The finance minister, Nirmala Sitharaman, presented the Union Budget 2026–27 on February 1, 2026 in Parliament, marking her ninth consecutive budget presentation. Prior to this, the Economic Survey 2025–26, tabled on January 29, 2026, projected India’s economic growth at about 7.4 per cent in FY26 and estimated it to remain between 6.8 and 7.2 per cent in FY27. The projected growth is expected to be supported by regulatory reforms, a strong macroeconomic foundation and a renewed emphasis on private-sector investment.
The Union Budget 2026–27 presents the fiscal roadmap of the government with an emphasis on economic growth, fiscal consolidation, tax reforms and measures aimed at strengthening domestic manufacturing services and global competitiveness. The budget outlines major policy initiatives in taxation, expenditure management, customs reforms, ease of doing business, and sectoral development. At the macroeconomic level, the government has estimated a nominal gross domestic product growth rate of about 10 per cent in 2026–27. Government receipts excluding borrowings are estimated to reach about Rs 36,51,547 crore, representing an increase of around 7.2 per cent over the revised estimates for 2025–26. Gross tax revenue, a major part of receipts, is expected to increase by around eight per cent during the year 2025–26.
The budget has a fiscal deficit, estimated at about 4.3 per cent of the GDP in 2026–27, slightly lower than the revised estimate of 4.4 per cent in 2025–26, while the revenue deficit is estimated at 1.5 per cent of the GDP. The government has further indicated a long-term objective of reducing outstanding liabilities to around 50 per cent of GDP by March 2031 which are estimated to be 55.6 per cent of the GDP in FY 26.
Against this background, this budget introduces a range of measures covering direct taxes, indirect taxes, customs processes, sectoral initiatives, and reforms aimed at improving tax administration, encouraging investment and strengthening India’s growth trajectory.
Some Highlights
Some of the highlights of the Union Budget 2026–27 are as follows:
Fiscal Position and Budget Estimates The Union Budget 2026–27 estimates total expenditure at approximately Rs 53,47,315 crore, representing an increase of about 7.7 per cent over the revised estimate of the previous year. Of this amount, about Rs 17,71,928 crore is proposed to be spent on central sector schemes, while about Rs 9,89,885 crore would be allocated to centrally sponsored schemes and other transfers (an increase of 17.1 per cent over the revised estimate of 2025–26). Interest payments account for a significant share of expenditure and are estimated at Rs 14,03,972 crore, constituting around 26 per cent of the government’s total expenditure.
Revenue expenditure is expected to grow by around 6.6 per cent while capital expenditure is projected to increase by about 11.5 per cent over the revised estimates for 2025–26. The government also plans to provide special loans to states for capital expenditure amounting to about Rs 1,85,000 crore.
On the receipts side, the budget estimates gross tax revenue at around Rs 44,04,086 crore in 2026–27. Income tax collections are expected to increase by about 11.7 per cent and corporation tax collections by about 11 per cent over the revised estimates for 2025–26. Net tax revenue of the centre is estimated at Rs 28,66,922 crore, reflecting growth of around 7.2 per cent.
Non-tax revenue is estimated at about Rs 6,66,228 crore, largely driven by dividends and profits as well as interest receipts on loans given by the Centre, dividends, licence fees, tolls and charges for government services. Capital receipts excluding borrowings are estimated to increase significantly to about Rs 1,18,397 crore (an increase of 85 per cent over the revised estimates for 2025–26), mainly due to higher disinvestment receipts.
Direct Tax Reforms The Union Budget 2026–27 proposes several reforms in direct taxes with the objective of simplifying compliance and strengthening the tax administration framework. A major reform is the introduction of the New Income Tax Act, 2025, which would come into effect from April 2026. Along with this, simplified Income Tax Rules and Forms are proposed to be notified. These forms are redesignated to facilitate easy compliance by ordinary citizens.
In order to rationalise tax procedures, the budget proposes a reduction in Tax Collected at Source (TCS) rates. For overseas tour programme packages, the rate is proposed to be reduced to two per cent. Similarly, TCS under the Liberalised Remittance Scheme for education and medical purposes is proposed to be reduced from five per cent to two per cent.
