Union Budget 2026—27 brings a strong push toward advanced manufacturing, semiconductor self-reliance through ISM 2.0, financial reforms, critical minerals and deeper integration of domestic supply chains. Alongside this, the government has focused on simplifying taxation, reducing litigation, and modernising compliance frameworks. With these measures, the Budget aims to strengthen India’s industrial and regulatory landscape.reliance through ISM 2.0, and deeper integration of domestic supply chains. Alongside this, the government has focused on simplifying taxation, reducing litigation, and modernising compliance frameworks. With measures spanning electronics, digital infrastructure, financial reforms, and critical minerals, the Budget outlines a cohesive strategy to strengthen India’s industrial and regulatory landscape. Expert insights below assess the impact across key sectors.
Expert insights below assess the impact across key sectors, reliance through ISM 2.0, and deeper integration of domestic supply chains.
Growth Momentum & Policy Stability
This is an interesting budget for what it has done and what it has not. It is really a ‘clean up’ budget to set the stage for more transformative budgets in the future. A few interesting observations.
— L. Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan Attorneys
The Economic Survey recorded India’s growth rate of 7%. Government’s focus in this year budget is clearly on accelerating and sustaining this economic growth.
— Rohit Garg, Partner, Shardul Amarchand Mangaldas & Co.
The Union Budget 2026-2027 has created a blueprint for growth and productivity through an emphasis on accelerated technological advancements, innovation, focused industry advancement (through the integration of Al) and robust capital allocation strategies.
It places special emphasis on the targeted growth of industries including Agriculture, Chemicals, Specialized Education, Infrastructure (which focuses not only on Connectivity but also Logistics and Distribution), Medical Tourism, Pharmaceuticals and Semiconductors.
— Radhika M Dudhat, Partner, Shardul Amarchand Mangaldas & Co.
The Union Budget 2026 signals that the ‘Reform Express’ is moving beyond incremental tweaks toward deep, structural overhauls.
— Asish Philip, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Indirect Taxes, Customs, Trade Policy & SEZ
In a welcome move aligning with 56th GST Council’s recommendation, the Finance Bill, 2026 proposes omission of Section 13(8)(b) of the IGST Act, allowing intermediary services provides to foreign entities to qualify as ‘export of service’. This amendment shifts the place of supply to the recipient’s location, thereby removing the ambiguity and GST burden.
— Charanya Lakshmikumaran, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Indirect tax changes are aimed towards promoting exports and ease of doing business on the one hand and reducing litigation. SEZ rules are being rationalized to ensure capacity utilization by manufacturing units.
From indirect tax perspective, the theme leans heavily towards structural rationalization. There is an endeavour of GST style simplification for customs regulations which aims to reduce cross border trade bottlenecks.
… rationalizing duty rates and limits for personal baggage imports will bring relief to individuals returning from foreign travel.
— Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co.
Amendment to Section 15(3): Post-Sale Discounts: The Finance Bill 2026 proposes to amend Section 15(3) of the Central Goods and Services Tax Act by eliminating the requirement that post-sale discounts must be tied to an agreement specifically referencing the relevant invoices.
Instead, it proposes to link such discounts to the issuance of a credit note under section 34, provided the recipient reverses the corresponding input tax credit.
The Bill also proposes to modify Section 34 to incorporate a reference to discounts covered under clause (b) of sub-section (3) of section 15.
— Mihir Deshmukh, Partner, Shardul Amarchand Mangaldas & Co.
… preferential GST for supplies from SEZ to DTA units, enabling foreign employees to be in India without paying taxes (for a period of time) on their global income are all positive measure to make India a hub for global manufacturing.
— Sanjiv Malhotra, Senior Advisor- Head of Tax Practice, Shardul Amarchand Mangaldas & Co.
Indirect taxes, particularly Service Tax and GST, are based on the principle of destination cum consumption-based taxation. This implies that tax is levied where the goods or services are consumed.
However, this principle was distorted through the introduction of the concept of ‘intermediary services’…
Accordingly, as this removal is now proposed in the budget, the services which were treated as “intermediary services” will now qualify as export of services once notified.
— Mihir Deshmukh, Partner, Shardul Amarchand Mangaldas & Co.
Finance Bill 2026 has proposed an amendment to Section 101A of the CGST Act which deals with constitution of National Appellate Authority for Advance Ruling (NAAR). However, the NAAR is yet to be constituted. This amendment allows entrustment of functions of NAAR to any other existing Authority. It is expressly stated that an existing Authority can include “a Tribunal”. It will be interesting to see which of the existing indirect tax Tribunals will be entrusted with such functions.
