Union Budget 2026: Sabka Vikas via Infra, MSMEs & Services

1. Budget Theme: Yuva Shakti–Led Growth

The Union Budget 2026–27 is anchored around “Yuva Shakti–driven growth”, focusing on converting India’s demographic dividend into sustained productive capacity through skilling, employment generation, and enterprise creation. The Budget positions human capital as the central driver of long-term economic expansion.

2. Guiding Principles (Three Kartavya)

The Budget is guided by three overarching duties:

Accelerating and sustaining economic growth: Focus on productivity enhancement, global competitiveness, and resilience amid volatile global conditions.
Fulfilling aspirations and building capacity: Strengthening human capital, skills development, and institutional capabilities.
Advancing Sabka Sath, Sabka Vikas: Ensuring equitable access to opportunities across regions, communities, and sectors.

3. Investment-Led Growth Strategy

The Budget reinforces an investment-led development model, with emphasis on:

Scaling manufacturing in strategic and frontier sectors
Strengthening MSME Registration as supply-chain anchors and employment generators
Reinforcing services as a key driver of growth, exports, and job creation

4. Strengthening India’s Investment Ecosystem

Public Capex and Infrastructure Push

Sustained public capital expenditure to crowd in private investment
Infrastructure-led regional development, with special focus on Tier II and Tier III cities
Long-term investments in energy security, climate technologies, and resource resilience

Ease of Doing Business & Capital Flows

Regulatory simplification, tax certainty, and trust-based compliance
Measures to facilitate FDI, portfolio investments, and global integration
Investment Friendliness Index of States (to be launched in 2025) to promote competitive cooperative federalism and improve investor responsiveness at the state level

5. Manufacturing: Strategic & Frontier Sectors

The Budget outlines a comprehensive push to scale manufacturing through targeted schemes and cluster-based development:

Key Manufacturing Initiatives

Biopharma SHAKTI – ₹10,000 crore over five years to build India as a global biopharma manufacturing hub
India Semiconductor Mission (ISM) 2.0 – Enhanced outlay of ₹40,000 crore
Electronics Components Manufacturing Scheme – Outlay increased to ₹40,000 crore
Rare Earth Corridors – Dedicated corridors in Odisha, Kerala, Andhra Pradesh, and Tamil Nadu
Chemical Parks – Support to States for three plug-and-play chemical manufacturing parks
Construction & Infrastructure Equipment (CIE) Scheme
Container Manufacturing Scheme – ₹10,000 crore over five years
Rejuvenation of 200 Legacy Industrial Clusters

6. Biopharma: Ecosystem-Led Capacity Creation

Biopharma SHAKTI

(Strategy for Healthcare Advancement through Knowledge, Technology & Innovation)

Key components include:

Establishment of three new NIPERs and upgradation of seven existing institutes
Creation of a network of 1,000+ accredited clinical trial sites
Strengthening regulatory processes to improve approval timelines and global acceptance

The objective is to position India as a global manufacturing and clinical research hub for biologics and biosimilars.

7. Textiles: Labour-Intensive Growth & Export Focus

The Budget adopts an integrated approach through an Integrated Textile Programme, comprising:

National Fibre Scheme
Textile Expansion and Employment Scheme
National Handloom and Handicraft Programme
Tex-Eco Initiative for sustainable textiles
Samarth 2.0 for skilling and industry-academia collaboration

These measures aim to improve productivity, enhance value addition, and strengthen global competitiveness.

8. Infrastructure: Enabling Industrial & Regional Growth

Key highlights include:

Public capital expenditure of ₹12.2 lakh crore in FY27
Development of seven High-Speed Rail corridors
Operationalisation of 20 new National Waterways
Continued focus on infrastructure in Tier II and Tier III cities
Development of City Economic Regions (CERs) with ₹5,000 crore per region over five years

9. MSMEs: Creating Future Champions

Recognising MSMEs as critical growth drivers, the Budget introduces:

Champion SME Programme with targeted equity, liquidity, and professional support
₹10,000 crore SME Growth Fund to support scale-ready enterprises
₹2,000 crore top-up to the Self-Reliant India Fund for micro enterprises

10. Digital Infrastructure & Data Centres

The Budget positions digital infrastructure as a long-term growth enabler:

Key measures include:

Tax holiday till 2047 for data centre operations
Long-term tax holiday for foreign cloud service providers using Indian data centres
Safe harbour of 15% on cost for related-party services
Policy predictability to attract hyperscalers and cloud investors
Alignment with AI, fintech, e-commerce, and Global Capability Centres (GCCs)

11. Education, Skills & Services-Led Growth

Establishment of a High-Powered ‘Education to Employment and Enterprise’ Standing Committee
Target to achieve 10% global share in services by 2047
Rationalisation of taxation for IT and IT-enabled services under a unified framework

