Get Ready For Budget 2026, With BDO India

The Union Budget for FY 2026–2027, scheduled to be presented on 1 February 2026, is expected to play a critical role in sustaining India’s growth trajectory while advancing the long-term vision of ‘Viksit Bharat 2047’. Last year witnessed significant changes under the income tax law with the Income-tax Act, 2025 set to replace the Income-tax Act, 1961; the Supreme Court pronouncing its decision on various important issues; and the Inclusive Framework agreeing on a Side-by-Side approach paving the way for Pillar Two solution.

While the implementation of the new income tax law is on the anvil, the upcoming Budget is expected to focus on further simplification, tax certainty, reduction of litigation, and measures to stimulate consumption and investment.

Let’s explore some key tax expectations that may be relevant for individuals, businesses, and multinational groups.

Goods and Services Tax

• Amendments in the GST laws to give effect to the recommendations made in the 56th GST Council meeting held on 3 September 2025

Customs

• Rationalisation of the customs duty rate slabs, similar to the exercise done for GST, leading to simplification and reduction in classification disputes
• Introduction of a dispute settlement scheme for Customs disputes
• Extension of customs duty exemptions/ concessions expiring on 31 March 2026  

Individual Tax

• Re-evaluation of the definition of metro cities in light of India’s expanding urban landscape, or alternatively, extension of the higher limit for claiming house rent allowance (HRA) to enable taxpayers to claim a higher percentage of HRA exemption 
• Enhanced deductions for medical insurance premiums and medical expenses, particularly for senior citizens and critical illnesses
• Allowance of housing loan interest deduction under the new tax regime, especially for self-occupied properties

Corporate Tax - Simplification and Litigation Reduction

• Prescribed timelines for disposal of tax appeals, especially at the first appellate level
• Rationalisation of withholding tax structure to reduce compliance complexity
• Deduction of Employee Stock Ownership Plan (ESOP) recharge cost paid by Indian subsidiaries to foreign parents

International Tax – Pillar Two and Transfer Pricing

• Approach to implementation of OECD Pillar Two (Global Minimum Tax) framework, including implementation and compliance requirements
• Measures to expedite the resolution of Advance Pricing Agreement (APA) applications
• Expansion and rationalisation of the Safe Harbour regime to cover higher-value transactions
• Automatic levy of penalty for underreporting to be avoided

Guidance Notes / FAQs on the Income-tax Act, 2025

To facilitate a smooth and seamless transition to the newly enacted Income-tax Act, 2025, it would be desirable to carry out clarificatory amendments as well as provide a user-friendly and practical reference, in the form of Frequently Asked Questions (FAQs)/ Guidance Notes for taxpayers, professionals, and departmental officers. It would effectively reduce friction, litigation, and compliance costs. 

BDO India Perspective

Against a backdrop of global uncertainty, Budget 2026–27 is expected to balance fiscal discipline with growth-oriented reforms, while providing greater tax certainty and ease of doing business. Clear policy signals, particularly on international tax and dispute resolution, will be critical for investor confidence.