— Charanya Lakshmikumaran, Executive Partner, Lakshmikumaran & Sridharan Attorneys
However, the ‘devil is in the detail’—to truly unlock this potential; we need Regulatory Harmonization. We must see calibrated changes in GST and Customs to simplify the movement of machinery from Domestic Tariff Areas (DTA) and rationalize the usage of second-hand goods.
— Asish Philip, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Indirect Tax — Inverted Duty Structure
The refund provisions have now been amended to extend the facility of a 90 % provisional refund to cases of inverted duty structure claims as well, a benefit that was previously limited to zero-rated supplies of goods or services. This change is in alignment with the recommendations made by the 56th GST Council and aims to improve liquidity for businesses facing refund delays. However, many in industry had hoped that Budget 2026 would also address the long-standing demand of refund of unutilised input tax credit on services and capital goods, which remains unresolved, leaving stakeholders likely to pursue such demand with the GST Council.
— Shivam Mehta, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Indirect Tax — GST Valuation
The removal of the pre-agreement requirement for claiming deduction of discounts from the value of supply has been widely welcomed by taxpayers, as it introduces much-needed commercial flexibility and addresses a long-standing demand of industry. Even though the pre-agreement requirement for discount deduction has been removed, the term ‘discount’ remains in the law, with no defined meaning. It remains to be seen whether longstanding debates from the pre-GST era over what qualifies as a discount will resurface. This amendment could give industry players a useful opportunity to re-evaluate their discount schemes to fully benefit from the revised provisions.
— Shivam Mehta, Executive Partner, Lakshmikumaran & Sridharan Attorney
Direct Tax — Dispute Resolution Mechanism
The Budget 2026 has moved to legislatively settle the long-standing controversy regarding the time limits for issuing final assessment orders when matters are referred to the Dispute Resolution Panel (DRP). Courts, including in Roca Bathroom Products Pvt. Ltd., had held that the overarching limitation under Section 153 governs even DRP cases, potentially rendering final orders time-barred if they exceeded Section 153 timelines.
To address this, the Finance Bill proposes inserting new subsections 144 C(4A)/(4B) and 144C(13A)/(13B), and amendments to Section 153(10) and Section 153B(1A). These clarifications confirm that once the draft assessment order under Section 144 C (1) is issued within the Section 153/153B time limit, the subsequent steps—including DRP directions and final assessment—will strictly follow Section 144C timelines, regardless of Section 153/153B.
The amendments are retrospective (from 1 April 2009 for Section 153-linked provisions and 1 October 2009 for Section 153B/search-linked provisions) to resolve interpretational conflicts, including a divided Supreme Court opinion.
— S. Sriram, Executive Partner, Lakshmikumaran & Sridharan Attorneys
The budget session will see amendments to the Arbitration Act and IBC (Amendment) Bill 2025, which introduces Group Insolvency and Cross-Border protocols. India is aiming to offer investors not just ‘Ease of Doing Business,’ but ‘Legal Predictability.’
— Asish Philip, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Direct Tax — ICDS and Ind AS Alignment
The Budget proposes to eliminate the dual-book compliance created by Income Computation and Disclosure Standards (ICDS) vis-à-vis Indian Accounting Standards (Ind AS). A Joint Committee of the Ministry of Corporate Affairs and the Central Board of Direct Taxes is proposed to be constituted to embed ICDS requirements into Ind AS itself. Once implemented, a separate tax accounting requirement based on ICDS is proposed to be discontinued from tax year 2027-28. This should reduce year-end reconciliations, disputes on timing differences, and the compliance cost of maintaining parallel computations for tax purposes, while retaining the underlying tax-policy outcomes within the accounting framework.
— S. Sriram, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Direct Tax —Tax Collected at Source
TCS cut for travel and overseas education would increase mobility.
— Manav Nagaraj, Partner, Shardul Amarchand Mangaldas & Co.
TCS on foreign remittances has often operated as a cash-flow cost, even when the tax collected is available as credit against the final tax liability. The Budget proposes, to be made effective from 01-04-2026, to reduce TCS on overseas tour programme packages from the current 5% / 20% structure to 2%, without any amount threshold. It also proposes to reduce TCS on remittances for education and for medical purposes under the Liberalised Remittance Scheme from 5% to 2%. The change should ease liquidity pressures for families, and reduce the need to claim refunds through return filing. This will reduce blockage of funds materially.
— S. Sriram, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Personal Taxation
The Union Budget has not proposed any direct changes to taxation of individual but has advanced certain indirect benefits. It has been proposed to extend the time available to revise returns up to 31 March (from 31 December) with payment of a nominal fee, alongside a staggered return-filing timeline of 31st July for salaried person (and other non-business individuals), 31st August for bon audit business cases, and 30th September for audit cases.
The burden of non-resident individuals who are selling their immovable property located in India is eased, by shifting the tax payment and compliance liability to a resident buyer. This would enable NRIs to sell their properties in India, without going through the trouble of obtaining TAN, filing TDS return, etc.
