Union Budget 2026–27
The Union Budget 2026–27 was presented in Parliament by Union Finance Minister Nirmala Sitharaman on 1 February 2026. It is the first budget prepared in Kartavya Bhawan and is built around three foundational national duties — accelerating growth, empowering people, and ensuring inclusive development.
The budget attempts to balance fiscal discipline with aggressive investment in manufacturing, infrastructure, human capital, and technology-led governance. It also introduces major tax simplifications aimed at reducing compliance burden and encouraging global investment.
Fiscal Overview and Budget Estimates
The budget maintains a strong focus on fiscal stability while increasing capital expenditure to drive growth. Non-debt receipts are estimated at ₹36.5 lakh crore and total expenditure at ₹53.5 lakh crore.
Net tax receipts are projected at ₹28.7 lakh crore, showing steady revenue performance. The fiscal deficit is estimated at 4.3% of GDP, a gradual improvement from the previous year. Capital expenditure remains a priority, reflecting the government’s belief that infrastructure investment generates long-term economic multipliers.
Key fiscal highlights:
- Non-debt receipts: ₹36.5 lakh crore
- Total expenditure: ₹53.5 lakh crore
- Capital expenditure: approx. ₹11 lakh crore
- Fiscal deficit: 4.3% of GDP
- Debt-to-GDP ratio: 55.6%
- Gross market borrowing: ₹17.2 lakh crore
These numbers indicate a calibrated fiscal consolidation strategy while sustaining growth momentum.
First Kartavya: Accelerating and Sustaining Economic Growth
The first duty focuses on transforming India into a globally competitive manufacturing and infrastructure powerhouse. The strategy combines industrial modernization, logistics expansion, and technology leadership.
Manufacturing in Strategic Sectors
The government is scaling manufacturing in frontier industries to reduce imports and increase exports. A ₹10,000 crore Biopharma SHAKTI mission will develop India as a global pharmaceutical production hub, supported by new institutes and clinical research infrastructure. Semiconductor Mission 2.0 emphasizes domestic chip production, intellectual property development, and workforce training to reduce dependency on foreign supply chains.
Additional manufacturing measures include:
- Electronics component scheme expanded to ₹40,000 crore
- Rare earth corridors in mineral-rich coastal states
- Three plug-and-play chemical parks
- Container manufacturing ecosystem worth ₹10,000 crore
- Hi-tech tool rooms for precision manufacturing
- Construction equipment modernization scheme
These interventions aim to make India a resilient industrial economy capable of competing in high-value sectors.
Textile and Traditional Industries
The textile sector receives an integrated modernization push to enhance exports and employment. The National Fibre Scheme promotes both natural and synthetic fibres, while Mega Textile Parks will encourage technical textile manufacturing. Special attention is given to khadi, handloom, and handicrafts to preserve heritage industries while connecting them to global markets.
Key textile initiatives:
- Capital support for machinery upgrades
- Cluster modernization
- Branding and export linkage
- Skill training programs
- Quality certification infrastructure
SME and Micro Enterprise Strengthening
Small businesses are recognized as engines of employment. A ₹10,000 crore SME Growth Fund will nurture high-performing enterprises into global champions. Additional risk capital is provided through the Self-Reliant India Fund.
Support mechanisms include:
- Corporate mentorship programs
- Tier-II and Tier-III city entrepreneurship support
- Simplified financing access
- Professional advisory ecosystem
Infrastructure Push
Public capital expenditure rises to ₹12.2 lakh crore, marking one of the largest infrastructure investments in India’s history. The government is prioritizing logistics efficiency, green transport, and asset monetization.
Major infrastructure initiatives:
- New freight corridor connecting East and West India
- 20 operational inland waterways
- Ship repair hubs in river cities
- Coastal cargo promotion scheme
- Seaplane connectivity program
- Infrastructure Risk Guarantee Fund
- REIT-based monetization of CPSE assets
These measures aim to reduce logistics costs, increase connectivity, and attract private investment.
Energy Security
₹20,000 crore is allocated for carbon capture and storage technologies. This reflects India’s transition strategy toward climate-resilient growth and long-term energy stability.
City Economic Regions
Selected cities will be developed as economic growth hubs through reform-linked financing. Seven high-speed rail corridors will connect major industrial clusters, promoting sustainable urban expansion and reducing congestion. These include:
- Mumbai-Pune
- Pune-Hyderabad,
- Hyderabad-Bengaluru,
- Hyderabad-Chennai
- Chennai-Bengaluru,
- Delhi-Varanasi,
- Varanasi-Siliguri.
