Indian Union Budget - 2026 - Key Updates

The amendment to GST law to treat the activities of Intermediaries (like stock brokers) in India to FPIs as 'export', will enhance the intermediary's competitiveness, containment of cost, grant of refund of input taxes, position them better in terms of pricing. The transaction cost of FPIs will reduce , however the increase in STT on futures and option will to a certain extent offset the GST relief in case of such FPIs.

Over the next decade, the continued focus on development of the National Waterways Network is expected to play a vital role in the transformation of India’s logistics transformation. In light of the same, the development of twenty new national waterways announced by the finance minister is a much-needed focus area to provide a cost-effective and eco-friendly transport system for freight. This will result in decongestion of the road and railway network and increase the over-all efficiency of freight logistics in the country. Development of modern terminals along the National Waterways, supply of new passenger ships and cargo vessels will give a business boost to shipyards, especially the mid-sized ones and foster the growth of a dedicated ship repair industry focused on inland vessels. Additionally, it will lead to boost in tourism centres around the waterways leading to overall local level development and employment generation.

The identification and nurturing of Champion SMEs, along with providing access to them through a new ₹10,000 crore SME fund, shall provide the right capital to high-potential SME businesses, to scale up into larger manufacturing units, thus resulting in enhanced manufacturing capacities and employment creation.

 TReDS is proposed to be the mandatory trade settlement platform going forward for purchases made by Central Public Sector Enterprises. This in conjunction with the proposed credit guarantee support mechanism through the CGTMSE shall lead to enhanced participation of Banks and NBFCs for invoice discounting on account of the credit risk mitigation. We can also expect that MSMEs with lower credit ratings to get access to invoice discounting facility at more competitive interest rates. This will result in improved liquidity for MSMEs. 

 The classification of TReDS receivables as “Asset-Backed Securities” is an interesting development. While the short-term impact may be fairly limited, in the medium and long term, one can expect development of a secondary market for TReDS receivables with larger institutional participation. Financers will be able to free up and churn their capital by selling off portfolios of invoices

The Hon’ble Finance Minister has further incentivised companies to migrate to the new tax regime by allowing the set-off of Minimum Alternate Tax (MAT) credit up to one-fourth of the tax liability under the new regime. In addition, no further accumulation of MAT credit will be permitted from 1 April 2026 under old regime. This represents a significant policy measure aimed at simplifying the corporate tax structure and enhancing tax certainty.

Since the Hon’ble Finance Minister has already undertaken a comprehensive revamp of the Income Tax Act, 1961, no major structural changes were anticipated in this year’s Finance Budget. Accordingly, the Budget focuses on rationalising various provisions and further easing compliance requirements for individuals and corporates. These measures are aimed at attracting global business and investment while aligning with the Hon’ble Prime Minister’s vision of a Viksit Bharat

The budget proposals announced today have hit the nail and rolled out measures to keep the momentum rolling for India to become the third-largest economy. Against the backdrop of geopolitical developments and weakening corporate earnings, India’s economy is currently in a tight spot to exhibit resilience to grow at the projected rate of 7.4%.

All three Kartavyas, i.e., to accelerate and sustain economic growth, fulfil aspirations, and build capacity, and Sabka Saath, Sabka Vikas, are backed by a clear agenda to funnel in a balanced and growth-orientated economy.

On the BFSI front, the government has put across the required focus to keep the sector as the most prominent contributor to the GDP growth target. The formation of a high-level committee to review the banking sector and the restructuring of public sector NBFCs such as Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) will improve operational scale and credit delivery. MSMEs and SMEs are also considered catalysts for growth. Proposals to introduce a dedicated INR 10,000 crore SME Growth Fund and infuse the Self-Reliant India Fund, set up in 2021, with INR 2,000 crore demonstrate the relevance of the said sector. Public capital expenditure allocation of INR 12.2 lakh crore reinforces long-term investment demand and financial sector depth.

From the offshore investor perspective, one of the key proposals to review the current exchange control regime and increase overall limits for persons resident outside India from 10% to 24% in the portfolio investment scheme indicates the seriousness of the government in continuing to attract foreign outbound investment capital. The reduction of TCS rates from 5% to 2% (without limits) on LRS and overseas tours is a welcome move for foreign transactions. Inviting international corporates to set up cloud data centres in India with a tax holiday of 22 years (till 2047) depicts the intention of the government to make India the most competitive technology hub. In order to continue propagating the IFSC GIFT City, the existing tax holiday has been extended from 10 years to 20 years, with a subsequent tax at 15%, which will accelerate the pace of transactions and business being carried out from the IFSC.

On other tax proposals, alignment of buyback tax, clarity on MAT, one-time relaxation for small taxpayers on disclosures of foreign assets, and provisions on one-time immunity have displayed the intention to bring clarity and transparency and reduce compliance burdens. There was anticipation of announcements on rationalising STT, reducing capital gains tax rates, and increasing long-term capital gains exemption limits, which were not factored in. Overall, the budget proposals are focused on long-term growth-orientated reforms, building India into a self-dependent, financially stable country, imbibing technology with a push for infrastructure development. The reforms will ensure a deeper governance framework and an aligned regulatory regime across all market participants and investors. Implementation of key reforms will pave the path to a growth-oriented and fundamentally strong, self-reliant economy for India to become the third-largest USD 5 trillion economy by 2027–28.