Separately, certain taxpayers (students, employees of technology companies, re-located NRI, etc.) who had not disclosed their foreign assets or income have been provided with an additional window for disclosure. Though this would have additional tax liability, it would provide immunity from penalty and prosecution.
— S. Sriram, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Infrastructure
Proposed INR 5,000 crores per CER over 5 years to develop Tier II/III cities and temple towns along with seven High-Speed Rail corridors being identified as ‘growth connectors’ between major cities. The improved connectivity will drive demand for residential, commercial, and mixed-use developments in these regions, boosting construction and ancillary industries.
— Mrinal Kumar, Partner, Shardul Amarchand Mangaldas & Co.
The Union Budget 2026 reinforces the link between real estate and India’s infrastructure-led growth strategy, backed by a record capital expenditure of Rs. 12.2 lakh crore with a double-digit annual increase. This scale of public investment is expected to meaningfully reduce development risk by accelerating metro rail projects, transport corridors and urban infrastructure, which directly supports better project viability, consistent end-user demand and long-term value creation across residential and commercial assets.
— Bhoumick, Vaidya, Partner, Shardul Amarchand Mangaldas & Co.
The record ₹12.2 lakh crore Public Capex outlay is designed to create a massive multiplier effect across the economy. By prioritizing High-Speed Rail and new Dedicated Freight Corridors (like the Dankuni-Surat link), the government is effectively de-risking the logistics for new industrial clusters. This infrastructure push is creating a ‘plug-and-play’ ecosystem for allied industries. The focus on high-tech tool rooms and construction equipment manufacturing ensures that the ‘Last Mile’ of our supply chain is as robust as the ‘First Mile’ of our rail and sagarmala corridors.
— Asish Philip, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Energy Climate & Transition
… tech where exemptions have been extended to lithium-ion cells and battery energy storage systems and aviation and defence.
— Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co.
Semiconductors, Electronics & ISM 2.0
Announcement and enhancement of corpus in ISM 2.0 should boost the semiconductor ecosystem.
— Sanjiv Malhotra, Senior Advisor- Head of Tax Practice, Shardul Amarchand Mangaldas & Co.
Electronics and mobile manufacturing appear to be the biggest beneficiary of the make in India push. Extension of zero duty benefits on capital equipment to cover sub-assemblies and specialized machinery for mobile phones and lithium-ion cells will augment setting up of high-tech production lines. A new rare earth corridor and dedicated chemical parks aim to secure the supply chain for semiconductor manufacturing and permanent magnets, reducing dependence on China.
— Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co.
Announcement regarding India Semiconductor Mission 2.O, constitution of High-level committee on Banking reforms, comprehensive review of exchange control laws regarding non-debt securities to channelise more foreign investment clearly reflects some of the structural changes which will go long way in achieving this goal of accelerating economic growth momentum.
— Rohit Garg, Partner, Shardul Amarchand Mangaldas & Co.
ISM 2.0 is explicitly framed to move beyond fabs into:
(a) semiconductor equipment and materials,
(b) full stack Indian IP/design, and stack Indian IP/design, and-stack Indian IP/design, and
(c) supply chain resilience, chain resilience.-chain resilience.
This (new) ecosystem (when it comes into play) will be supported by industry led research/training centres. This means that the upstream stack, i.e., tools, chemicals, IPR and any other materials used in manufacture are all now in scope of ISM 2.0.-led research/training centres. This means that the upstream stack, i.e., tools, chemicals, IPR and any other materials used in manufacture are all now in scope of ISM 2.0.
This means that to secure benefits, companies will have to move up the value chain and procure equipment, materials and design from Indian tool vendors, material suppliers, and design partners. Each of these relationships will need:
(i) procurement terms which carefully account for risk allocation (both commercial and regulatory) in view of the fact that the intermediate components are now being procured from Indian vendors (as against import reliance). For example, the risk under consumer protection laws needs to be addressed to attribute/apportion liability correctly.
(ii) technical standards will need to be specific and annexed to the contracts. Compliance with QCOs and other local regulatory requirements should be in addition to the commercially agreed technical needs standards and should also be adequately addressed.
