Union Budget 2026-27 Highlights | Key Announcements, Tax Reforms & Strategic Sector Push

On 1-2-2026, the Finance Minister, Nirmala Sitharaman presented the Union Budget 2026- 2027 in Parliament. The Union Budget 2026-2027 lays emphasis on Scaling up manufacturing in 7 strategic frontier sectors.

It is the first Budget prepared in Kartavya Bhawan and is inspired by “3 Kartavya”:

1. 1st Kartavya- to accelerate and sustain economic growth, by enhancing productivity and competitiveness, and building resilience to volatile global dynamics;

2. 2nd Kartavya- to fulfil aspirations of people and build their capacity, making them strong partners in India’s path to prosperity;

3. 3rd Kartavya- is aligned with vision of Sabka Sath, Sabka Vikas to ensure that every family, community, region and sector has access to resources, amenities and opportunities for meaningful participation.

BUDGET ESTIMATES:

1. Non-debt receipts and the total expenditure are estimated at Rs. 36.5 lakh crore and Rs. 53.5 lakh crore respectively. The Centre’s net tax receipts are estimated at ₹28.7 lakh crore.

2. Gross market borrowings are estimated at Rs. 17.2 lakh crore.

3. Net market borrowings from dated securities are estimated at Rs. 11.7 lakh crore.

4. Revised Estimates of the non-debt receipts are Rs. 34 lakh crores of which the Centre’s net tax receipts are Rs. 26.7 lakh crore.

5. Revised Estimate of the total expenditure is Rs. 49.6 lakh crore, of which the capital expenditure is about Rs. 11 lakh crores.

6. Fiscal deficit in BE 2026-27 is estimated to be 4.3% of GDP.

7. In RE 2025-26, the fiscal deficit has been estimated at par with BE of 2025-26 at 4.4% of GDP.

8. The debt-to-GDP ratio is estimated to be 55.6% of GDP in BE 2026-27, compared to 56.1% of GDP in RE 2025-26.

Interventions proposed under the 1st Kartavya to accelerate and sustain the economic growth:

1. Biopharma SHAKTI (Strategy for Healthcare Advancement through Knowledge, Technology and Innovation):

   • it has been announced to develop India as a global Biopharma manufacturing hub to build the ecosystem for domestic production of biologics and biosimilars.

   • It will have an outlay of Rs. 10,000 crores.

   • This will be set up over the next 5 years.

   • It will be created with 3 new National Institutes of Pharmaceutical Education and Research (‘NIPER’) and upgrading 7 existing ones.

   • It will also create a network of over 1000 accredited India Clinical Trials sites.

   • Central Drugs Standard Control Organization will be strengthened to meet global standards and approval timeframes through a dedicated scientific review cadre and specialists.

2. National Fibre Scheme:

   • This focuses on labour-intensive Textile Sector.

   • It has been announced:

     ✓ for self-reliance in natural fibres such as silk, wool and jute, man-made fibres, and new-age fibres;

     ✓ Textile Expansion and Employment Scheme to modernize traditional clusters with capital support for machinery, technology upgradation and common testing and certification centres;

     ✓ A National Handloom and Handicraft programme to integrate and strengthen existing schemes and ensure targeted support for weavers and artisans;

     ✓ Tex-Eco Initiative to promote globally competitive and sustainable textiles and apparels;

     ✓ Samarth 2.0 to modernize and upgrade the textile skilling ecosystem through collaboration with industry and academic institutions.

3. Recognizing MSMEs as vital engine of growth:

   • a dedicated Rs. 10,000 crore SME Growth Fund was proposed to create future Champions, incentivizing enterprises based on select criteria.

   • It has been proposed that the Public Capex increase to Rs. 12.2. Lakh crore.

4. Dedicated Freight Corridors:

   • To promote environmentally sustainable movement of cargo;

   • It will connect Dankuni in the East, to Surat in the West;

   • Operationalize 20 new National Waterways;

   • Training Institutes will be set up as Regional Centres of Excellence for development of the required manpower.

5. Mapping of City economic regions:

   • It will amplify the potential of cities to deliver the economic power of agglomerations;

   • It will be based on their specific growth drivers.

   • An allocation of Rs. 5000 crore per City Economic Region is proposed for implementing their plans through a challenge mode with a reform-cum-results based financing mechanism.

