Union Budget 2026-27

Union Budget 2026-27, presented by the Union Minister for Finance and Corporate Affairs, marks a decisive shift in India’s fiscal strategy from cyclical recovery management to long-term nation-building. Read here for an elaborate analytical overview of the Union Budget 2026-27.

The Union Budget 2026-27, prepared for the first time in Kartavya Bhawan, symbolically and substantively reflects a governance philosophy rooted in duty (Kartavya) rather than entitlement.

Against a backdrop of global economic volatility, geopolitical fragmentation, climate transition pressures, and technological disruption, the Budget seeks to balance macroeconomic stability with structural transformation.

The articulation of three Kartavyas, economic acceleration, human capacity building, and inclusive development, provides a unifying framework that aligns fiscal policy with the vision of Viksit Bharat @2047.

Union Budget 2026-27

The first Budget prepared in Kartavya Bhawan is inspired by 3 Kartavyas:

1. First kartavya is to accelerate and sustain economic growth by enhancing productivity and competitiveness, and building resilience to volatile global dynamics.
2. Second kartavya is to fulfil the aspirations of people and build their capacity, making them strong partners in India’s path to prosperity
3. Third kartavya, aligned with the vision of Sabka Sath, Sabka Vikas, is to ensure that every family, community, region and sector has access to resources, amenities and opportunities for meaningful participation.

Union Budget 2026-27: Key Fiscal Numbers

• Total Expenditure: ₹53.5 lakh crore
• Non-Debt Receipts: ₹36.5 lakh crore
• Capital Expenditure: ₹12.2 lakh crore (historically high)
• Fiscal Deficit: 4.3% of GDP
• Debt-to-GDP Ratio: 55.6% (declining trajectory)
• Net Market Borrowings: ₹11.7 lakh crore

Assessment:

The fiscal strategy demonstrates:

• Commitment to medium-term fiscal consolidation
• Prioritisation of capital expenditure over revenue expenditure
• Use of public investment as a crowding-in mechanism for private capital

This signals policy credibility to investors, rating agencies, and global markets while retaining growth momentum.

FIRST KARTAVYA: Accelerating and Sustaining Economic Growth

This Kartavya addresses India’s central economic challenge: scaling growth while enhancing productivity, resilience, and global competitiveness.

1. Scaling Manufacturing in Strategic and Frontier Sectors

The Budget identifies manufacturing as the backbone of sustainable growth, focusing on sectors with high value addition, strategic importance, and export potential.

Biopharma SHAKTI

• ₹10,000 crore over 5 years
• Establishment of new and upgraded NIPERs
• Network of 1,000+ clinical trial sites

Significance:

• Moves India from a generic drug producer to an innovation-led biopharma hub
• Enhances health security and export earnings

India Semiconductor Mission (ISM) 2.0

• Focus beyond fabrication to:
  • Equipment and materials
  • Full-stack Indian IP
  • Industry-led R&D and skilling

Significance:

• Addresses vulnerabilities exposed during global chip shortages
• Positions India in strategic technology geopolitics

Rare Earth Corridors

• Targeting Odisha, Kerala, Andhra Pradesh, and Tamil Nadu

Significance:

• Reduces dependence on concentrated global suppliers
• Critical for EVs, defence, renewables, and electronics

Chemical Parks & Capital Goods

• Plug-and-play chemical parks
• Hi-tech tool rooms and construction equipment manufacturing

Significance:

• Strengthens industrial depth
• Supports downstream MSMEs

Textile Sector Integration

• National Fibre Scheme
• Mega Textile Parks
• Revival of khadi, handloom and handicrafts

Significance:

• Employment-intensive growth
• Global value chain integration with cultural preservation

2. Rejuvenating Legacy Industrial Sectors

• Revival of 200 industrial clusters
• Infrastructure, technology, and logistics upgradation

Bridges India’s traditional manufacturing strengths with modern competitiveness, especially benefiting Tier-II and Tier-III cities.

3. Creating “Champion SMEs”

• ₹10,000 crore SME Growth Fund
• Expansion of Self-Reliant India Fund
• Introduction of Corporate Mitras

Significance:

• Moves MSMEs from subsistence to scale
• Builds managerial and compliance capacity

4. Infrastructure Push as a Growth Multiplier

• Capex increased to ₹12.2 lakh crore
• Infrastructure Risk Guarantee Fund
• Dedicated Freight Corridors
• Inland waterways expansion
• Seaplane VGF and coastal shipping incentives

Infrastructure is treated not as expenditure but as productivity-enhancing investment.

