Union Budget 2026–27: Key Highlights

The Union Budget 2026-27, the first prepared in Kartavya Bhawan, is guided by three kartavyas:

• First Kartavya: Boost and sustain economic growth by improving productivity, competitiveness, and resilience to global challenges.

• Second Kartavya: Empower people and build their capacity, making them active partners in India’s progress.

• Third Kartavya: Ensure inclusive development under Sabka Sath, Sabka Vikas, giving all communities access to resources and opportunities.

Infrastructure & Capital Expenditure

Public Capital Expenditure

• Capital expenditure increased to ₹12.2 lakh crore in FY 2026-27 from ₹11.2 lakh crore

• Continued focus on infrastructure-led growth and employment generation

High-Speed Rail Corridors

• Seven high-speed rail corridors developed as growth connectors

• Aimed at faster, cleaner and energy-efficient inter-city passenger transport

  
  

Freight & Water Transport

• New Dedicated Freight Corridors to reduce logistics costs

• Operationalisation of 20 new National Waterways over 5 years

• NW-5 to connect mineral-rich regions with ports, improving export efficiency

Construction and Infrastructure Equipment (CIE) Manufacturing

• A new scheme for Enhancement of Construction and Infrastructure Equipment (CIE) will strengthen domestic manufacturing of high-value and technologically-advanced construction equipment.

• The scheme covers a wide range of equipment from lifts in multi-story apartments and fire-fighting equipment to tunnel-boring machines for metro construction and high-altitude road development.

Chemical Parks Development

• To enhance domestic chemical production and reduce import dependency, the Budget proposes a scheme to support States in establishing 3 dedicated Chemical Parks through a challenge route on a cluster-based plug-and-play model.

Manufacturing, MSMEs & Industrial Growth

Biopharma SHAKTI (Biopharma manufacturing hub)

• A ₹10,000-crore Biopharma SHAKTI initiative will be rolled out over five years to strengthen indigenous manufacturing of biologics and biosimilars.

• Establishment of new and upgraded National Institutes of Pharmaceutical Education and Research (NIPERs) for skilled manpower

• Expansion of clinical trial infrastructure and faster regulatory approvals

• The Central Drugs Standard Control Organisation will be reinforced with a specialised scientific review cadre and experts to align its regulatory processes with global standards and reduce approval timelines.

Textile Sector Reforms

• National Fibre Scheme for self-reliance in natural and man-made fibres

• Modernisation of textile clusters to boost employment

• Sustainability-focused initiatives to make Indian textiles globally competitive

• The Tex-Eco Initiative aims to promote environmentally sustainable and globally competitive textile and apparel manufacturing.

• Samarth 2.0 focuses on modernising the textile skilling ecosystem through collaboration between industry and academic institutions.

• An integrated programme for the textile sector has been introduced with five sub-components to strengthen the entire values chain.

• The programme includes development of Mega Textile Parks and expansion of the Mahatma Gandhi Gra, Swaraj initiative to strengthen Khadi, handloom, and handicrafts sectors.

Strategic and Frontier Sectors

• India Semiconductor Mission (ISM) 2.0 moves India from semiconductor assembly to chip development, equipment, and material production. ₹1000 crore allocation for FY 2026-27.

• Hi- Tech Tool Rooms in CPSEs where two automated service bureaus will design, test, and manufacture precision components locally at lower costs for capital goods sector.

• Electronic Components Manufacturing Scheme focusing on ₹40,000 crore outlay to develop domestic electronics ecosystem across mobile, telecom, automotive, IT hardware; expects ₹59,350 crore investment and 91,600+ jobs.

• Scheme for rare earth permanent magnets, research, mining, processing and manufacturing with Support for Odisha, Kerala, Andhra Pradesh, Tamil Nadu to establish dedicated corridors for mining, processing, and manufacturing rare earth magnets with ₹7,280 crore allocation.

• Scheme to revive 200 legacy industrial clusters employing 114+ million workers and generating 35% of India's exports.

• Strengthening domestic manufacturing of high-value and technologically advanced construction and Infrastructure equipment with the focus to reduce import dependency.

MSME Development

• ₹10,000 crore SME Growth Fund to nurture future champion MSMEs

• Incentive-based support linked to performance, innovation and scalability

Container Manufacturing Scheme

• A ₹10,000 crore scheme for container manufacturing has been proposed to create a globally competitive container manufacturing ecosystem over a 5-year period.

• The scheme aims to establish domestic manufacturing capacity of 1 million TEUs (twenty-foot equivalent units), up from the current annual production of approximately 30,000 containers.

• The scheme is expected to mobilize investments of approximately ₹1.1 trillion and generate a market value of ₹80,000 crore, creating 3,000 direct jobs and 50,000 indirect employment opportunities in the logistics value chain.

