Union Budget 2026-2027 Review

Executive Summary

Finance Minister Nirmala Sitharaman presented the Union Budget 2026–27 as a Yuva Shakti–driven blueprint for a Viksit Bharat that balances ambition with inclusion, anchored in the principles of “Action over Ambivalence, Reform over Rhetoric, and People over Populism.” Framed around the vision of Sabka Sath, Sabka Vikas, the Budget seeks to sustain a high growth rate of around 7% while maintaining moderate inflation, fiscal discipline and macroeconomic stability. It outlines a comprehensive agenda of over 350 structural reforms, strong thrust on public investment, and targeted support to manufacturing, services, agriculture and the social sectors, with a clear focus on transforming aspiration into achievement and potential into performance.

The budget aims to transform aspiration into achievement and potential into performance by reducing critical import dependencies, implementing far-reaching structural reforms, ensuring domestic manufacturing capacity, and achieving energy security.

Manufacturing & MSMEs: Building Competitive Industrial Scale for Economy Growth

Strategic & Frontier Manufacturing

Expansion of high-value, technology-intensive manufacturing under:

• India Semiconductor Mission (ISM) 2.0 to develop domestic chip design and fabrication and reduce import dependence.
• Biopharma SHAKTI to expand biopharmaceutical capacity and reinforce India’s role as the global pharmacy hub.
• Electronics Components Manufacturing Scheme to localise electronics supply chains.
• Integrated Textile Programme focused on modernisation, sustainability, and global competitiveness.
• Rare Earth Permanent Magnet Initiative covering research, mining, processing and manufacturing to secure critical minerals for renewable energy and defence.
• Development of three Chemical Parks, container manufacturing, construction and infrastructure equipment, hi-tech tool rooms in CPSEs, affordable sports goods manufacturing, and revival of 200 legacy industrial clusters.

Manufacturing-Focused Tax Reforms

• Five-year income tax exemption for non-residents supplying capital goods, equipment or tooling in bonded zones.
• Safe harbour for non-resident component warehousing.
• Deferred duty payment for trusted manufacturers.
• Higher duty-free import limits for seafood exporters; extended export timelines for leather, textiles and footwear.
• Customs duty exemptions for microwave oven parts, aircraft manufacturing components and aircraft MRO inputs.
• Trusted importer recognition, electronic sealing for factory-to-port exports, and one-time concessional duty for SEZ domestic sales.

MSME Growth Framework

• Equity: ₹10,000 crore SME Growth Fund and ₹2,000 crore top-up to Self-Reliant India Fund.
• Liquidity: Mandatory TReDS for CPSE procurement, CGTMSE-backed invoice discounting, GeM–TReDS integration, and securitisation of TReDS receivables.
• Capability: ‘Corporate Mitras’ in Tier II & III towns for affordable compliance support.
• Removal of ₹10 lakh cap on courier exports.

Services Sector Renaissance: Health, Digital, Tourism & Skills

Health, Care & Medical Tourism

• Five Medical Value Tourism hubs under PPP model.
• Expansion of Allied Health Professional institutions and training of 1.5 lakh multiskilled caregivers.
• AYUSH strengthening through new Ayurveda institutes, upgraded pharmacies and labs, and WHO Traditional Medicine Centre enhancement.

Digital, Creative & Sports Economy

• AVGC Content Creator Labs in 15,000 schools and 500 colleges.
• New National Institute of Design in Eastern India.
• Strengthening Khelo India Mission with integrated talent pathways and sports infrastructure.

Education & Tourism Infrastructure

• University townships near industrial corridors, girls’ hostels in STEM institutions, telescope facilities.
• National Destination Digital Knowledge Grid, eco-tourism trails, Global Big Cat Summit, archaeological site development, guide upskilling, National Institute of Hospitality, and Buddhist circuits in the North-East.

Services-Focused Tax Measures

• IT services unified under a 15.5% safe harbour, with threshold raised to ₹2,000 crore and automated approvals.
• Faster APA processes with extended modified return benefits.
• Tax holidays till 2047 for foreign cloud companies using India-based data centres; 15% cost-based safe harbour.
• Five-year global income exemption for non-resident experts.