5. Long-Term Energy Security

• ₹20,000 crore for Carbon Capture, Utilisation and Storage (CCUS)

Significance:

• Supports hard-to-abate industries
• Aligns climate commitments with industrial growth

6. Developing City Economic Regions (CERs)

• ₹5,000 crore per CER
• Reform-linked, results-based financing
• 7 High-Speed Rail corridors

Significance:

• Promotes polycentric urbanisation
• Reduces regional imbalance
• Enhances labour mobility and productivity

SECOND KARTAVYA: Fulfilling Aspirations & Building Human Capacity

This Kartavya recognises that demographic advantage is not automatic and requires sustained investment in people.

Education-Employment-Enterprise Continuum

• High-powered committee focusing on the services sector
• University Townships near industrial corridors

Aligns education outcomes with labour market needs.

Healthcare & Medical Tourism

• 100,000 new Allied Health Professionals
• 5 Regional Medical Hubs
• Expansion of AYUSH institutions

Significance:

• Addresses healthcare workforce shortages
• Strengthens India’s position in global health services

Orange Economy (AVGC & Creative Industries)

• AVGC labs in schools and colleges
• Support to Indian Institute of Creative Technologies

Significance:

• Recognises creativity as a growth sector
• Youth-centric employment generation

Tourism, Heritage & Sports

• Development of iconic archaeological sites
• Digital Knowledge Grid
• Khelo India Mission

Tourism is positioned as a culture-led, employment-rich sector.

THIRD KARTAVYA: Sabka Saath, Sabka Vikas

This Kartavya focuses on targeted inclusion, addressing structural inequities.

1. Increasing Farmer Incomes

• Reservoir rejuvenation
• High-value agriculture
• Bharat-VISTAAR AI platform

Technology-driven agricultural transformation.

2. Empowering Divyangjan

• Divyangjan Kaushal Yojana
• Focus on the service and creative sectors

3. Mental Health & Trauma Care

• NIMHANS-2
• Upgradation of regional mental health institutes

Mental health is mainstreamed as a public policy priority.

4. Purvodaya & North-East Focus

• East Coast Industrial Corridor
• Buddhist circuits
• E-buses and tourism development

Significance:

• Strategic integration of eastern and northeastern India into growth processes

Union budget 2026-27: Taxation reforms

Direct Taxes

1. New Income Tax Act, 2025

The Budget announces that the New Income Tax Act, 2025, will come into force from April 2026, replacing the decades-old Income Tax Act, 1961.

Key Features:

• Simplified structure with fewer sections and provisos
• Plain-language drafting for better citizen comprehension
• Redesigned Income Tax Rules and Forms focused on ease of compliance
• Reduction in litigation arising from interpretational ambiguities

Significance: This reform marks a shift from a lawyer-centric tax code to a citizen-centric framework, aligning taxation with the principles of transparency, predictability, and voluntary compliance.

2. Ease of Living Measures

To reduce undue hardship to individuals, especially middle-class taxpayers:

• Interest awarded by the Motor Accident Claims Tribunal (MACT) to natural persons is fully exempt from income tax, and TDS is abolished on such payments.
• Single-window filing of Form 15G/15H through depositories for dividends and interest income.
• Extended deadline for revising returns from 31 December to 31 March, with nominal fees.
• Staggered filing timelines to reduce system congestion.
• Replacement of the TAN requirement with PAN-based challan for property transactions involving NRIs.
• One-time 6-month foreign asset disclosure window for small taxpayers to regularise overseas income or assets.

These measures reflect a clear shift from enforcement to facilitation.

3. TCS and TDS Rationalisation

To reduce cash-flow pressures and compliance burden:

• TCS on overseas tour packages reduced to 2%.
• TCS on LRS remittances for education and medical purposes has been reduced from 5% to 2%.
• Simplified TDS provisions for manpower supply, benefiting labour-intensive sectors.
• Automated, rule-based system for granting lower or nil TDS certificates, eliminating discretionary assessments.

Impact:

• Improves the affordability of education, healthcare, and travel
• Enhances liquidity for businesses and households
• Reduces bureaucratic interface

4. Rationalisation of Penalty and Prosecution

The Budget undertakes a major decriminalisation and litigation-reduction exercise:

• Integrated assessment and penalty orders to avoid multiple proceedings.
• Taxpayers are allowed to update returns even after reassessment initiation, on payment of an additional 10% tax.
• Immunity from penalty for misreporting upon payment of additional tax.
• Decriminalisation of:
  • Non-production of books of account
  • TDS default where payment is made in kind
• Immunity from prosecution for non-disclosure of non-immovable foreign assets below ₹20 lakh, with retrospective effect from 1 October 2024.