(iii) licensing terms (in JVs or tech licenses) will need to be carefully defined, to ensure clear limits on use as well as careful segregation of background and foreground IPR. This aspect is often overlooked but is now of paramount importance considering any breach (including third-party breach, which can often exceed contract value), as well as enforcement action will be in India. “Full stack Indian IP” and “industry led R&D” means process recipes, designs, and software flows will be funded and codeveloped in India. Without adequate provisions for IP assignment/licensing, there is a risk of fragmented ownership between the sponsor, the tool vendor, the materials supplier, and the design partner — all of which are difficult to monetise or defend, stack Indian IP” and “industry led R&D” means process recipes, designs, and developed in India. Without adequate provisions for IP assignment/licensing, there is a risk of fragmented ownership between the sponsor, the tool vendor, the materials supplier, and the design partner — all of which are difficult to monetise or defend stack Indian IP” and “industry led R&D” means process recipes, designs, and developed in India. Without adequate provisions for IP assignment/licensing, there is a risk of fragmented ownership between the sponsor, the tool vendor, the materials supplier, and the design partner — all of which are difficult to monetise or defend.-stack Indian IP” and “industry-led R&D” means process recipes, designs, and -developed in India. Without adequate provisions for IP-assignment/licensing, there is a risk of fragmented ownership between the sponsor, the tool vendor, the materials supplier, and the design partner — all of which are difficult to monetise or defend.
From a contracts and compliance perspective, ISM 2.0 isn’t factory only policy. It shifts attention to the licensing and standards that apply to upstream equipment and materials, and it makes technology and IP terms central to every supplier engagement. Companies should ensure IP assignment and background IP licensing terms are carefully negotiated and closed at bid-stage, only policy. It shifts attention to the licensing and standards that apply to upstream equipment and materials, and it makes technology and IP terms central to every supplier engagement. Companies should ensure IP assignment and background IP licensing terms are carefully negotiated and closed at bid-stage only policy. It shifts attention to the licensing and standards that apply to upstream equipment and materials, and it makes technology and IP terms central to every supplier engagement. Companies should ensure IP assignment and background IP licensing terms are carefully negotiated and closed at bid-stage.-only policy. It shifts attention to the licensing and standards that apply to upstream equipment and materials, and it makes technology and IP terms central to every supplier engagement. Companies should ensure IP assignment and background-IP licensing terms are carefully negotiated and closed at bid-stage.
— Paritosh Chauhan, Partner, Lakshmikumaran & Sridharan Attorneys
Education, Skills & University Townships
Tax holiday for data centres till 2047 with a safe harbour of cost-plus 15 percent will encourage enhanced investment in the cloud services space.
— Sanjiv Malhotra, Senior Advisor- Head of Tax Practice, Shardul Amarchand Mangaldas & Co.
Proposed tax holiday until 2047 for foreign companies providing cloud services globally by using data centre services from India. This is expected to attract foreign investment in data centre infrastructure, accelerating demand for industrial and technology parks with specialised power and connectivity requirements.
— Mrinal Kumar, Partner, Shardul Amarchand Mangaldas & Co.
The Union Budget 2026 clearly underscores the Indian government’s renewed commitment to strengthening the higher education ecosystem. A key focus area is the expansion of high-quality academic infrastructure through close collaboration with State governments. In this regard, the Centre proposes to support the development of five University Townships along strategically important industrial and logistics corridors. These townships are envisioned as comprehensive education hubs, bringing together universities, colleges, research institutions, skill centres, and residential facilities to foster innovation, industry—academia collaboration, and regional economic growth.
In parallel, the Budget places strong emphasis on promoting inclusivity and gender equity in higher education, particularly in STEM disciplines. To improve access and retention of women students, the central government has proposed capital support for the establishment of girls’ hostels in every district housing higher education STEM institution. This initiative aims to address accommodation constraints, encourage higher female participation in science and technology education.
— Sadia Khan, Partner, Shardul Amarchand Mangaldas & Co.
Pharma, Healthcare & Public Health
Targeted segments include Healthcare where BCD has been waived for 17 essential cancer drugs, energy and tech where exemptions have been extended to lithium-ion cells and battery energy storage systems and aviation and defence.
— Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co.
Proposed five Regional Medical Hubs in partnership with the private sector to promote medical value tourism. These will be integrated healthcare complexes with medical, educational, and research facilities. This proposal will provide opportunity for development of ‘medicities’ and ancillary hospitality projects (hotels, serviced apartments) catering to medical tourists.
— Mrinal Kumar, Partner, Shardul Amarchand Mangaldas & Co.
A strengthened CDSCO is likely to result in:
-
improved approval timelines through a dedicated scientific review cadre and specialist expert;
-
better guidance on dossiers (i.e., the structured set of documents that a sponsor / applicant submits to a regulator to demonstrate that a drug product is quality-assured, safe, and effective for its proposed use).
This will help in-house regulatory teams plan for authorisations with more predictability.
Budget 2026 proposes to strengthen the CDSCO through a dedicated scientific review cadre and specialist expertise, with the stated objective of aligning approval timelines with global standards. While no statutory timelines have been introduced, this is expected to improve review quality, consistency, and the clarity of regulatory expectations, including around dossier requirements. In turn, this should enhance predictability for in-house regulatory teams in planning product authorisations, subject to effective implementation.