6. Setting up of 7 High- Speed Rail Corridors:

   • To promote environmentally sustainable passenger systems;

   • It will be developed as “growth connectors” between the cities: Mumbai- Pune; Pune- Hyderabad; Hyderabad- Bengaluru; Hyderabad- Chennai; Chennai- Bengaluru; Delhi- Varanasi; Varanasi- Siliguri.

Interventions proposed under the 2nd Kartavya to fulfil aspirations and build capacity:

1. Establishment of 5 Regional Medical Hubs:

   • to promote India as a hub for medical tourism services;

   • It is a Scheme to support States to establish these hubs in partnership with the private sector;

   • These hubs will serve as integrated healthcare complexes that combine medical, educational and research facilities;

   • They will have AYUSH Centres, Medical Value Tourism Facilitation Centres and infrastructure for diagnostics, post-care and rehabilitation.

   • These hubs will also provide diverse job opportunities for health professionals including doctors and AHPs.

2. Loan-linked Capital Subsidy:

   • to support scheme for establishment of veterinary and para vet colleges, veterinary hospitals, diagnostic laboratories and breeding facilities in the private sector;

   • It will help to scale up the availability of veterinary professionals by more than 20,000.

3. Setting up of Animation, Visual Effects, Gaming and Comics Content Creator Labs:

   • As this is a growing industry, it has been projected that India will be requiring 2 million professionals by 2030.

   • It has been proposed that the Indian Institute of Creative Technologies, Mumbai will be supported in setting up these Labs in 15,000 secondary schools and 500 colleges.

4. Setting up of National Institute of Hospitality:

   • The existing National Council for Hotel Management and Catering Technology will be upgraded.

   • It will function as a bridge between academia, industry and the Government.

   • A pilot scheme was further proposed for upskilling 10,000 guides in 20 tourist sites through a standardized, high-quality 12-week training course in hybrid mode, in collaboration with an Indian Institute of Management.

5. Launching Khelo India Mission:

   • It will help in transforming the Sports sector over the next decade.

   • This Mission will facilitate:

     ✓ An integrated talent development pathway, supported by training centres;

     ✓ systematic development of coaches and support staff;

     ✓ integration of sports science and technology;

     ✓ competitions and leagues to promote sports culture and provide platforms;

     ✓ development of sports infrastructure for training and competition.

Interventions proposed under the 3rd Kartavya aligning with the vision of Sabka Sath, Sabka Vikas:

This requires targeted efforts for increasing farmer incomes, empowering Divyangjan, empowering the vulnerable to access mental health and trauma care, focus on the Purvodaya States and the North-East Region to accelerate development and employment opportunities.

1. Bharat- VISTAAR (Virtually Integrated System to Access Agricultural Resources):

   • It is a multilingual AI tool that will integrate the AgriStack portals and the ICAR package on agricultural practices with AI systems.

   • This will enhance farm productivity, enable better decisions for farmers and reduce risk by providing customised advisory support.

2. Setting up of Self- Help Entrepreneur (SHE) Marts:

   • It will come under the Lakhpati Didi Programme;

   • It will be set up as community-owned retail outlets within the cluster level federations through enhanced and innovative financing instruments.

3. Setting up of NIMHANS-2:

   • This step reaffirms the commitment to Mental Health and Trauma Care;

   • It will also upgrade the National Mental Health Institutes in Ranchi and Tezpur as Regional Apex Institutions

4. Development of Integrated East Coast Industrial Corridor which will be a well-connected node at Durgapur, creation of 5 tourism destinations in the 5 Purvodaya States, and the provision of 4,000 e-buses.

5. Lauch of Scheme for Development of Buddhist Circuits in Arunachal Pradesh, Sikkim, Assam, Manipur, Mizoram and Tripura which will cover preservation of temples and monasteries, pilgrimage interpretation centers, connectivity and pilgrim amenities.

DIRECT TAXES:

Many new reforms are proposed under this heading in the Union Budget 2026-2027:

1. The new Income Tax Act, 2025 will come into effect from April 2026.

2. Simplified Income Tax Rules and Forms will be notified shortly.

3. Proposed reduction in TCS rates.

4. Overseas tour program package is reduced from the current 5% and 20% to 2% without any stipulation of amount.

5. TCS for pursuing education and for medical purposes under the Liberalized Remittance Scheme reduced from 5% to 2%.

6. Supply of manpower services will be brought within the ambit of payment to contractors for the purpose of TDS. TDS on these services will be at the rate of either 1% or 2% only.

7. For small taxpayers, a rule-based automated process will enable obtaining a lower or nil deduction certificate instead of filing an application with the assessing officer.

