wise Expectations
As preparations for Union Budget 2026–27 gather pace, industry stakeholders have articulated sector-specific expectations aimed at strengthening growth, competitiveness, and long-term resilience of the Indian economy. The following outlines key expectations across major sectors:
1. Agriculture, Rural Development & Food Security
Agriculture remains a priority, with expectations that the Budget will:
• Increase allocations for agricultural R&D, climate-resilient seeds, storage and processing infrastructure.
• Promote digital agriculture technologies to support higher productivity.
• Strengthen export competitiveness for agricultural commodities by improving quality and value capture.
2. MSME Financing, Innovation & Inclusion
Micro, Small and Medium Enterprises (MSMEs) remain central to employment generation and economic resilience, and are expected to be a key focus area in Union Budget 2026–27. Stakeholders anticipate measures aimed at improving access to timely and affordable credit, accelerating innovation adoption, and supporting deeper integration of MSMEs into the formal economy.
Key expectations include policy support for digital and data-driven credit models, expansion of secured lending frameworks, and enhancement of credit-guarantee mechanisms to reduce risk for lenders. Continued encouragement for NBFCs, fintech platforms, and alternative financing channels is expected to play a vital role in extending formal financial services to underserved and semi-urban regions.
3. Digital Economy, Technology & Innovation
The technology sector remains central to India’s future economic roadmap:
• Digital public infrastructure (DPI): Policy focus is expected on strengthening platforms like real-time payments, verification systems, and enterprise digital solutions that support financial inclusion and service delivery.
• AI, deep tech and startups: Budget 2026 is widely expected to allocate increased support and incentives for artificial intelligence, SaaS, and deep-tech innovation. Enhanced R&D funding and regulatory clarity will be key to scaling these sectors.
4. Green Energy, Renewables & Sustainability
Energy transition and climate priorities are expected to shape fiscal incentives:
• Renewable energy support: The Budget may introduce expanded funding for solar, wind, hydropower, and green hydrogen initiatives, including tax breaks or accelerated depreciation for clean energy projects.
• Grid modernisation: Investment in smart grids and energy storage infrastructure is anticipated to ensure renewables integration and improve reliability.
• Electric mobility: Tax incentives and fiscal support for EV adoption, charging infrastructure and local EV component manufacturing could be included to accelerate the clean mobility transition.
5. Defence
Defence is expected to remain cornerstones of public investment in the 2026 budget:
Defence modernisation: Strengthening national security through higher allocations for defence preparedness, indigenisation of military technologies, and improved capability development is anticipated to feature prominently in the Budget. Strategic defence R&D and domestic arms manufacturing may see enhanced funding.
6. Healthcare, Education & Skilling Initiatives
In social sectors, the Budget is expected to:
• Increase funding for public health systems, preventive care, and diagnostic infrastructure.
• Support education and skilling programs, particularly those aligned with technology, vocational training and future employment needs.
• Strengthen healthcare innovation and insurance penetration to ensure equitable access to quality services.
7. Automotive & Electric Mobility
Stakeholders seek clarity on compensation cess and a rationalised indirect tax structure for electric vehicles and components. Streamlining customs classifications and reducing duty inversion are expected to ease working-capital pressures, support localisation, and accelerate EV adoption across passenger and commercial segments.
8. Consumer Goods & Retail
The sector anticipates tax incentives for health-oriented and sustainable products, along with neutrality in tax treatment for post-sale discounts and promotional schemes. Improved input tax credit mechanisms and alignment of GST provisions with commercial practices would help reduce disputes and improve margins in high-volume retail models.
9. Infrastructure – Roads, Highways & Mobility
The sector expects continued capital expenditure momentum, with highway outlays likely to remain at elevated levels. Beyond funding, emphasis is sought on quality, lifecycle cost management and faster project completion.
Key expectations include:
• Greater focus on operations and maintenance (O&M) to avoid the “build-neglect-rebuild” cycle, with a gradual increase in O&M share of total highway expenditure.
• Re-orientation of programmes such as Bharatmala towards completion-centric outcomes rather than project announcements.
• Procurement reforms moving away from L1-only models toward performance-based and value-driven contracting.
• Development of alternative financing mechanisms, including credit enhancement tools, infrastructure bonds, insurance products, and currency-hedging solutions to attract long-term domestic and global capital.
• Continued push for transport (roads, railways, multimodal logistics), urban development, and digital infrastructure is likely to be announced. Targeted investments could support connectivity in Tier 2/3 cities to bridge regional growth gaps.
10. Insurance
The insurance sector expects progress on a composite licensing framework, GST rationalisation, and transition toward risk-based capital norms. These reforms are expected to enhance penetration, improve affordability, and foster innovation in product offerings.
11. Electronics & Semiconductor Manufacturing
In line with India’s objective of technology self- reliance, the sector expects continued focus on electronics and semiconductor ecosystem development.
Key expectations include:
• Incentives for electronic components and MSME suppliers, who form a significant part of the value chain.
• Support for critical input materials such as gases, chemicals, and substrates to reduce import dependence.
• Infrastructure readiness, including reliable power, ultra-pure water, logistics, and transportation systems for high-precision manufacturing.
• Enhanced incentives for R&D, IP creation, and industry–academia collaboration.
• Targeted skilling initiatives through training fabs, cleanroom simulation facilities, and specialised programs.