Agriculture & Allied Sectors: Productivity-Led Farmer Income Growth

• Fisheries: Integrated development of 500 reservoirs and Amrit Sarovars, coastal value chains, Fish FPOs, and duty-free treatment for fish caught in EEZ/high seas.
• Horticulture (BharatVISTAAR): Orchard rejuvenation, high-density nut cultivation, post-harvest processing.
• High-Value Crops: Coconut promotion, cashew and cocoa programmes, sandalwood cultivation.
• Animal Husbandry: Capital subsidies for veterinary and para-vet colleges, hospitals, diagnostics, breeding facilities, and rural entrepreneurship.
• Agri-Tech: Integration of AgriStack and ICAR practices with AI for data-driven agriculture.
• Cooperative Tax Support: Deductions for cooperative supplies, inter-cooperative dividend deductions, and three-year dividend tax exemption for notified co-operative federations.

Infrastructure Development for Strengthening the Foundations of Growth

Public Capital Expenditure Trajectory

• Public capital expenditure has increased sharply from ₹2 lakh crore in FY15 to ₹12.2 lakh crore in FY27, reflecting the Government’s sustained commitment to infrastructure-led growth.

Key Infrastructure Initiatives

• Infrastructure Risk Guarantee Fund introduced to provide prudently calibrated partial credit guarantees, de-risk infrastructure projects and improve lender confidence.
• Real Estate Asset Recycling through dedicated REITs to monetise CPSE real estate assets and unlock capital for fresh investments.
• Dedicated Freight Corridors connecting Dankuni (East) to Surat (West) to improve logistics efficiency and reduce freight costs.
• National Waterways Expansion with 20 new waterways connecting mineral-rich regions, industrial hubs and ports, enabling cost-effective cargo movement.
• Inland Waterways Ecosystem development through establishment of ship repair facilities, strengthening inland and coastal shipping.
• Coastal Cargo Promotion Scheme launched to increase the share of inland waterways and coastal shipping from 6% to 12% by 2047.
• Seaplane VGF Scheme to support indigenous seaplane manufacturing and expand regional air connectivity.
• State Infrastructure Support of ₹2 lakh crore under the SASCI Scheme to accelerate state-led infrastructure creation.
• Purvodaya Initiative aimed at developing the Integrated East Coast Industrial Corridor as a catalyst for regional economic growth.
• Continued focus on Tier II and Tier III cities (population above 5 lakh) to ensure balanced and inclusive urban infrastructure development.

Infrastructure Financing Ecosystem

• Leveraging InVITs and REITs for asset monetisation.
• Long-term funding support through NIIF and NABFID to deepen infrastructure financing.

Ensuring Long-Term Energy Security and Stability

• Carbon Capture, Utilisation and Storage (CCUS) scheme launched with an outlay of ₹20,000 crore to support climate mitigation and enable carbon-neutral industrial operations.
• Lithium-Ion Cell Manufacturing supported through extension of BCD exemption on capital goods used for battery energy storage systems, facilitating renewable energy integration.
• Solar Energy Support via BCD exemption on sodium antimonate imports for solar glass manufacturing.
• Nuclear Power Enhancement with extension of basic customs duty exemption on nuclear project imports until 2035, expanded to all nuclear plants irrespective of capacity.
• Critical Minerals Processing supported through BCD exemption on capital goods, securing strategic mineral supply chains for green energy transition.
• Biogas-Blended CNG Promotion through exclusion of the entire biogas value from Central Excise duty, incentivising renewable fuels and supporting the circular economy.

Urbanisation – City Economic Regions

• Urban strategy focuses on unlocking the economic power of city agglomerations, with special emphasis on Tier II, Tier III cities and temple towns, promoting balanced regional development.
• Introduction of ‘Growth Connectors’ through seven environmentally sustainable high-speed rail corridors:
  • Mumbai–Pune
  • Pune–Hyderabad
  • Hyderabad–Bengaluru
  • Hyderabad–Chennai
  • Chennai–Bengaluru
  • Delhi–Varanasi
  • Varanasi–Siliguri
• These corridors aim to reduce travel time, enable inter-city economic collaboration, and support sustainable passenger mobility.