8. The time available for revising returns is proposed to be extended from 31st December to up to 31st March with the payment of a nominal fee.

9. The timeline for filing tax returns is to be staggered.

10. Addressing the issues of small taxpayers, a One-time 6-month foreign asset disclosure scheme for students, young professionals, tech employees, relocated NRIs, and others to be introduced to disclose income or assets below a certain size.

RATIONALISING PENALTY AND PROSECUTION:

The Budget proposes:

1. Multiplicity of proceedings to be reduced.

2. Assessment & penalty proceedings will be integrated by way of a common order for both.

3. Quantum of pre-payment will be reduced from 20% to 10%, calculated only on core tax demand.

4. In order to reduce litigations, taxpayers will be allowed to update their returns even after reassessment proceedings have been initiated, at an additional 10% tax rate over and above the rate applicable for the relevant year.

5. It is also proposed to extend the provisions for immunity from penalty and prosecution in the cases of under reporting, to misreporting as well.

   In such a case, taxpayers will need to pay 100% of the tax amount as an additional income tax over and above the tax and interest due.

6. The prosecution framework under the Income Tax Act will be rationalized.

7. Non-production of books of account and documents, and requirement of TDS payment, where payment is made in kind, will be decriminalised.

8. Non-disclosure of non-immovable foreign assets with aggregate value less than Rs. 20 lakhs will be provided with immunity from prosecution with retrospective effect from 1-10-2024.

COOPERATIVES:

1. The deduction already available to the primary cooperative societies engaged in milk supply, oilseeds, fruits or vegetables raised or grown by its members will be extended to include supply of cattle feed and cotton seed produced by its members.

2. Inter-cooperative society dividend income will be allowed as deduction under the new tax regime to the extent it is further distributed to its members.

3. In addition, an exemption of 3 years will be allowed to dividend income received by a notified national cooperative federation, on their investments made in companies up to 31-1-2026, for dividends further distributed to its member co-operatives.

IT SECTOR | India’s Growth Engine:

1. It has been proposed to club software development services, IT enabled services, knowledge process outsourcing services and contract R&D services relating to software development under a single category of Information Technology Services with a common safe harbour margin of 15.5%.

2. The threshold for availing safe harbour for IT services will be enhanced from Rs. 300 crores to Rs 2,000 crore.

3. Safe harbour for IT services will be approved by an automated rule-driven process, and once applied by an IT Services company, the same safe harbour can be continued for a period of 5 years at a stretch.

4. Unilateral Advanced Pricing Agreement process for IT services is proposed to be fast-tracked with an endeavor to conclude within 2 years, which can be extended by 6 months on taxpayer’s request.

ATTRACTING GLOBAL BUSINESS AND INVESTMENT:

1. Foreign companies using Indian data centres to provide cloud services worldwide will get a tax holiday until 2047.

2. If the foreign cloud company is related to the Indian data centre provider, a safe-harbour margin of 15% on cost will be allowed.

3. Non-resident companies storing components in bonded warehouses in India will get a safe-harbour profit margin of 2% of invoice value. This results in a very low effective tax rate of about 0.7%, which is more competitive than other countries.

4. It has also been proposed that non- residents who supply capital goods, equipment, or tooling to toll manufacturers in bonded zones will get a 5-year income-tax exemption.

5. To attract global experts to stay longer in India, their foreign (non-India) income will be tax-exempt for up to 5 years under approved schemes.

6. All non-residents who pay tax on a presumptive basis will be exempt from Minimum Alternate Tax.

TAX ADMINISTRATION:

1. It has been proposed that a Joint Committee of Ministry of Corporate Affairs and Central Board of Direct Taxes be constituted to strengthen the tax administration.

2. This Committee will incorporate requirements of Income Computation and Disclosure Standards in the Indian Accounting Standards itself.

3. Separate accounting requirements based on Income Computation and Disclosure Standards will be done away from the tax year 2027-28.

4. The definition of accountant for the purposes of Safe Harbour Rules will also be rationalized.

OTHER TAX PROPOSALS:

1. Buyback for all types of shareholders will be taxed as Capital Gains.

2. Promoters pay an additional buyback tax, making effective tax 22% for corporate promoters and 30% for non-corporate promoters.

3. TCS on certain goods (alcoholic liquor, scrap, and minerals) will be reduced to 2%.

4. TCS on tendu leaves will also drop from 5% to 2%.

5. Securities Transaction Tax will go up:

   • On Futures, from 0.02% to 0.05%.