This reflects a philosophy of “correct, not punish” for minor and non-malicious defaults.

5. Cooperative Sector Reforms

To strengthen the cooperative movement:

• Extension of deductions to cooperatives supplying cattle feed and cottonseed
• Deduction of inter-cooperative dividends redistributed to members under the new tax regime
• Three-year dividend tax exemption for notified national cooperative federations on investments made up to January 2026

Significance: Supports farmer-centric institutions, rural incomes, and cooperative federalism.

6. Supporting the IT Sector as India’s Growth Engine

Recognising IT and digital services as a core export driver:

• Clubbing of software development, ITES, KPO, and contract R&D into a single category of Information Technology Services
• Common safe harbour margin of 15.5%
• Threshold for safe harbour increased from ₹300 crore to ₹2,000 crore
• Automated approval of safe harbour for 5 consecutive years
• Fast-tracking of Unilateral APA within 2 years
• Extension of the modified return facility to associated enterprises

Provides certainty, reduces transfer pricing disputes, and enhances India’s attractiveness as a global IT hub.

7. Attracting Global Business and Investment

Key incentives include:

• Tax holiday till 2047 for foreign cloud service providers using Indian data centres
• Safe harbour of 15% on cost for related-party data centre services
• Presumptive taxation for bonded warehouse component warehousing at 2% margin
• Five-year tax exemption for non-resident suppliers of capital goods to toll manufacturers
• Tax exemption on non-India-sourced income of non-resident experts for 5 years
• MAT exemption for non-residents taxed on a presumptive basis

Impact: Positions India as a trusted global services, data, and manufacturing hub.

8. Tax Administration Reforms

• Joint MCA-CBDT committee to align ICDS with IndAS
• Elimination of separate ICDS-based accounting from FY 2027–28
• Rationalisation of definition of “accountant” for Safe Harbour Rules

Reduces duplication, compliance costs, and accounting complexity.

9. Other Direct Tax Proposals

• Buyback taxation shifted to capital gains for all shareholders
• Higher buyback tax for promoters
• Rationalisation of TCS on alcohol, scrap, minerals, and tendu leaves
• Increase in STT on futures and options
• MAT made a final tax from April 2026, the rate was reduced to 14%
• Brought-forward MAT credit is allowed only in the new tax regime

Indirect Taxes

1. Tariff Simplification & Sectoral Support

Exports and Manufacturing

• Higher duty-free input limits for seafood exports
• Duty-free inputs for leather and synthetic footwear exports

Energy Transition

• Extension of BCD exemption for lithium-ion battery manufacturing
• Exemption for sodium antimonate used in solar glass

Nuclear & Critical Minerals

• BCD exemption for nuclear power project imports till 2035
• Duty exemption for capital goods used in critical mineral processing

2. Aviation, Electronics & SEZ Reforms

• Customs duty exemptions for:
  • Civil and defence aircraft manufacturing
  • MRO raw materials
  • Microwave oven components
• One-time concessional DTA sales by SEZ units

3. Ease of Living Measures (Customs)

• Personal import duty reduced from 20% to 10%
• Exemption on 17 essential drugs
• Duty-free import of medicines and food for 7 additional rare diseases
• Revised baggage rules to reflect modern travel realities

4. Customs Process & Trust-Based Systems

• Minimal-intervention customs clearance
• Duty deferral for Tier-2 and Tier-3 AEOs increased to 30 days
• Advance rulings valid for 5 years
• Warehouse operator-centric customs framework
• Automatic clearance for trusted importers

5. Ease of Doing Business & Digital Customs

• Single digital window for cargo clearance
• Food, drugs, plant and animal product clearances integrated by April 2026
• Rollout of Customs Integrated System (CIS) within 2 years
• AI-based non-intrusive scanning of containers at major ports

6. New Export Opportunities

• Duty-free treatment for fish caught in EEZ and high seas
• Removal of the ₹10 lakh cap on courier exports

Boosts MSME exports, artisans, and e-commerce-led trade.

Conclusion

The Union Budget 2026-27 represents a paradigm shift from incrementalism to structural ambition. By anchoring fiscal policy in clearly articulated Kartavyas, the Budget integrates growth, inclusion, sustainability, and governance reform into a cohesive framework.

Rather than focusing on short-term populism, it prioritises institution-building, industrial depth, human capital, and trust-based systems, laying the groundwork for India’s transition into a developed, resilient, and globally influential economy by 2047.

Related articles:

• Economic survey 2024-25
• Union Budget 2025-26