The Union Budget lays strong emphasis on building the capacity of our people through skilling interventions, including it as one of the three kartavyas defining this year’s Budget. The announcement to set up a High-Powered Education to Employment Committee will focus on transforming the services sector into a core driver for realising the Viksit Bharat ambition by 2047. Proposing measures to integrate AI in school education and teacher training, suggesting reforms for skilling an AI-ready workforce, and examining avenues for service exports will be some of its key mandates. Lending support to state governments in setting up five university townships in close proximity to industrial corridors will certainly fuel innovation, academic excellence, and skilling. The role of foreign institutions and corporations may be encouraged in such townships to build global credibility and attract investment. The establishment of women’s hostels in every district and promotion of astrophysics are also welcome moves. It is also pleasing to note the Government’s focus on improving infrastructure in new growth centres (Tier II and III cities) through the CER (City Economic Regions) scheme, which should result in higher manufacturing and services activity, including the establishment of GCCs. The announcement of AVGC content creator labs in 15,000 secondary schools and 500 colleges, anchored by the Indian Institute of Creative Technologies, is a clear effort to develop talent for new-age services. In terms of misses, the industry was expecting a definitive roadmap toward achieving a 6% of GDP expenditure target for the education sector, rationalization of GST on verified digital learning programs, and the rollout of a red carpet for international K 12 chains, similar to higher education internationalization initiatives

South India is the biggest beneficiary in the high-speed rail corridors announced. Of the seven lines announced, three connect the main growth drivers of the South—Bengaluru, Chennai, and Hyderabad. When implemented, this would significantly contribute to increased mobility between these three large cities.

The Government has proposed an exemption for non-India-sourced income of a non-resident expert, for a stay period of five years under notified schemes. This appears to address two issues: one is to encourage a vast pool of global talent to work in India for a longer period of time, and the second is that it appears to address the geopolitical uncertainty cast by changes in visa regimes by certain developed nations.

There has been ambiguity on the applicability of TDS and its taxability in the hands of the recipient on the interest awarded by the Motor Accident Claims Tribunal (MACT), considering the compensation amount being paid under a court/tribunal order. The Budget 2026 proposal to not tax such amounts as income will settle the long-standing ambiguity, thereby reducing litigation for insurance companies arising from TDS implications and also for recipients while filing their returns of income. This move will also ensure faster settlement of claims by insurance companies.

Union Budget 2026 decisively positions tourism as a core economic sector rather than a discretionary one. Union Budget 2026 treats tourism not as a supporting act, but as a central pillar of economic growth-driving livelihoods at home while showcasing India’s diversity globally. The combination of skilling, infrastructure creation, and experience-led destination development signals a shift from volume-driven tourism to value-driven, job-creating tourism across regions. If executed well, the Union Budget 2026 could be remembered as the moment India’s tourism sector moved from fragmented to globally competitive.

• The National Institute of Hospitality and the structured skilling programmes are particularly important. They mark a serious move towards professionalising India’s tourism ecosystem, which is essential if India wants to compete globally not just on price, but on quality of experience and service standards.
• The focus on heritage sites, Buddhist circuits, eco-trails, mountain trains and astro-tourism shows a clear pivot towards experience-led, high-value tourism. This approach will also help decongest traditional hotspots and drive more balanced, regionally distributed tourism growth.
• The sharp reduction in TCS on overseas travel is an immediate demand stimulant for the sector and improves cash flows for both consumers and operators. More importantly, it signals the government’s intent to reduce friction in legitimate travel spending and support the formal travel economy.
• The creation of regional medical tourism hubs is a strategically smart move. It positions India to move up the value chain - from being seen primarily as a low-cost destination to becoming a trusted, integrated healthcare and recovery ecosystem for global patients.
• The Digital Knowledge Grid for tourism is an underappreciated but potentially transformational reform. Better data, mapping, and discoverability of destinations will improve planning, crowd management, private investment, and the overall visitor experience.

Taken together, these measures can materially increase tourism’s contribution to GDP, services exports, and employment. The real shift in this Budget is that tourism is now being treated as economic infrastructure, not just a lifestyle or leisure sector

This year’s Budget has a clear focus on encouraging compliance while bringing administrative ease to individual taxpayers. There is no change in individual tax rates as such, but steps such as the reduction in TCS rates on specified foreign remittances, extension of the due date to file revised tax returns after payment of a nominal fee, and a simplified TDS deposit mechanism on the sale of immovable property by non-residents are welcome steps. As the new simplified version of the Income-tax Act becomes effective from April 1, 2026, easy-to-follow redesigned forms are expected to be issued soon. A one-time Foreign Assets Disclosure Scheme is proposed to encourage taxpayers to disclose foreign assets /foreign-source income from the past without the fear of initiation of prosecution proceedings.