12. AVGC & Creative Economy

Focus on AVGC sector with projected demand for 2 million professionals by 2030
Establishment of AVGC Content Creator Labs in 15,000 schools and 500 colleges
Institutional support through the Indian Institute of Creative Technologies, Mumbai

13. Climate Technologies & Energy Transition

₹20,000 crore outlay over five
years for Carbon Capture, Utilisation and Storage (CCUS)
Focus on power, steel, cement, refineries, and chemicals
Supporting cleaner industrial growth and long-term energy security

14. Healthcare, Care Economy & Medical Value Tourism

Healthcare Workforce & Infrastructure:

Expansion of Allied Health Professional (AHP) institutions
Strengthening district-level healthcare, trauma care, and mental health infrastructure

Care Economy:

Structured ecosystem for geriatric and allied care services
Nationally aligned training programmes for caregivers

AYUSH & Traditional Medicine:

New All India Institutes of Ayurveda
Upgradation of AYUSH pharmacies and testing laboratories
Enhanced research and global outreach

Medical Value Tourism:

Support for five Regional Medical Value Tourism Hubs, combining healthcare services, education, diagnostics, and international patient facilitation

15. Tourism: Regional & Experiential Development

Key initiatives include:

Development of 15 archaeological sites into experiential cultural destinations
Promotion of sustainable tourism trails
Strengthening regional tourism circuits aligned with infrastructure development

16. Direct Taxes

New Income Tax Act, 2025 becomes effective (from 1 Apr 2026)

The six-decade-old Income Tax Act of 1961 is replaced with the Income Tax Act, 2025, aiming to simplify direct tax laws, clauses, forms and compliance procedures.
Tax rates remain largely unchanged (revenue neutral) but with far fewer sections and clearer logic.
Introduction of a single “tax year”, replacing the previous “previous year → assessment year” system.

Income Tax Slabs & Rates

No change in core income tax slabs or rates for individuals under the new regime in Budget 2026.
Continuation of current structure where income up to certain thresholds attracts nil or lower tax, with higher slabs at progressive rates.
MAT shall be treated as a final tax under the old tax regime, with no fresh MAT credit allowed. Also, it is proposed to reduce the MAT rate from 15% to 14% of book profits.

Compliance & Return Filing Reforms

The deadline to file revised Income Tax Returns (ITR) is now extended to 31 March (from December 31), with a nominal penalty if filed after Dec 31.
Taxpayers can claim TDS refunds even if returns are filed late (without penalties).

Specific Tax Reliefs & Changes

Interest awarded by Motor Accident Claims Tribunal (MACT) to a natural person is now fully exempt from income tax and no TDS will be deducted on that interest portion — directly boosting compensation received by victims/families.
A nominal fee structure for late revised returns has been introduced — less punitive and aimed at voluntary compliance.

Corporate Tax & MAT Changes

Minimum Alternate Tax (MAT) rate for companies is reduced from 15% to 14% and designated as a final tax in the old corporate tax regime.
MAT credits will be phased out gradually as companies transition to the new tax regime.

TDS / TCS Rationalisation

Revision and rationalisation of TDS/TCS provisions under the new Act — including flat rates and broader clarity (e.g., TCS on some categories fixed at 2%).
TDS compliance on specified transactions (like immovable property sold by non-residents) is being tightened. In case of purchase of immovable property from non-residents, PAN based compliance mechanism, as used in compliance related to 194IA of I. T. Act, 1961 for purchase from resident persons, shall be introduced w.e.f. 01.10.2026.

TDS will be deducted @ 1% in case of Individual / HUF and 2% in any other case, in relation to supply of manpower services.

Simplification & Compliance Ease

Many procedural provisions are being decriminalised or made less stringent, including lighter penalties and rationalised prosecution for tax procedural lapses.
Overall focus is on reducing litigation, reducing compliance burden and making language simpler in the tax code.

Incentives for Specific Sectors & Global Investments

Tax holidays up to 2047 for foreign companies offering cloud services from Indian data centres (with conditions).
Enhanced thresholds for IT/ITeS safe harbour (lowering transfer pricing disputes) and tax exemptions for prescriptive non-resident schemes under presumptive regimes.

Changes in ITR Filing

It has been proposed that assessee not required to get their accounts audited but having income from business or profession and filing ITR-3 or ITR-4 shall be required to filed respective ITRs by 31^st August instead of 31^st
It has been proposed to extend the time available for revising of ITRs till 31^st March of year succeeding the tax year by payment of fees of Rs. 1000/- (in case, total income is upto Rs. 5 lakh) or Rs. 5000/- (in any other case.).
Where original return filed was a return of loss and the updated return is also a return of loss but the amount of loss in updated return is less than in original return.
Where any assessment / reassessment proceeding has been initiated and notice u/s 280 of I. T. Act, 2025 has been issued. Pertinently, for availing option to file updated return for any tax year, where, assessment / reassessment proceeding has been initiated, an additional tax of 25% / 50% / 60% / 70% shall be considered as 35% / 60% / 70% / 80% as the case may be. And, in such case, immunity from penalty u/s 439 of I. T. Act, 2025 has also been allowed.