   • On Options, the premium STT will rise from 0.1% to 0.15%, and the exercise STT from 0.125% to 0.15%.

6. The budget also proposed the following changes in Minimum Alternate Tax (‘MAT’) :

   • Companies can use their existing MAT credit only if they shift to the new tax regime.

   • In the new regime, they can set off only up to 1/4th of their tax liability using the MAT credit they already have.

   • MAT will become a final tax from 1-4-2026, meaning no new MAT credit will accumulate after that date.

   • The final MAT rate will be reduced from 15% to 14%.

   • Any MAT credit built up until 31-3-2026 can still be used, but only as per the 1/4th limit in the new regime.

INDIRECT TAXES:

Proposals for Customs and Central Excise aim to further simplify the tariff structure, support domestic manufacturing, promote export competitiveness, and correct inversion in duty.

RATIONALISATION OF CUSTOM DUTIES:

1. For marine, leather, and textile sectors, duty-free import limits for certain inputs used to process seafood for export will increase from 1% to 3% of FOB value.

2. Duty-free import of specific inputs will also be allowed for exporting leather or synthetic footwear, expanding the benefit beyond current limits.

3. The customs duty exemption on capital goods used to make lithium-ion battery cells will be extended.

4. Imports of sodium antimonate, which is used to manufacture solar glass, will also be exempt from basic customs duty.

5. The customs duty exemption for importing goods needed for Nuclear Power Projects will be extended till 2035.

6. Basic customs duty will be removed on certain parts used to manufacture microwave ovens.

7. Basic customs duty to the import of capital goods required for processing of critical minerals will be exempted and the entire value of biogas while calculating the Central Excise duty payable on biogas blended CNG will be excluded.

8. In the Civil and Defence Aviation sector, the basic customs duty on components and parts required for the manufacture of civilian, training and other aircrafts will be exempted and the basic custom duty on raw materials imported for manufacture of parts of aircraft to be used in maintenance, repair, or overhaul requirements by Units in the Defence sector will be exempted.

9. A special one-time measure, to facilitate sales by eligible manufacturing units in Special Economic Zone to the Domestic Tariff Area (DTA) at concessional rates of duty is proposed.

10. Tariff rate on all dutiable goods imported for personal use will be reduced from 20% to 10%.

11. The basic customs duty on 17 drugs or medicines will be exempted. 7 more rare diseases will be added for the purposes of exempting import duties on personal imports of drugs, medicines and Food for Special Medical Purposes used in their treatment.

CUSTOM PROCESSES:

1. It will have minimal intervention for smoother and faster movement of goods.

2. Duty deferral period for Tier 2 and Tier 3 Authorised Economic Operators is to be enhanced from 15 days to 30 days.

3. The Validity period of advance ruling, binding on Customs, is proposed to be extended from the present 3 years to 5 years.

4. The government agencies will be encouraged to leverage AEO accreditation for preferential treatment in clearing their cargo.

5. Customs warehousing framework is to be transformed into a warehouse operator-centric system with self-declarations, electronic tracking and risk-based audit.

EASE OF DOING BUSINESS:

1. Cargo clearance approvals from various Government agencies to be seamlessly processed through a single and interconnected digital window by the end of the financial year.

2. For goods not having any compliance requirement, clearance is to be done by Customs immediately after online registration is completed by the importer.

3. Customs Integrated System (CIS) is to be rolled out in 2 years as a single, integrated and scalable platform for all the customs processes.

4. Fish catch by an Indian fishing vessel in Exclusive Economic Zone or on the High Seas free of duty.

5. The budget also proposes complete removal of the current value cap of ₹10 lakh per consignment on courier exports-supports aspirations of India’s small businesses, artisans and start-ups to access global markets through e-commerce.

6. Provisions governing baggage clearance are also to be revised during international travel.

7. Revised rules to enhance duty-free allowances in line with the present-day travel realities.

8. Honest taxpayers, willing to settle disputes, will be able to close cases by paying an additional amount in lieu of penalty.

Presenting the Yuva Shakti-driven Budget which emphasizes on Government’s ‘Sankalp’ to focus on poor, underprivileged and the disadvantaged, the Finance Minister said, India will continue to take confident steps towards Viksit Bharat, balancing ambition with inclusion. As a growing economy with expanding trade and capital needs, India must also remain deeply integrated with global markets, exporting more and attracting stable long-term investment.