Second Kartavya: Empowering People
The second duty emphasizes human capital — healthcare, education, skills, tourism, and creative industries.
Healthcare Expansion
The government will add 100,000 allied health professionals and create five regional medical hubs to promote medical tourism. New Ayurveda institutes strengthen India’s traditional healthcare ecosystem.
Healthcare goals:
- Expanded workforce
- Medical infrastructure modernization
- Public-private partnerships
- International patient attraction
Education and Skill Development
University townships will emerge near industrial corridors to integrate academia and industry. Girls’ hostels in every district promote gender-inclusive education. A standing committee will align education with employment demands.
Creative Economy
India’s AVGC (Animation, Visual Effects, Gaming, Comics) sector receives a large boost with digital labs in thousands of schools and colleges, creating a pipeline of creative talent.
Tourism and Heritage
Tourism is positioned as a major economic driver. Tourist guide training, digital heritage documentation, and hospitality upgrades aim to create global-standard tourism infrastructure.
Sports
A decade-long Khelo India Mission seeks to build a professional sports ecosystem and nurture international-level athletes.
Third Kartavya: Inclusive Development
The third duty focuses on social equity, agriculture, mental health, and regional development.
Farmer Income Growth
High-value agriculture and water resource modernization will raise farm productivity. AI-powered Bharat-VISTAAR integrates agricultural data systems for smarter farming decisions.
Agricultural reforms include:
- Reservoir modernization
- Crop diversification
- AI advisory systems
- Coastal crop promotion
Divyangjan Empowerment
Specialized skill programs create employment pathways in technology and hospitality sectors.
Mental Health Infrastructure
A new national mental health institute and upgraded regional centers signal growing policy attention to psychological well-being.
North-East and Eastern Growth
The East Coast Industrial Corridor, Buddhist tourism circuits, and electric bus deployment promote regional balance in development.
Tax Reforms – Part B
The tax reforms are designed to simplify compliance, reduce litigation, and attract investment.
Direct Tax Reforms
The Direct Tax proposals in the Union Budget 2026–27 aim to simplify compliance, reduce litigation, support small taxpayers, encourage global investment, and strengthen India’s position as a technology-driven economy.
New Income Tax Act
A completely redesigned New Income Tax Act, 2025 will come into effect from April 2026. The purpose of the new Act is to simplify tax laws, reduce ambiguity, and make compliance easier for ordinary citizens and businesses.
The government will shortly notify simplified Income Tax Rules and redesigned forms that are user-friendly and digitally compatible. The new system emphasizes automation, minimal human interface, and faster processing of returns and refunds.
Key features:
- Implementation of New Income Tax Act from April 2026
- Simplified tax rules and procedures
- Citizen-friendly redesigned forms
- Digital-first compliance framework
- Reduced interpretation disputes
Ease of Living Measures
Several measures are introduced to reduce tax burden and improve convenience for individual taxpayers. Interest awarded by Motor Accident Claims Tribunals to natural persons will be fully exempt from Income Tax, and TDS on such payments will be removed. This ensures victims receive full compensation without procedural delays.
Tax collection at source (TCS) is rationalized to reduce the financial burden on individuals:
- Overseas tour packages: TCS reduced to 2%
- Education and medical remittances under LRS: TCS reduced to 2%
- Simplified TDS rules for manpower supply businesses
- Automated system for obtaining lower/nil TDS certificates
- Single-window filing of Form 15G/15H for dividend and interest income
- Return revision deadline extended to March 31
- Staggered tax filing timeline to reduce portal congestion
- PAN-based challan replaces TAN for NRI property deals
- One-time 6-month foreign asset disclosure window for small taxpayers
Rationalization of Penalty and Prosecution
The government proposes a major shift toward trust-based taxation by integrating assessment and penalty proceedings into a single common order. Taxpayers will be allowed to update returns even after reassessment has begun by paying an additional 10% tax, reducing litigation and disputes.
Other important reforms include:
- Immunity from penalty for misreporting upon additional tax payment
- Rationalized prosecution framework
- Decriminalization of technical offences
- Immunity for small undisclosed foreign assets below ₹20 lakh
- Retrospective relief effective from October 2024
Support for Cooperatives
The cooperative sector receives expanded tax benefits to strengthen rural and agricultural economies. Existing deductions for primary cooperatives are extended to include cattle feed and cotton seed supply. Inter-cooperative dividend distribution is allowed as a deduction, encouraging cooperative reinvestment.