Education, Skill Development & Youth Empowerment

Girls’ Education Infrastructure

• One girls’ hostel in every district for STEM institutions

• Addresses safety, accommodation and retention of girl students

India’s Animation, Visual Effects, Gaming and Comics (AVGC) Sector Promotion

• Government support will be extended to the Indian Institute of Creative Technologies, Mumbai, for setting up AVGC labs in schools and colleges nationwide.

• Preparation of skilled workforce for animation, gaming and digital content

Tourism & Hospitality Skilling

• The existing National Council for Hotel Management and Catering Technology will be upgraded into a National Institute of Hospitality to act as a bridge between academia, industry and the government.

• A pilot scheme will be launched to upskill 10,000 tourist guides across 20 destinations through a standardized 12-week hybrid training programme in collaboration with an Indian Institute of Management.

Sports Development

• Establishment of structured talent pathways through training centres, along with systematic development of coaches and support staff and integration of sports science and technology.

• Promotion of sports culture through leagues and competitions, supported by the development of modern sports infrastructure for training and competitive events.

• Dedicated initiative for manufacturing of affordable sports goods with ₹500 crore dedicated to promoting manufacturing, research, and innovation in sports equipment.

Agriculture, Rural Development & Social Inclusion

Bharat-VISTAAR

• AI-based multilingual platform integrating agricultural databases

• Provides personalised advisory services to farmers for better productivity

Women Empowerment Initiatives

• Leveraging the success of the Lakhpati Didi Programme, SHE Marts will be created as community-owned retail outlets within cluster-level federations.

• Innovative Financing Support: These SHE Marts will be backed by enhanced and innovative financing mechanisms to ensure sustainability and scalability of women-run enterprises.

Mental Health Infrastructure

• Establishment of NIMHANS-2

• Upgradation of National Mental Health Institutes in Ranchi and Tezpur as Regional Apex Institutions.

Purvodaya & North-East Focus

• An East Coast Industrial Corridor anchored at Durgapur (West Bengal), new tourism hubs in the Purvodaya States, and induction of 4,000 e-buses have been proposed.

• A scheme has been proposed to develop Buddhist circuits across Arunachal Pradesh, Sikkim, Assam, Manipur, Mizoram and Tripura, focusing on the conservation of religious sites, improved connectivity, pilgrimage interpretation centres and enhanced pilgrim amenities.

Direct Tax Reforms

New Income Tax Act, 2025

• The New Income Tax Act, 2025 will be implemented from April 2026, accompanied by simplified tax rules and redesigned return forms to improve ease of compliance for taxpayers.

• TCS rates on overseas tour packages, education and medical expenses under LRS will be reduced to 2%, while manpower services will be brought under contractor payments for TDS at concessional rates of 1% or 2%.

Relief Measures for Small Taxpayers

Return revision timelines will be extended up to 31 March, filing schedules staggered, automated lower or nil TDS certificates introduced, and a one-time 6-month foreign asset disclosure scheme launched for eligible taxpayers.

Rationalisation of Penalties

• Assessment and penalty proceedings will be merged into a single order, pre-deposit reduced from 20% to 10% of core tax demand, and taxpayers allowed to update returns even after reassessment on payment of an additional 10% tax to reduce litigation.

• Immunity from penalty and prosecution extended to cases of misreporting on payment of full additional tax, with decriminalisation of minor procedural defaults and immunity for non-disclosure of non-immovable foreign assets up to ₹20 lakh with retrospective effect from 1 October 2024.

IT Sector & Global Investment

Support to IT Industry

• Software development, IT-enabled services, KPO and contract R&D services will be grouped under a single IT Services category with a common safe harbour margin of 15.5%.

• The threshold for availing safe harbour increased from ₹300 crore to ₹2,000 crore, valid for up to 5 years through an automated approval process.

• The unilateral Advanced Pricing Agreement (APA) process for IT services will be expedited to conclude within two years (extendable by 6 months), and associated entities can also avail of the modified returns facility.

Foreign Investment Incentives

• Long-term tax holidays for global cloud and data centre operators

• MAT exemption and income tax relief for non-resident professionals

Employment-Linked Deductions and Contributions

• Employee contributions to specified funds (such as provident fund and Employees' State Insurance) will now be allowed as deduction if deposited on or before the due date for filing the return of income, even where payment is not made within the statutory due date prescribed under the respective laws.

• Previously, deductions were allowed only if contributions were deposited within the statutory due date under respective legislation.

Exemptions for Non-Residents

• Exemption from income tax for 5 years will be provided to any non-resident who provides capital goods, equipment, or tooling to any toll manufacturer in a bonded zone.

• To encourage global talent to work in India for longer periods, exemption will be provided to global (non-India sourced) income of a non-resident expert for a stay period of 5 years under notified schemes.