— Paritosh Chauhan, Partner, Lakshmikumaran & Sridharan Attorneys
Manufacturing, Textiles & Aviation
In the manufacturing space, there is good news, both on the direct and indirect taxes. India has finally recognised the concept of a toll manufacturing model. The safe harbours of 5 years for foreign principals supplying and storing goods in India, preferential GST for supplies from SEZ to DTA units, enabling foreign employees to be in India without paying taxes (for a period of time) on their global income are all positive measure to make India a hub for global manufacturing.  Defense, semiconductor and other hi-tech industries will greatly benefit from this.  This gels perfectly well with Indian PLI schemes.
— Sanjiv Malhotra, Senior Advisor- Head of Tax Practice, Shardul Amarchand Mangaldas & Co.
Extension of zero duty benefits on capital equipment to cover sub-assemblies and specialized machinery for mobile phones and lithium-ion cells will augment setting up of high-tech production lines. A new rare earth corridor and dedicated chemical parks aim to secure the supply chain for semiconductor manufacturing and permanent magnets, reducing dependence on China.
— Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co.
The Budget’s identification of seven strategic manufacturing sectors reinforces the government’s ambition to increase manufacturing’s share of GDP from the current 12.9% to 25% by 2035, consistent with the target set under the National Mission on Manufacturing (NMM) announced in the previous fiscal year. This prioritization reflects a deliberate effort to align industrial expansion with sectors that can deliver both scale and strategic depth in global value chains.
By focusing on biopharma, semiconductors, rare earth materials, capital goods, infrastructure equipment, textiles, and advanced manufacturing, the government is directing policy attention toward segments that are critical to upstream capability-building, technology upgrading, and supply-chain resilience. Together, these choices strengthen the foundations for a more competitive and investment-led manufacturing base over the medium term.
— Rudra Kumar Pandey, Partner, Shardul Amarchand Mangaldas & Co.
The Budget has finally addressed a major ‘deal-breaker’ for global tech giants. The 5-year income tax exemption for foreign OEMs providing capital goods and tooling to contract manufacturers in bonded premises effectively removes the ‘business connection’ tax risk that has long stalled local scaling. Along with the 5-year tax exemption on global income for non-resident expats.
— Asish Philip, Executive Partner, Lakshmikumaran & Sridharan Attorneys
The Union Budget 2026 has taken a significant step towards revitalizing the textile sector, severely impacted by US tariffs, by leveraging the crisis as an opportunity to enhance the ecosystem. The proposal focuses on promoting highly value-added manmade and tech fibres alongside natural fibres, aiming to boost the sector’s competitiveness. Alongside MSME support measures, these initiatives are expected to have a positive impact, enabling India to leverage upcoming FTAs and strengthen its position in the global textile market, ultimately benefiting the sector’s large employment base.
— Asish Philip, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Manufacturing & Technology
IT Sector and Electronics Manufacturing are clear beneficiaries of this Budget. We have heard the FM on safe harbour for IT and promoting unilateral APAs. From Electronic Manufacturing perspective, two topics that we have been representing to the Ministry have been accepted – one of them being 2% safe harbour for goods belonging to NR when stored in India and exemption to NR for supply of Capital Goods for Tolling in Bonded Zones.
The industry has been seeking certainty in these areas and LKS had made representations on their behalf. Glad to see that some of the suggestions have been accepted and have seen the light of the day. The proposed changes will provide impetus to the sector.
— L. Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan Attorneys
MSME & Access to Finance
In respect to MSMEs, it allocates resources for the creation of clusters with the necessary infrastructure through a plug and play model.
— Radhika M Dudhat, Partner, Shardul Amarchand Mangaldas & Co.
Foreign Investment, FEMA & IFSC
It was announced that a comprehensive review of the Foreign Exchange Management (Nondebt Instruments) Rules will be undertaken to create a more contemporary, user-friendly framework for foreign investments. This signals an intent to rationalise and modernise the delegated regulatory framework governing FDI. The emphasis on user-friendliness, reduced compliance, and deregulation suggests a likely focus on simplification, procedural efficiency, and clarity, subject to implementation through subsequent notifications debt Instruments) Rules will be undertaken to create a more contemporary, user friendly framework for foreign investments. This signals an intent to rationalise and modernise the delegated regulatory framework governing FDI. The emphasis on user friendliness, reduced compliance, and deregulation suggests a likely focus on simplification, procedural efficiency, and clarity, subject to implementation through subsequent notifications.-debt Instruments) Rules will be undertaken to create a more contemporary, user-friendly framework for foreign investments. This signals an intent to rationalise and modernise the delegated regulatory framework governing FDI. The emphasis on user-friendliness, reduced compliance, and deregulation suggests a likely focus on simplification, procedural efficiency, and clarity, subject to implementation through subsequent notifications.