People-Centric Development

The Budget places strong emphasis on social inclusion, healthcare, disability empowerment and community-led entrepreneurship, ensuring that growth translates into improved quality of life.

Care Ecosystem and Elderly Support

• A comprehensive care ecosystem is being developed for geriatric and allied services.
• 1.5 lakh multiskilled caregivers will be trained to address the needs of an ageing population and strengthen healthcare support services.

Women-Led Entrepreneurship

• Self-Help Entrepreneur (SHE) Marts will be set up as community-owned retail outlets within cluster-level federations.
• These marts aim to promote women entrepreneurship, local livelihoods and grassroots economic participation.

Divyangjan Empowerment

• Divyangjan Kaushal Yojana focuses on providing dignified livelihoods through industry-relevant, customised skill training aligned to specific disability groups.
• Divyang Sahara Yojana ensures timely access to high-quality assistive devices, improving mobility, independence and dignity.
• ALIMCO will be supported to scale up assistive device manufacturing, invest in R&D and integrate AI for advanced solutions.
• PM Divyasha Kendras will be strengthened as modern, retail-style centres to improve accessibility and service delivery for assistive devices.

Health Infrastructure

• Establishment of NIMHANS-2 and upgradation of National Mental Health Institutes in Ranchi and Tezpur to expand mental healthcare access.
• Emergency and Trauma Care Centres will be set up in district hospitals to strengthen emergency response and critical care capacity.

Trust-Based Governance

The Budget advances a trust-driven regulatory framework, especially in customs administration, to reduce friction, improve predictability and facilitate trade.

Customs Reforms for Trusted Traders

• Authorised Economic Operators (AEOs) in Tier II and III categories will see duty-deferral periods extended from 15 to 30 days.
• Eligible manufacturer-importers will receive similar duty deferral benefits.
• Government agencies are encouraged to adopt and leverage AEO accreditation.

Regulatory Certainty

• Validity of advance rulings binding on Customs extended from 3 years to 5 years, enhancing predictability for businesses.

Risk-Based Customs System

• Trusted importers with longstanding supply chains will be recognised in the risk management system.
• Reduced physical verification of cargo and faster clearances.

Automation and Warehousing Reform

• Automated filing of Bills of Entry by trusted importers, with goods arrival triggering system-based customs notifications.
• Transformation of customs warehousing into a warehouse operator–centric framework, with self-declaration and simplified compliance processes.

Ease of Doing Business and Ease of Living

A broad set of reforms aim to simplify taxation, enhance compliance ease, expand investment access and improve trade facilitation.

Financial Inclusion and Investment

• Persons Resident Outside India (PROIs) permitted to invest in listed Indian equities through the Portfolio Investment Scheme (PIS), widening capital access.

Tax Simplification Measures

• Interest on motor accident compensation awarded to individuals exempt from income tax; TDS eliminated.
• TCS rationalisation:
  • Overseas tour packages: reduced to 2% (from 5%/20%).
  • Education and medical remittances under LRS: reduced to 2%.
• TDS on manpower services fixed at 1% or 2%.
• Rule-based automated issuance of lower or nil TDS deduction certificates for small taxpayers.
• Depositories allowed to accept Form 15G/15H for taxpayers holding securities across multiple companies.

Return Filing and Compliance Flexibility

• Revised return filing deadline extended from 31 December to 31 March (with nominal fee).
• ITR-1 and ITR-2 filing deadline remains 31 July; non-audit business cases and trusts extended to 31 August.
• For non-resident property sales, TDS to be deducted and deposited using the resident buyer’s PAN instead of TAN.
• One-time six-month foreign asset disclosure scheme for small taxpayers below a specified threshold.
• Taxpayers allowed to update returns even after reassessment, subject to an additional 10% tax.