Other Important Highlights

ESI & PF deductions can be claimed if the same has been deposited by the employer assessee within due date of filing of ITR.
It has been proposed to introduce exemption to an individual (victim) or his legal heir, on any income received in the nature of interest under the Motor Vehicles Act, 1988. In furtherance of relief allowed to victims of accidents i.e. exemption of interest received on claims of accident under Motor Vehicles Act, 1988, TDS requirement on such payments have been specifically waived-off for the individual victim.
If an assessee fails to get their accounts audited or furnish audit report then such non-compliance is no longer treated as a penal offence but as a technical and procedural default, attracting a graded fee of Rs. 75,000 or Rs.1,50,000 based on the period of delay. This amendment will take effect from the 1st day of April, 2026 and shall apply for tax year 2026-27 and subsequent tax years.
In case of failure to furnish a report from an accountant under section 172 in relation to International Transactions, the penalty with fees of Rs. 50,000 or Rs. 1,00,000 would be applicable depending on the period of delay.
Buy-back of shares will be taxed under capital gains after considering cost of acquisition. Transaction costs in the futures and options segment increase from tax year 2026–27 onwards.

17. Indirect Taxes

Customs Duty Rationalisation & Tariff Reforms

a) Simplification & Trade Facilitation

Customs duty on personal imports reduced uniformly to 10% (earlier 10–20%), simplifying compliance and lowering cost of personal imports.
Validity of Customs Advance Rulings extended to 5 years (from 3 years) or till change in law/facts—offering greater certainty to importers.
Customs jurisdiction extended beyond territorial waters for fishing activities, bringing clarity for offshore customs enforcement.

b) Export Competitiveness

Duty-free import limits for specified inputs used in seafood export processing increased from 1% to 3% of FOB value.
Duty-free inputs for leather and synthetic footwear exports now permitted—boosting labour-intensive exports.

c) Strategic Sector Support

Basic Customs Duty (BCD) exemptions continued/introduced for key sectors:
- Capital goods for Li-ion battery cell manufacturing (energy transition focus).
- Solar glass manufacturing inputs (sodium antimonate) to support renewable energy.
- Capital goods for critical mineral processing to strengthen domestic value chains.
- Existing BCD exemptions on goods for nuclear power projects extended to 2035.

Central Excise Duty Changes

The value of biogas is excluded from assessable value for central excise on blended CNG, reducing duty burden for cleaner fuels.
Relief provided in excise treatment for blended fuels aligns with the government’s energy transition and green priorities.

GST & Trust-Based Compliance Reforms

While there were no major GST rate changes announced, the Budget signals significant GST-related administrative and compliance improvements (as highlighted in industry commentary):

a) Refund & ITC Reforms

Relaxation around faster refunds, including inverted duty structure cases, expected to ease working capital for exporters and traders.
Measures aimed at streamlining Input Tax Credit (ITC) and reducing friction in GST settlement processes are under consideration.

b) Interim Appellate Authority

Temporary empowerment of existing GST appellate authorities proposed to address case backlogs.

c) Clarification of Place-of-Supply Rules

Intermediary services and their GST treatment aligned with general place-of-supply principles to reduce litigation and interpretation issues.

Ease of Doing Business & Customs Operational Reforms

New Baggage Rules, 2026 introduced to standardise duty-free allowances for international travellers and reduce administrative friction.
Customs warehousing movement rules simplified, allowing smoother inter-warehouse transfers.
Higher-tier Authorised Economic Operators (AEOs) permitted extended import duty payment timelines from 15 days to 30 days, freeing up working capital.

Sector-Specific Customs & Indirect Tax Measures

Healthcare & Essential Imports

17 cancer drugs and medicines for 7 rare diseases fully exempted from basic customs duty, expected to reduce treatment costs at the margin.

Export Parcel Facilitation

The ₹10 lakh courier value cap for export consignments removed, facilitating e-commerce exports and reducing duty-related bottlenecks.

Our View: Overall Assessment

The Union Budget 2026–27 signals a clear medium- to long-term growth roadmap, anchored in:

Investment-led expansion
Manufacturing and services dual engines
Human capital and skills development
Stable, predictable policy environment for investors

Tax structure measures (advance ruling 5-year validity, uniform personal import duty) aim to create clarity and reduce litigation.
Modernised customs warehousing, extended AEO timelines, and streamlined procedures reduce compliance costs and cash flow constraints.
GST refund/ITC strengthening and appellate authority reforms aim to lower compliance burden and speed up dispute resolution.

For businesses and investors, the Budget presents significant opportunities across manufacturing, MSMEs, digital infrastructure, healthcare, climate technologies, and services, while reinforcing India’s positioning as a global investment destination.