Additionally, the budget proposes to bring supply of manpower services within the ambit of payment to contractors for the purpose of tax deduction at source. Tax Deducted at Source (TDS) on such services would be levied at a rate of either one per cent or two per cent. For small taxpayers, a rule-based automated process would enable obtaining a lower or nil deduction certificate instead of filing an application with the assessing officer. In addition, the time available for revising tax returns is proposed to be extended up to March 31, 2026, with a payment of a nominal fee.
A special one-time foreign asset disclosure scheme has further been proposed for a period of six months. This scheme would allow students, young professionals, technology employees, relocated non-resident Indians (NRIs) and other small taxpayers to disclose income or assets below a specified threshold.
Rationalisation of Penalty and Prosecution This budget also introduces measures to rationalise the penalty and prosecution framework under the Income Tax Act. The multiplicity of proceedings would be reduced by integrating assessment and penalty proceedings through a common order. The quantum of pre-payment for appeals would further be reduced to 10 per cent of the core tax demand.
In order to reduce litigation, taxpayers would be allowed to update their returns even after reassessment proceedings have been initiated, subject to payment of an additional tax. The provisions for immunity from penalty and prosecution would also be extended to cases of misreporting of income.
Furthermore, the prosecution framework under the Income Tax Act would be rationalised and certain offences, such as non-production of books of account or documents would be decriminalised. Non-disclosure of certain foreign assets below a specified value would further be provided with immunity from prosecution.
Measures for Cooperatives The budget includes specific provisions aimed at strengthening cooperative institutions. The deduction available to primary cooperative societies engaged in supplying agricultural products raised by their members would be extended to include supply of cattle feed and cotton-seed produced by members.
Dividend income received by inter-cooperative societies would be allowed as deduction under the new tax regime to the extent it is distributed to members. Additionally, dividend income received by a notified national cooperative federation on investments made in companies up to January 2026 would receive a three-year exemption when distributed to member cooperatives.
Supporting the Information Technology Sector Recognising the significance of the IT sector as a major driver of India’s growth trajectory, the budget proposes to bring software development services. IT-enabled services, knowledge process outsourcing services and contract research and development services are covered under a single category of Information Technology Services. This category would have a common safe harbour margin of 15.5 per cent.
The threshold for availing safe harbour provisions for IT services is proposed to be increased from Rs 300 crore to Rs 2000 crore. Safe harbour approval would be granted through an automated rule-driven process and could remain applicable for a period of five years once adopted by an IT services company.
In addition, the unilateral advanced pricing agreement process for IT services would be fast-tracked with an endeavour to conclude the process within two years, extendable by six months at the request of the taxpayer.
Attracting Global Business and Investment The budget further introduces several measures aimed at making India an attractive destination for global business and investment. Foreign companies providing cloud services globally by using data-centre services from India would be granted a tax holiday until 2047. A safe harbour margin would also be provided for companies offering data centre services from India through related entities.
Similarly, non-resident companies providing capital goods equipment or tooling to toll manufacturers in bonded zones would be eligible for income tax exemption for five years. Global income (non-India sourced) of non-resident experts working in India under notified schemes would also be exempted for a stay period of five years.
Tax Administration Reforms To strengthen tax administration, the government proposes the constitution of a joint committee of the Ministry of Corporate Affairs and the Central Board of Direct Taxes. This committee would examine the incorporation of the requirements of Income Computation and Disclosure Standards into the Indian Accounting Standards framework. As a result, separate accounting requirements based on these standards would be removed from the tax year 2027–28 onwards.
Additionally, the definition of accountant for the purposes of safe harbour rules is proposed to be rationalised.
Other Tax Proposals Several other tax proposals have been introduced to improve transparency and protect the interests of investors. Share buybacks for all types of shareholders would be taxed as capital gains, while promoters would be required to pay an additional buyback tax. As a result, the effective tax rate becomes 22 per cent for corporate promoters and 30 per cent for non-corporate promoters.
The Securities Transaction Tax on futures and options is proposed to be increased, while provisions relating to Minimum Alternate Tax (MAT) would be rationalised. The MAT rate would be reduced to 14 per cent and no further credit accumulation would be permitted after April 2026.
Indirect Tax and Customs Reforms In the area of indirect taxation, the government has introduced proposals relating to customs and central excise duties aimed at simplifying the tariff structure, supporting domestic manufacturing and promoting export competitiveness.