Basic customs duty exemption on Sodium Antimonate, used in the manufacture of solar glass, is expected to reduce input costs for domestic solar glass manufacturers. This will enhance cost competitiveness, support local manufacturing, and strengthen the solar supply chain, thereby accelerating solar capacity addition and supporting India’s renewable energy and clean-energy transition goals.

Major customs relief for critical minerals has been provided by extending customs duty exemptions to nuclear power projects, critical nuclear minerals, and bio-gas blended CNG – is a positive move towards India’s clean energy transition and ecosystem.

Basic customs duty exemption on Sodium Antimonate, used in the manufacture of solar glass, is expected to reduce input costs for domestic solar glass manufacturers. This will enhance cost competitiveness, support local manufacturing, and strengthen the solar supply chain, thereby accelerating solar capacity addition and supporting India’s renewable energy and clean-energy transition goals

Extension of the benefit of duty deferment for AEO T2 and T3 from 15 days to 30 days will give a boost to the scheme as a whole, improve working capital, and reduce compliance cost.

Relaxing compliance requirements for foreign asset disclosures up to INR 20 lakhs and retrospective immunity will provide ease of compliance for small taxpayers, who were otherwise required to disclose such assets in their tax returns and also faced rigorous penalties and prosecution. The non-requirement of TAN for NRIs with respect to tax withholding on the sale of immovable property will ensure compliance and reduce hassles related to obtaining a TAN, which otherwise is not required to be obtained. It will enable taxes to be deducted and paid as per the PAN of the NRI during the sale of immovable property, thereby ensuring NRIs report their transactions.

Proposal to embed effective Basic Customs Duty rate in the Indian Customs Tariff itself, is a major step in 'Ease of doing business' and enhance transparency.

Currently, IT/ITES companies are facing significant litigation on inter-company transactions. The present safe harbour rates are also found to be on the higher side, dissuading companies from going down this route. Whilst APA is an option, the time period for completion of the APA process has led to taxpayers in this sector facing significant uncertainty on their transfer pricing matters. The fast-tracking of APAs and a reasonable safe harbour proposed for IT companies (transacting with their related parties) will provide greater certainty and encourage FDI in this sector.

Extension of the duty deferment benefit for AEO T2 and T3 from 15 days to 30 days will boost the scheme as a whole, improve working capital, and reduce compliance costs.

Major relaxation in export obligations for SEZs, by allowing SEZ units to sell goods into the DTA, to aid SEZ units that could not export due to volatile export markets.

The proposed amendments in Foreign Asset Reporting (FAR) brings more self-governance on individual taxpayers to ensure that the income from foreign assets and the assets itself are reported appropriately to avoid additional tax penalty levies. With the announcement of Foreign Asset Disclosure Scheme, taxpayers would be entrusted with financial transparency and compliance

Fast-tracking of APAs and a reasonable safe harbour for IT companies transacting with their related parties will provide greater certainty and encourage FDI in this sector

Relaxations in the FEMA (Non-Debt Instruments) Rules shall make the Indian market more accessible to non-resident individuals, enabling capital inflows and boosting liquidity in Indian markets.

With a view to supporting MSMEs and tapping their full potential, three-pronged approach proposed to champion MSMEs and to recognise it as a vital engine of growth by providing equity support and liquidity support and facilitating professional institutes to design courses and develop corporate India 

India continues to focus on being a global force in the service sector and aims at contributing to 10% of global services. This would help the country absorb the negative trade balance in international goods trade

The proposed impetus for MSMEs in Budget 2026 across various fronts will attract capital from foreign investors. Foreign investors would now look to MSMEs as an additional investment avenue, thereby making MSME IPOs more lucrative in attracting foreign capital. The allocation of INR 10K crore to the SME Growth Fund will boost small and medium enterprises, making them the most preferred alternative to large MNC offshore institutions and making India a self-reliant economy in the coming years. This could also enhance the AIF ecosystem for investments in this segment.

The much-awaited amendment has been proposed in Budget 2026 to open up the Indian capital markets for Persons Resident Outside India (PROIs). Indian non-residents understand the sentiment of the Indian capital markets and are keen to invest in them. This welcoming measure will not only increase inflows but also help stabilise the currency and capital markets

Proposal to launch Bio-Pharma Shakti with an outlay of ₹10,000 crore underscores a clear policy intent to deepen India’s presence in high-value biologics and biosimilars. By focusing on domestic manufacturing capacity, regulatory strengthening, and supply-chain resilience, the initiative aims to improve India’s competitiveness in global bio-pharma markets at a time of rising demand and supply-chain diversification.

Carbon Capture, Utilization and Storage technologies will be supported to achieve deployment readiness and end-use application across five industrial sectors—power, steel, cement, refineries, and chemicals. An outlay of ₹20,000 crore is proposed over the next five years. This is in alignment with best practices and could make India globally competitive.