Reduced Criminalisation and Dispute Resolution

• Immunity from penalty and prosecution extended to misreporting cases.
• Decriminalisation of non-production of books of accounts, documents and TDS payment defaults.
• Retrospective immunity (from 1 October 2024) for non-disclosure of non-immovable foreign assets below ₹20 lakh.
• Honest taxpayers can settle disputes by paying an additional amount instead of penalties.

Corporate and Trade Measures

• MAT reforms: exemption for non-residents under presumptive taxation, MAT credit set-off up to one-fourth of liability, and MAT proposed as final tax.
• Formation of a joint MCA–CBDT committee to align ICDS with IndAS.
• Share buybacks to be taxed as capital gains for all shareholders, with additional tax for promoters.
• Basic customs duty exemption on 17 cancer drugs, improving affordability.
• Introduction of a single digital window for cargo clearances and rollout of the Customs Integrated System (CIS) within two years.

Finance Commission Recommendations

Devolution Framework

• Vertical share of devolution retained at 41%
• ₹1.4 lakh crore allocation to states for FY27 as Finance Commission Grants
• Includes: Rural Local Body, Urban Local Body, and Disaster Management Grants

Equity market implications

Proposed to raise STT on Futures to 0.05% from present 0.02%. STT on options premium and exercise of options are both proposed to be raised to 0.15% from the present rate of 0.1% and 0.125% respectively.

Deficit Reduction Trajectory

The government maintains disciplined fiscal consolidation:

Key Fiscal Metrics (FY 2026-27 BE)

• Fiscal Deficit: 4.3% of GDP (planned)
• Revenue Deficit: 1.50% of GDP (planned)
• Primary Deficit: Negative (surplus)
• Debt-to-GDP Ratio: 55.6% (compared to 56.1% in RE 2025-26)
• Target: Debt-to-GDP ratio of 50±1% by 2030

Budget Receipts and Expenditures

Receipts Trend (In ₹ lakh crore)

Expenditures Trend (In ₹ lakh crore)

Robust Economic Foundations

Centre's net tax revenue growing from ₹18.7 lakh crore (2022-23) to ₹28.7 lakh crore (2026-27 BE), demonstrating revenue growth and tax base expansion.

Budget Impact on Key Sectors

Negative Impact:
Derivatives Market (Futures & Options): The increase in Securities Transaction Tax (STT) on futures and options is likely to dampen trading volumes, potentially leading to lower market liquidity, subdued investor participation and modest pressure on capital inflows, with a marginal negative bias for the INR.

Neutral Impact:
Real Estate & Consumption, Capital Goods, Cement, Consumer Durables, Infrastructure (Roads, Railways, Defence), Logistics, Metals, Oil & Gas, Telecom, and Automobiles.

Positive Impact:
Utilities & Energy Transition (data centre power demand, battery energy storage, solar, nuclear power, and carbon capture initiatives), Agriculture & Allied Sectors, Aviation, Tourism, Pharmaceuticals & Healthcare, Semiconductors, Electronics Manufacturing Services (EMS), Defence Manufacturing, Data Centres, and Chemicals.

Conclusion

The Budget 2026-2027 embodies India's commitment to achieving Viksit Bharat—a developed nation balancing ambitious growth targets with inclusive development. Through strategic manufacturing investments, services sector renaissance, agricultural productivity enhancement, robust infrastructure, and people-centric policies, the government sets course for sustained 7% economic growth.

Fiscal discipline demonstrated through declining deficit metrics, combined with strategic investments in human capital, technology, and infrastructure, creates foundation for long-term prosperity. The budget's emphasis on tax simplification, ease of doing business, and governance modernization reflects commitment to creating enabling ecosystem for entrepreneurship and investment.

By targeting debt-to-GDP ratio of 50±1% by 2030 while maintaining capital expenditure at ₹12.2 lakh crore and supporting states with ₹26.2 lakh crore transfers, India positions itself for transformation driven by action, reform, and people-first policies.

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