• All non-residents who pay tax on presumptive basis will be exempted from Minimum Alternate Tax (MAT)

MAT Credit Utilization

• No further MAT credit accumulation from 1 April 2026.

• The rate of final tax will be reduced to 14% from the current MAT rate of 15%.

• Brought-forward MAT credit accumulated till 31 March 2026 will continue to be available for set-off with following conditions:

  • Set-off restricted to 25% of normal tax liability

  • Balance credit can be carried forward to subsequent tax years

  • No set-off of MAT credit if continuing in the old regime

  • Set-off available if transitioning to the new regime during or after tax year 2026-27

Securities Transaction Tax  (STT) Rates

• STT on sale of options increased from 0.0625% to 0.1%

• STT on sale of futures increased from 0.0125% to 0.015%

SEZ Unit Transactions

• No deduction will be allowed for transactions connected with newly established SEZ units for the income enhanced after arm's length price computation.

Indirect Taxes & Customs Reforms

Customs Duty Rationalisation

• Customs and Central Excise proposals aim to simplify tariffs, support domestic manufacturing, promote exports, and correct duty inversion.

• Duty-free imports for specified inputs for seafood, leather, and synthetic footwear exports increased from 1% to 3% of FOB value.

• Duty exemption for imports for Nuclear Power Projects extended to 2035; parts for microwave ovens exempted.

• Tariff on dutiable goods for personal use reduced from 20% to 10%; 17 drugs exempted, and 7 rare diseases added for FSMP imports.

Trade Facilitation

• The government is streamlining approvals from various agencies into one digital platform, so imports and exports are cleared more quickly, reducing delays and paperwork.

  
  

Warehousing systems are being upgraded to be operator-centric, using AI and electronic tracking to assess risks, speed up clearance, and make the logistics process more efficient.

Fiscal Consolidation

Fiscal Discipline

• The government aims to spend less than it earns, improving financial health and keeping inflation and borrowing costs under control.

• Reducing the proportion of national debt relative to the size of the economy ensures long-term fiscal stability and frees up resources for priority sectors like health, education, and infrastructure.

  
  

Borrowing Strategy

• The government plans to borrow from the market mainly to fund productive investments (like roads, railways, hospitals), not routine expenses.

• Borrowing is managed carefully to support economic growth without creating excessive debt, ensuring both development and financial discipline.

Ease of Doing Business

• Cargo approvals from multiple government agencies to be processed through a single, interconnected digital window by year-end; Customs clearance for goods with no compliance requirements to be immediate after online registration.

• CIS to be rolled out in 2 years as a unified, scalable platform for all customs processes, with phased expansion of AI-based non-intrusive scanning to cover all major ports.

• Fish caught by Indian vessels in EEZ or high seas made duty-free; landing at foreign ports treated as exports; ₹10 lakh per consignment cap on courier exports removed to aid small businesses, artisans, and startups.

• Baggage clearance rules updated to reflect modern travel needs; honest taxpayers can settle disputes by paying an additional amount instead of penalties.

Fiscal Deficit Targets

• Fiscal deficit for FY 2026-27 is targeted at 4.3% of GDP, lower than the revised estimate of 4.4% of GDP in FY 2025-26.

• Fiscal deficit in absolute terms is estimated at ₹16,95,768 crore for FY 2026-27.

• Revenue deficit is targeted at 1.5% of GDP, similar to the revised estimate for FY 2025-26.

Debt-to-GDP Ratio

• The central government debt-to-GDP ratio is estimated at 55.6% in Budget Estimate 2026-27, compared to 56.1% in Revised Estimate 2025-26.

• The government aims to reduce outstanding liabilities to around 50±1% of GDP by March 2031, demonstrating commitment to long-term fiscal stability.

• The government is committed to keeping fiscal deficit in each year (from FY 2026-27 till FY 2030-31) on a declining path to attain the debt-to-GDP target.

Borrowing and Receipts

• Net market borrowings from dated securities are estimated at ₹11.7 lakh crore to finance the fiscal deficit for FY 2026-27.

• Non-debt receipts in FY 2026-27 are projected, including net tax receipts of ₹26.7 lakh crore (as per RE 2025-26).

• Total expenditure for FY 2026-27 is estimated at ₹49.6 lakh crore (as per RE 2025-26), with capital outlay maintained at ₹12.2 lakh crore

Fiscal Prudence Path

• The government has fulfilled its commitment made in FY 2021-22 to reduce fiscal deficit below 4.5% of GDP by FY 2025-26.

• The fiscal consolidation path balances growth imperatives with fiscal discipline, ensuring resources remain available for priority sectors like infrastructure, health, and education without compromising social needs.

Disclaimer:-

The content provided in this update is for educational and informational purposes only and should not be construed as legal advice or the opinion of Tempus Law Associates. Tempus Law Associates disclaims any liability in connection with the use of this information without seeking appropriate legal counsel.