Budget Highlights

• Expenditure: The government is estimated to spend Rs 53,47,315 crore in 2026-27, 7.7% higher than the revised estimate of 2025-26.  Interest payments account for 26% of the total expenditure, and 40% of revenue receipts. 

• Receipts: The receipts (other than borrowings) in 2026-27 are estimated to be Rs 36,51,547 crore, about 7.2% higher than the revised estimate of 2025-26.  Tax revenue which forms major part of the receipts is also expected to increase by 8% over the revised estimate for 2025-26.

• GDP: The government has estimated a nominal GDP growth rate of 10% in 2026-27 (i.e., real growth plus inflation). 

• Deficits: Revenue deficit in 2026-27 is targeted at 1.5% of GDP.  This is similar to the revised estimate of 1.5% in 2025-26.  Fiscal deficit in 2026-27 is targeted at 4.3% of GDP, lower than the revised estimate of 4.4% of GDP in 2025-26.  

• Debt: The central government aims to reduce its outstanding liabilities to around 50% of GDP by March 2031.  In 2026-27, outstanding liabilities are estimated to be 55.6% of the GDP.

Main Tax Proposals in the Finance Bill

• No change in income tax slabs: Tax structure for assessment year 2026-27 remains unchanged from the previous year.

• Tax holidays:  A tax holiday until 2047 has been granted to foreign companies providing global cloud services using Indian data centres, provided services to Indian customers are routed through an Indian reseller.  Further, the tax holiday for units in International Financial Services Centre (IFSC) and Offshore Banking Units has been increased from 10 to 20 years.  Income of IFSC units will be taxed at 15% after this period.

• Tax on share buybacks:  All share buybacks are proposed to be taxed as capital gains, with an additional buyback tax for promoters.  This makes the effective rate 22% for corporate and 30% for non-corporate promoters. 

• Increase in Securities Transaction Tax (STT):  STT rates have been increased as follows: from 0.1% to 0.15% on options, from 0.125% to 0.15% on options exercised, and from 0.02% to 0.05% on futures.

• Deductions against income from mutual funds:  No deduction shall be allowed for interest expenditure incurred in earning dividend income or income from mutual fund units.  Such deduction was allowed previously up to 20% of gross dividend or income from mutual fund units.

• Minimum Alternate Tax (MAT):  No credit accumulation shall be available for MAT from April 1, 2026.  MAT rate is being reduced from 15% to 14%.  MAT credits can be set off up to 25% of the tax liability only in the new tax regime.

• Foreign Assets of Small Taxpayers – Disclosure Scheme, 2026:  A timebound scheme for disclosure of foreign assets by certain small taxpayers such as returning non-residents has been introduced.  It provides graded relief, including immunity from penalty and prosecution, subject to payment of tax, additional levy, or a fixed fee, depending on the category of non-disclosure.

• Relaxations for non-residents:  These include: (i) a five-year income tax exemption for supplying capital goods to electronics manufacturers, (ii) exemption of global income for expert non-residents working in India for up to five years under notified schemes, and (iii) MAT exemption has been extended to more categories of non-residents.

• Rationalisation of penalty and prosecution:  Several offences have been decriminalised, or entail a maximum imprisonment of two years. 

• Tax collected at source (TCS):  TCS on remittance of more than Rs 10 lakh for the purposes of education or medical treatment has been reduced from 5% to 2%.  TCS on sale of overseas tour package, including expenses for travel or hotel stay, has been reduced from 5% and 20% (depending on the amount) to 2%.    

Policy Highlights

• Finance and Economy:  A ‘High Level Committee on Banking for Viksit Bharat’ will be set up to review the sector.  The Foreign Exchange Management (Non-debt Instruments) Rules will be reviewed to simplify framework for foreign investments.  Individual Persons Resident Outside India (PROI) will be permitted to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme.  The investment limit under this scheme will be increased from 5% to 10% for individual PROI.  A market making framework (with access to funds and derivatives on corporate bond indices) and total return swaps on corporate bonds have been proposed.  An incentive of Rs 100 crore has been announced for single bond issuance of more than Rs 1,000 crore to encourage issuance of municipal bonds.

• Industry and Commerce:  A scheme will be introduced to revive 200 legacy industrial clusters through updated technology and infrastructure.  An integrated programme for the textile sector will be introduced with five sub-parts: (i) National Fibre Scheme, (ii) Textile Expansion and Employment Scheme, (iii) National Handloom and Handicraft Scheme, (iv) Tex-Eco Initiative, and (v) Samarth 2.0.  To strengthen khadi, handloom and handicrafts, Mahatma Gandhi Gram Swaraj initiative has been proposed.  To enable the creation of ‘Champion SMEs,’ following initiatives are proposed: (i) SME Growth Fund, with outlay of Rs 10,000 crore, (ii) top up of Self-Reliant India Fund, and (iii) liquidity support.

• Infrastructure:  Public capex will be increased from Rs 11.2 lakh crore to Rs 12.2 lakh crore.  An Infrastructure Risk Guarantee Fund will be set up to strengthen the confidence of private developers.  Five tourism destinations will be developed in the Purvodaya states and 4,000 electric buses will be allocated to the region.  A dedicated freight corridor will connect Surat to Dankuni and 20 new national waterways will be operationalised over the next five years.  Schemes will be launched for Enhancement of Construction and Infrastructure Equipments and for container manufacturing.  

• Urban development: City Economic Regions (CERs) will be mapped based on specific growth drivers, with allocation of Rs 5,000 crore per CER over five years.  Seven high speed rail corridors will be developed between select cities.

• Labour and Employment:  A Standing Committee on ‘Education to Employment and Enterprise’ will be established to develop the service sector.  The Committee will also assess the impact of artificial intelligence on jobs. 

• Education:  Five university townships will be created in the industrial and logistic corridors.  Support will be provided to the Indian Institute of Creative Technologies, Mumbai to establish animation, visual effects, gaming and comics content creator labs in 15,000 secondary schools and 500 colleges. 

• Energy: Outlay of the Electronics Component Manufacturing Scheme will be raised from Rs 22,919 crore to Rs 40,000 crore.  Dedicated Rare Earth Corridors will be established in Odisha, Kerala, Andhra Pradesh and Tamil Nadu.  Rs 20,000 crore will be allocated over five years for carbon capture utilisation and storage.  Semiconductor Mission 2.0 will be launched. 

• Health:  New Allied Health Professional institutions will be established in both public and private sectors, in disciplines such as radiology, anaesthesia, and behavioural health.  To promote medical tourism, five regional medical hubs will be established.  Three All India Institutes of Ayurveda will also be established.

• Pharmaceuticals:  To enable domestic production of biologics and biosimilars, the Biopharma SHAKTI (Strategy for Healthcare Advancement through Knowledge, Technology, and Innovation) scheme will be implemented for five years with an outlay of Rs 10,000 crore.  Three National Institutes of Pharmaceutical Education and Research will be established and seven existing institutions will be upgraded.

• Agriculture: Deductions will be extended to cooperative members engaged in supplying cotton seeds and cattle feed.  The animal husbandry sector will be supported through a credit linked subsidy programme.  A coconut promotion scheme will be implemented to increase production.

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