— Paritosh Chauhan, Partner, Lakshmikumaran & Sridharan Attorneys
Natural Resources & Mining
Dedicated rare earth corridors have been announced for Odisha, Kerala, Andhra Pradesh, and Tamil Nadu. These announcements constitute policy intent only and do not, by themselves, create statutory rights, concessions, or enforceable obligations. Implementation will require subsequent legislative, regulatory, or executive action. Notwithstanding the absence of immediate legal effect, bidders may reasonably expect future auctions and concession documents to be updated to reflect corridor linked policy measures once formally notified linked policy measures once formally notified.-linked policy measures once formally notified.
— Paritosh Chauhan, Partner, Lakshmikumaran & Sridharan Attorneys
A new rare earth corridor and dedicated chemical parks aim to secure the supply chain for semiconductor manufacturing and permanent magnets, reducing dependence on China.
— Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co.
By focusing on biopharma, semiconductors, rare earth materials, capital goods, infrastructure equipment, textiles, and advanced manufacturing, the government is directing policy attention toward segments that are critical to upstream capability-building, technology upgrading, and supply-chain resilience.
— Rudra Kumar Pandey, Partner, Shardul Amarchand Mangaldas & Co.
REITs/InvITs & Public Asset Monetisation
Equally significant is the policy intent to unlock institutional capital through the monetisation of central public sector enterprise assets via dedicated REIT-type structures, signaling a more evolved and transparent real estate capital market. Together, these measures aim to strengthen the sector’s fundamentals, improve long-term visibility for developers and investors, and reinforce real estate’s position as a stable, infrastructure-linked asset class in India’s growth trajectory.
— Bhoumick Vaidya, Partner, Shardul Amarchand Mangaldas & Co.
Buyback taxation and profit repatriation
The Buyback tax scheme seeks to draw a distinction between promoter and non-promoter shareholders. Capital gains tax treatment seems to be restored for non-promoter shareholders. However, promoter individuals will suffer higher tax of 30 per cent and promoter companies 22 per cent.
The government seems to have again revisited taxation of share buy backs reverting to capital gains treatment for non-promoter investments. The fine print will have a major impact on profit repatriation strategies of investors.
— Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co.
The taxation of share buy-back payouts has been subject matter of constant Legislative policy changes. From being taxed as dividend, to capital gains, to a buy back tax, to deemed dividend, the numerous changes over the past decade. Currently, proceeds received on buy back is taxed as dividend.
The Budget 2026 now proposed to align it with a normal share sale, by treating buy-back proceeds as capital gains for shareholders. To curb the use of buybacks as a tax-arbitrage route for large shareholders, the proposal also introduces an additional income-tax on such capital gains where the shareholder is a “promoter,” which effectively takes the tax incidence to around 22% for corporate promoters and 30% for other promoters on buy-back gains. These amendments are proposed to apply to buy backs effected on or after 1st April 2026. This would provide a great relief to small shareholders, who were subject to taxation at maximum marginal rate for transfer of their shareholding in a buy back scheme.
— S. Sriram, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Tax litigation and Disputes Management
Reduction in the pre-deposit from 20 percent to 10 percent till ITAT will benefit MNCs manage their cash flows better especially those with high value tax litigation.
Non-inclusion of interest in pre-deposit is an icing on the cake.
— Sanjiv Malhotra, Senior Advisor- Head of Tax Practice, Shardul Amarchand Mangaldas & Co.
On tax front, much was needed on reducing litigation. It’s heartening to see much proposal have been made in this regard like decriminalization of small offenses, reduction in pre deposit of tax demand from 20% to 10% for litigation, immunity from penalty & prosecution for disclosure of foreign assets are some welcome steps.
The Budget fine print provides retrospective amendments to provide much needed clarity over certain disputed issues which are pending for adjudication before the Supreme Court like the amendment on JAO v. FAO issue, DIN issue, Roca Bathroom/Shelf Drilling, etc. Interestingly, all these issues were decided by High Court(s) in favour of taxpayers and against the Revenue.
While such proactiveness of Government in providing the clarity on these issues is laudable, but it will be interesting to see how taxpayers will react to these retrospective amendments and amend their litigation strategy. Most likely, the taxpayers would now need to revisit their pending matters and devise strategy to iron out issues on the merits rather than on technical points.
— Rohit Garg, Partner, Shardul Amarchand Mangaldas & Co.
Big changes on minimum alternate tax making it a final tax with no credits to be offset against future income. This will impact branch offices in gift city.
The Government has taken cognisance of the increased litigation backlog. Reducing the tax deposit amount needed to litigate claims, integrating assessment and penalty proceeding, allowing taxpayers to file updated returns during the reassessment phase and rationalising penalties for technical defaults should ease the pressure on Indian tax dispute framework.
— Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co.
The ‘quieter’ aspects of a budget are rarely appreciated – reducing litigation, decriminalisation of offences, reduction in pre-deposits for stay, extensions of timelines, etc. In my experience, these tend to have larger impact in the overall scheme of things rather than tax breaks and incentives. Overall, I think it is a good budget and something to look forward to in the future years.
— L. Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan Attorneys
India migration towards a faceless assessment scheme started in 2020, aimed as reducing personal interaction between the taxpayer and the revenue authorities. Certain lacuna in the drafting of the scheme resulted in the due process of assessment not being followed by the Revenue Authorities. While the Faceless Assessment Scheme required the notice for initiation of a re-assessment to be issued by an Officer in the Faceless Assessment Unit (FAO), due to the manner in which the electronic issuance of notice system was programmed, the notices came to be issued by the Jurisdictional Assessing Officer (JAO). Thousands of petitions challenging the notices are pending before the Supreme Court and various High Court.
The Union Budget 2026 proposes a retrospective amendment to put an end to the “JAO vs FAO” fight. It is sought to be clarified that, for reassessment initiation and the pre-notice procedure (sections 148 and 148A), the “Assessing Officer” would include (and is deemed to have always meant) an AO other than FAO — meaning thereby that a notice can also be issued by the JAO. The memorandum explaining the amendments expressly states that this is to end divergent High Court views and reduce litigation. Whether this would end the litigation completely has to be seen, given the various other procedural requirements under law, including appropriate approval, existence of assets, etc.
— S. Sriram, Executive Partner, Lakshmikumaran & Sridharan Attorneys
The Budget proposes a meaningful reduction in the upfront cash outgo at the outset for taxpayers who contest a demand. At present, taxpayers typically pay 20% of the disputed tax to obtain a stay during the first appeal stage. There is also a dispute over whether the 20% of the pre deposit would be on the basic tax amount, or the total demand including tax and interest.
In the budget 2026, it is proposed to halve this pre-payment requirement in case of appeal being pending before the first appellate authority, to 10%, and to compute it only on the “core tax demand”. This should improve liquidity, lower the cost of contest, and make appellate remedies more accessible. It should also discourage premature coercive recovery where issues are arguable and support the stated objective of reducing litigation. This amendment, being beneficial, may apply to pending litigation also.
— S. Sriram, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Transfer Pricing, Safe harbour, APAs
India has finally recognised the concept of a toll manufacturing model. The safe harbours of 5 years for foreign principals supplying and storing goods in India.
New safe harbour rules with the mark-up of 15.5 percent and coverage till 2,000 crores will bring down the transfer pricing litigation drastically.
This has been a revolutionary budget in relation to the reforms in the transfer pricing regime in India. Government seems to have appreciated that the need of the hour was to accommodate the long-standing request of the multinationals operating in India to reduce transfer pricing litigation. In this regard the massive expansion of the safe harbour regime and rationalisation of the rates there in is the highlight of this budget from an international tax perspective.
Having a time bound closure of unilateral APAs of 2 to 2.5 years is a big positive to bring down the pendency of APAs and will provide timely tax certainty to MNCs who apply for APAs.
— Sanjiv Malhotra, Senior Advisor- Head of Tax Practice, Shardul Amarchand Mangaldas & Co.
Renewed commitment to grow the services sector by the Central Government. The services sector, which has historically formed the foundation of the economy, had been overshadowed by the impetus given to the manufacturing sector. The current budget has reinstated the need for enhancement of this sector.
This objective is supplemented by transfer pricing rationalisation measures, including significantly widening the safe harbour provisions for services and reduced timelines for the conclusion of advance pricing agreements.
In case of APAs concluded with respect to Intra-group charges and royalty payments by the taxpayers in India to their associated enterprises outside India, the arm’s length price agreed is either equal to the value of transaction or less than the actual payments. The differential is considered as a transfer pricing adjustment which is subjected to the provisions of section 92CE.  In most cases, such payments are subjected to withholding tax, however, there is no mechanism for a refund where there is a downward adjustment. The excess tax becomes an added, unrecoverable cost for the group. The government should rationalise the provisions by permitting non-resident AEs to obtain refunds of such excess tax withheld at the time of payments by allowing a modified return to align the AE’s taxable income with the agreed ALP.
— Aayush Nagpal, Partner, Shardul Amarchand Mangaldas & Co.
India’s transfer pricing safe harbour regime (Section 92CB read with Rules 10TA—10TG) provides certainty only to specified categories and within prescribed thresholds. For IT/ITeS, the commonly used safe harbour route had a turnover threshold of ₹300 crore, beyond which large service providers had to defend margins through benchmarking, often leading to prolonged TP audits and litigation.