Duty-free import limits for specified inputs used for processing seafood products for export would be increased to three per cent of the free-on-board value of exports. Duty-free import of specified inputs would also be extended to exports of leather and synthetic footwear.
In the energy sector, customs duty exemptions on capital goods used for manufacturing lithium-ion cells would be extended. Moreover, basic customs duty on sodium antimonate used in the manufacture of solar glass would be exempted. Additionally, duty exemptions would be extended for goods required for nuclear power projects until 2035.
In the civil and defence aviation sector, basic customs duty would be exempted on components and parts used for manufacturing aircraft and on raw materials used in maintenance and overhaul requirements for defence units.
A special one-time measure has also been introduced to allow eligible manufacturing units in special economic zones to sell goods in the domestic tariff area at concessional duty rates.
Customs Processes and Ease of Doing Business The budget proposes significant reforms in customs procedures to improve efficiency and reduce transaction costs. The customs warehousing framework would be transformed into a warehouse operator-centric system supported by self-declarations, electronic tracking, and risk-based audits.
The duty deferral period for authorised economic operators would be extended from 15 days to 30 days. The validity period of advance rulings under customs law would also be extended from three years to five years.
To enhance ease of doing business, cargo clearance approvals from multiple government agencies would be integrated through a single and interconnected digital window by the end of the financial year. The Customs Integrated Systems would be rolled out as a single integrated platform for customs processes. The use of non-intrusive scanning with advanced imaging and AI for risk assessment would also be expanded with the objective of scanning every container across major ports.
Furthermore, the budget proposes removal of the current value cap of Rs 10 lakh per consignment on courier exports, enabling small businesses, artisans and start-ups to access global markets through e-commerce platforms.
Sectoral and Developmental Initiatives This Union Budget also introduces several sector-specific initiatives. Recognising micro, small, and medium enterprises (MSMEs) as a vital engine of growth, Rs 10,000 crore, were dedicated for SME Growth Fund to create future champions, incentivising enterprises based on select criteria.
In the services sector, new initiatives include the establishment of medical value tourism hubs, the creation of institutions for allied health professionals and programmes to train and create professionals for Viksit Bharat. Several measures are also proposed for education, tourism, culture, and sports development.
The government proposes to increase the availability of veterinary professionals by more than 20,000. To support this objective, a loan-linked capital subsidy support scheme would be launched to facilitate the establishment of veterinary and para-veterinary colleges, veterinary hospitals, diagnostic laboratories, and breeding facilities in the private sector.
In addition, five university townships would be established near industrial and logistic corridors, while initiatives such as animation and gaming content creator laboratories in schools and colleges aim to strengthen India’s creative industries.
Conclusion
To conclude, the 2026–27 Union Budget can be summed up as follows:
The government plans to spend Rs 53,47,315 crore in 2026–27 (7.7 per cent higher than the revised estimate of 2025–26). Interest payments account for 26 per cent of the total expenditure, and 40 per cent of revenue receipts. The receipts (other than borrowings) are estimated to be Rs 36,51,547 crore (about 7.2 per cent higher than the revised estimate of 2025–26). Tax revenue is also expected to increase by 8 per cent over the revised estimate for 2025–26. As for the GDP, the government has estimated a nominal GDP growth rate of 10 per cent in 2026–27. Revenue deficit is targeted at 1.5 per cent of the GDP, which is similar to the revised estimate of 1.5 per cent in 2025–26. Fiscal deficit is targeted at 4.3 per cent of the GDP (lower than the revised estimate of 4.4 per cent in 2025–26). The central government aims to reduce its outstanding liabilities to around 50 per cent of the GDP by March 2031, which are estimated to be 55.6 per cent of the GDP in 2026–27.
This budget represents a comprehensive fiscal strategy aimed at maintaining macroeconomic stability while supporting economic growth and structural reforms. Through measures relating to taxation customs reforms, investment promotion and sectoral development, the budget attempts to create a conducive environment for domestic industry and global investment.
At the same time, the emphasis on fiscal consolidation, improved tax administration and enhanced ease of doing business reflects the government’s effort to strengthen the institutional framework of economic governance. With targeted initiatives for manufacturing, services and MSMEs, the 2026–27 Union Budget seeks to reinforce India’s growth momentum and advance the broader objective of building a resilient and competitive economy.
© Spectrum Books Pvt. Ltd.