Additional relief:
- 3-year dividend tax exemption for notified cooperative federations
- Incentives for profit sharing among member cooperatives
Supporting the IT Sector
India’s IT industry is recognized as a major growth engine. Several reforms streamline taxation for technology services:
- Unified classification of IT services
- Safe harbour margin fixed at 15.5%
- Eligibility threshold raised to ₹2,000 crore
- Automated approval of safe harbour
- Valid for 5-year blocks
- Fast-track Advanced Pricing Agreements (APA)
- Modified returns extended to associated entities
Attracting Global Investment
The budget introduces strong incentives to position India as a global digital and logistics hub. Key proposals:
- Tax holiday till 2047 for global cloud companies using Indian data centers
- 15% safe harbour margin for related data center entities
- 2% profit safe harbour for bonded warehouse operations
- 5-year tax exemption for foreign capital equipment suppliers
- Exemption on global income for foreign experts staying 5 years
- MAT exemption for non-residents under presumptive taxation
Tax Administration Reforms
The government plans to integrate accounting standards with tax rules to eliminate duplication. A joint committee between the Ministry of Corporate Affairs and CBDT will merge ICDS into Indian Accounting Standards.
Key reforms:
- Removal of separate ICDS accounting from 2027–28
- Rationalized definition of accountant under safe harbour rules
- Unified compliance framework
Other Tax Proposals
Several structural tax changes are introduced to protect investors and modernize corporate taxation:
- Share buybacks taxed as capital gains
- Additional tax on promoters (22% corporate / 30% non-corporate)
- TCS rationalized on liquor, scrap, minerals, tendu leaves
- Increased Securities Transaction Tax on derivatives
- MAT credit is allowed only in the new regime. MAT converted into final tax at 14%
- No new MAT credit accumulation after April 2026
- Existing MAT credit remains usable
Indirect Tax and Customs Reforms
The Union Budget 2026–27 focuses on simplifying indirect taxes, rationalizing customs duties, promoting exports, encouraging domestic manufacturing, and enhancing ease of living for citizens. The proposals reflect the government’s commitment to “trust-based systems”, digital-first processes, and a business-friendly environment that aligns with India’s growth ambitions.
Tariff Simplification
- Marine, Leather, Textile: Duty-free imports for seafood processing raised from 1% → 3% of FOB value; leather/synthetic footwear inputs allowed.
- Energy & Solar: Customs duty exemptions extended for Lithium-Ion battery manufacturing and sodium antimonate for solar glass.
- Nuclear Power: Duty exemption on imports for nuclear projects extended till 2035.
- Critical Minerals: Capital goods for processing exempted from duty.
- Biogas Blended CNG: Biogas value excluded for excise duty.
- Civil & Defence Aviation: Exemptions for aircraft components, parts, and raw materials for defence maintenance.
- Electronics: Duty exemptions on microwave oven parts.
Special Economic Zones (SEZs)
- One-time measure allowing SEZ units to sell goods to Domestic Tariff Area (DTA) at concessional duty; limited to a proportion of exports.
Ease of Living for Individuals
- Tariff on personal imports reduced: 20% → 10%.
- 17 drugs/medicines exempt from duty; 7 rare diseases covered for personal imports.
- Baggage allowance rules revised for international travelers.
Customs Process Simplification
- Minimal intervention in customs; faster movement of goods.
- Duty deferral for Tier 2/3 AEOs extended to 30 days.
- Advance ruling validity extended: 3 → 5 years.
- Automated bill of entry and warehouse operator-centric system with risk-based audit.
Ease of Doing Business
- Single digital window for cargo clearance across government agencies by FY 2026–27.
- Clearance of 70% of food, drugs, plant/animal/wildlife cargo operationalized by April 2026.
- Customs Integrated System (CIS) to be rolled out in 2 years.
- Non-intrusive scanning, AI, and imaging technology for all containers phased across ports.
New Export Opportunities
- Fish caught by Indian vessels in EEZ/high seas duty-free; landing at foreign ports treated as export.
- ₹10 lakh per consignment cap on courier exports removed to help SMEs, artisans, and startups access global markets.
Trust-Based Compliance
- Honest taxpayers can settle disputes by paying an additional amount instead of facing penalties.