• Export-focused incentives, duty rationalisation, and support for tier-2 and tier-3 supplier integration to increase domestic value addition.
• Continued and expanded benefits under schemes such as PLI for white goods, encouraging backward integration and localisation of components.
12. Technology, Artificial Intelligence & Robotics
The Technology, AI, and Robotics sector is expected to be a strategic focus area in Union Budget 2026–27, given its role in driving productivity, innovation, and global competitiveness. Stakeholders anticipate enhanced fiscal incentives for AI-led R&D, IP creation, and deep-tech innovation, along with increased budgetary support for AI centres of excellence, high-performance computing infrastructure, and public-private research platforms.
The sector also seeks regulatory clarity on data governance and responsible AI, enabling innovation while ensuring security and ethical deployment. Targeted incentives to promote AI and robotics adoption across manufacturing, logistics, healthcare, agriculture, and public services, particularly among MSMEs, are expected to accelerate industry.
Further, emphasis on AI-focused skilling and reskilling programmes, industry–academia collaboration, and incentives to promote exports of AI solutions and robotics systems would strengthen India’s position as a global technology and innovation hub.
Direct Tax Relief and Simplified Compliance
Individual tax relief: After last year’s major income-tax concession (new regime made - ₹12 lakh income tax-free), taxpayers expect further tweaks. Popular proposals include raising exemption and deduction limits (e.g. higher standard deduction, increased 80C limit) or widening tax slabs to offset inflation. For example, media report that “taxpayers are hoping for further income tax relief” and easier filing. Any changes will likely be calibrated; experts think another large “bump” is very less likely, but modest adjustments to improve disposable income are anticipated.
New vs old regime: The trend toward a streamlined new regime continues. Pre-Budget surveys suggest the government may gradually phase out the old regime, but any transition would be cautious. (The Income-tax Act, 2025 - effective April 2026 - hints at this shift.) Stakeholders expect clarification on this: for instance, whether joint taxation for couples or other concessions will be introduced.
Tax code reform: With the new Income-tax Act set to kick in FY 26–27, Budget 2026 might finalize any pending rules. Observers note there is “strong expectation” for clear transition provisions and simpler processes under the new law. The government has already started rationalizing taxes (e.g. raising rebate limits, simplifying slabs), and may continue easing burdens: for example, simplifying capital gains taxation or tweaking Surcharge limits to avoid ambiguity.
Compliance ease (TDS): Ease-of-doing-business remains a priority. The Chartered Accountants’ Institute (ICAI) has urged measures like a unified electronic TDS/TCS ledger, limiting return processing to straightforward cases, and decriminalizing minor defaults. We may see steps such as reducing multiple withholding rates, rationalizing TDS provisions on salaries/contractors. The government’s past reforms (faceless assessments, faster refunds, trust-based compliance) suggest this theme will continue.
MAT Clarity for Foreign Firms: Broader exemptions for Minimum Alternate Tax (MAT) on foreign companies under presumptive regimes is expected, especially where incidental income exists; this will boost cross-border investment certainty.
Indirect Tax Relief and Simplified Compliance:
Legacy GST Dispute Amnesty: Experts and trade bodies expect a one-time scheme to settle long-pending GST disputes, potentially reducing interest/penalties and easing compliance stress.
Place of Supply Amendments: An important expectation is the amendment of Section 13(8)(b) of the IGST Act - shifting the place of supply for intermediary services to the recipient location. This aligns GST more closely with the destination principle and reduces litigation in cross-border transactions.
Post-Sale Discount Treatment: Industry seeks simplification around GST on post-sale discounts - removing rigid pre-agreed/invoice-linked requirements. This would align tax rules with real commercial practices. (This expectation was widely reported in pre-budget commentary and expert summaries. - echoed in expectations)
Customs & Foreign Trade Expectations
Simplified Customs Tariff: A broader simplification of the tariff structure is expected, potentially revisiting and reducing the number of multiple customs duty slabs to align with global standards and ease compliance for importers and exporters.
Customs Dispute Resolution & Amnesty: There is significant anticipation of a customs dispute resolution/amnesty scheme aimed at resolving legacy cases. Under such a proposal, eligible entities may settle disputes by paying accrued principal duty while waiving interest and penalties, helping free up working capital.
Advance Rulings & Certainty: Industry experts have recommended extending the validity of Customs Advance Rulings (from 3 to 5 years) to improve predictability and reduce business risk - particularly for importers facing long procedural timelines.
Digital Customs & Trade Facilitation: Budget 2026 may pave the way for an integrated, digitised customs platform aimed at simplifying clearances, enhancing risk-based targeting, and reducing manual intervention. This aligns with global trade facilitation goals and can significantly reduce delays and litigation.
Conclusion
Overall, Union Budget 2026–27 is expected to further strengthen India’s growth story by combining fiscal discipline with targeted reforms that improve competitiveness and ease of doing business. Stakeholders across individuals, MSMEs and large corporates are looking for a tax framework that is simpler, more predictable and litigation-free, along with faster refunds, smoother compliance and rationalised customs and GST provisions that support trade and exports. If the Budget successfully balances tax certainty, compliance simplification, investment facilitation and sector-led incentives, it can meaningfully improve cash flows, unlock private investment, and reinforce India’s position as a preferred destination for global capital and long-term sustainable growth.