Budget 2026 has proposed (i) a sharp increase in the safe harbour threshold for IT services from ₹300 crore to ₹2,000 crore, (ii) substantially expanding the definition of IT/ITeS Sector, and (ii) shifting approvals to an automated, rule-based system, removing routine officer examination. For the data-centre / cloud ecosystem, the Budget also proposes a 15% cost-based safe harbour for a related entity “co-providing data services from India”, alongside a policy push to make India a global data hub.
— S. Sriram, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Services Sector & GCCs
The Government has accorded high priority to services, with an objective of growing the share of service exports to 10% of the global market by 2047. This objective is supplemented by transfer pricing rationalisation measures, including significantly widening the safe harbour provisions for services and reduced timelines for the conclusion of advance pricing agreements.
— Aayush Nagpal, Partner, Shardul Amarchand Mangaldas & Co
The increased outlay on electronics manufacturing as well as the proposal for GCCs in India would enable growth in technology and tech enabled industries in India. This will have a positive impact on the IT, ITES and electronics manufacturing sectors in India.
— Manav Nagaraj, Partner, Shardul Amarchand Mangaldas & Co.
India harbours more than half of the GCCs in the world. Extending transfer pricing certainty to them through revised safe harbours and fast tracking APAs shows India’s continued commitment to be a market leader for GCCs and centres of excellence.
— Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co.
This materially improves certainty for large Indian IT exporters and GCC-linked service models, reduces TP dispute inventory, and makes India a more competitive jurisdiction for scaling tech delivery with predictable tax outcomes. Though a larger ambit would be of greater assistance, it is a welcome step towards reducing unwarranted litigation, and transaction delays.
— S. Sriram, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Housing & Interest Deduction
By including prior-period interest within the overall ceiling of Rs. 2,00,000/-, the amendment brings certainty to the provision and eliminates the possibility of deductions exceeding the intended limit. It reinforces fiscal discipline by ensuring that the interest deduction for a self-occupied house property remains capped in aggregate, irrespective of whether the interest relates to the current year or previous years. This ensures uniform application, prevents the carry-over of deductions through different years, and restricts the benefit to the extent intended by the law. The amendment continues to provide relief to genuine homeowners within a clear and well-defined statutory framework.
— Ashoo Gupta, Partner, Shardul Amarchand Mangaldas & Co.
ESG, Sustainability & Green Growth
From an ESG Standpoint, the Union Budget 2026-2027 aims to promote environmentally sustainable schemes including Carbon Capture Utilisation (and Storage), the creation of Environmentally Sustainable Passenger Systems by introducing ‘Growth Connectors’ in the form of 7 High-Speed Rail Corridors’, integration and use of Al (and emerging technologies) in Agriculture, boosting Education and Employment, simplifying Compliance requirements across sectors.
We see this Budget as a foundation that will help India achieve its global Sustainability initiatives that are based on the principles of co-operation and responsible action.
— Radhika M Dudhat, Partner, Shardul Amarchand Mangaldas & Co.
Penalty and appellate reforms
No interest liability on the taxpayer on the penalty amount for the period of appeal before the first appellate authority, irrespective of the outcome of the appeal process. Thus, leading to significant reduction of cash outflow of taxpayers
Penalty and assessment proceedings to be undertaken under a common proceeding, hence, reducing multiple proceedings for the same tax year.
— Aayush Nagpal, Partner, Shardul Amarchand Mangaldas & Co.
Minimum Alternate Tax (MAT) Reform
With MAT being a final tax under the old corporate regime, the government seems to be incentivising a push to the new corporate tax regime. This is also evident from the set off of MAT credit being allowed up to 25 per cent of tax liability to domestic companies transiting to new regime.
— Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co.
The Budget proposes a structural reset of Minimum Alternate Tax (MAT) regime, to facilitate migration to the new corporate tax regime. An exemption from MAT is proposed for non-residents taxed on a presumptive basis. But MAT in the old regime is proposed to become a final tax, with the MAT rate reduced from 15% to 14%. This is a clear deviation from the fundamental concept of MAT being an alternate tax, and a deferred mechanism for collecting tax in advance. No fresh MAT credit will be allowed to accrue for payments made from 1 April 2026. Brought-forward MAT credit up to 31 March 2026 will continue but set-off is proposed to be permitted only for domestic companies shifting to the new regime and capped at 25% of the tax liability. For foreign companies, set off is proposed only to the extent normal tax exceeds MAT.
— S. Sriram, Executive Partner, Lakshmikumaran & Sridharan Attorneys
GIFT City
Gift city receives a major fillip as the tax holiday for units is extended to 20 years out of 25 years from the current 10 out of 15 years. This signals India’s long-term commitment to a stable tax policy for promoting GIFT.
— Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co.