Union Budget 2026–27

The Union Minister of Finance and Corporate Affairs presented the Union Budget 2026–27 in Parliament, marking the first Budget to be prepared in the newly inaugurated Kartavya Bhawan. The Budget has been framed as a Yuva Shakti–driven Budget, anchored in the long-term vision of Viksit Bharat.

It is guided by the principles of Action over Ambivalence, Reform over Rhetoric, and People over Populism, reflecting a shift towards decisive governance, structural reforms, and inclusive development.

The Three Kartavyas of the Union Budget 2026–27

The Budget is structured around three Kartavyas (duties) aimed at accelerating economic growth, strengthening human capabilities, and ensuring inclusive development.

1. Sustain Economic Growth

This Kartavya focuses on enhancing productivity, competitiveness, and resilience in the face of volatile global economic conditions.

2. Fulfil Aspirations

The second Kartavya aims to build the capacities of youth and citizens, enabling them to become active partners in India’s economic and social transformation.

3. Sabka Saath, Sabka Vikas

This Kartavya emphasises inclusive growth by ensuring that every family, region, community, and sector has access to opportunities, with special focus on the last mile.

First Kartavya: Accelerate and Sustain Economic Growth

Manufacturing and Industry in Strategic Sectors

To position India as a global manufacturing hub, the Budget focuses on seven strategic and frontier sectors.

Biopharma SHAKTI Mission

The Government announced the Biopharma SHAKTI (Strategy for Healthcare Advancement through Knowledge, Technology and Innovation) mission with an outlay of ₹10,000 crore over five years. The mission aims to develop India into a global biopharma manufacturing centre, focusing on biologics and biosimilars.
It will be supported by the establishment of three new NIPERs, the upgradation of seven existing institutes, and the strengthening of the Central Drugs Standard Control Organisation (CDSCO) to global standards.

India Semiconductor Mission 2.0

Building on the success of ISM 1.0, the Budget announced India Semiconductor Mission (ISM) 2.0 to advance technological sovereignty. The mission focuses on manufacturing semiconductor equipment and materials, strengthening resilient supply chains, and creating industry-led R&D and training centres to develop a skilled workforce critical for economic and national security.

Electronics Components Manufacturing

The outlay for the Electronics Components Manufacturing Scheme has been increased from ₹22,919 crore to ₹40,000 crore to deepen domestic value chains and boost electronics manufacturing.

Rare Earth Corridors and Chemical Parks

The Budget proposes the establishment of Rare Earth Corridors in Odisha, Kerala, Andhra Pradesh, and Tamil Nadu for mining, processing, and manufacturing of Rare Earth Permanent Magnets.
In addition, three Chemical Parks will be developed under a cluster-based, plug-and-play model to reduce import dependence.

Capital Goods and Container Manufacturing

To strengthen domestic capital goods manufacturing, the Budget announced:

• Hi-Tech Tool Rooms by CPSEs,

• A Construction and Infrastructure Equipment (CIE) Scheme, and

• A ₹10,000 crore Container Manufacturing Scheme to improve logistics and reduce import reliance.

Textile Sector Push

An Integrated Textile Programme has been launched, comprising the National Fibre Scheme, Samarth 2.0, Tex-Eco Initiative, and cluster modernisation. Mega Textile Parks will promote technical textiles, value addition, and employment generation.

Gram Swaraj and Sports Goods Manufacturing

The Mahatma Gandhi Gram Swaraj initiative aims to strengthen khadi, handloom, and handicrafts. Alongside this, a sports goods manufacturing initiative seeks to position India as a global hub for affordable and high-quality sports equipment.

Revitalisation of Legacy Industrial Clusters

A scheme has been announced to revive 200 legacy industrial clusters through infrastructure modernisation and technology upgradation to improve efficiency and cost competitiveness.

Champion MSMEs

A dedicated ₹10,000 crore SME Growth Fund will be launched to support high-potential firms and create Champion MSMEs capable of competing globally.
The Self-Reliant India Fund will receive an additional ₹2,000 crore to support micro enterprises, with Corporate Mitras envisaged as mentors to integrate MSMEs into larger value chains.

Infrastructure as Growth Connectors

High-Speed Rail Corridors

Seven High-Speed Rail corridors will be developed, including Mumbai–Pune, Pune–Hyderabad, Hyderabad–Bengaluru, Hyderabad–Chennai, Chennai–Bengaluru, Delhi–Varanasi, and Varanasi–Siliguri, to act as growth connectors.

Sustainable Cargo Movement

New Dedicated Freight Corridors will connect Dankuni to Surat, while 20 National Waterways will be operationalised over five years.
A Coastal Cargo Promotion Scheme will incentivise a shift towards waterways and coastal shipping, aiming to increase their modal share from 6 per cent to 12 per cent by 2047.

Seaplane and Infrastructure Financing

The Seaplane VGF Scheme will support indigenised seaplane manufacturing and operations.
An Infrastructure Risk Guarantee Fund will provide partial credit guarantees to lenders during the construction phase of infrastructure projects.

City Economic Regions and Carbon Capture

The Government proposed City Economic Regions (CERs) to map cities based on specific growth drivers, with ₹5,000 crore per CER over five years under a challenge-based model.
A Carbon Capture, Utilisation, and Storage (CCUS) scheme has been launched to decarbonise hard-to-abate sectors such as steel and cement.

Second Kartavya: Fulfil Aspirations and Build Capacity

AVGC Content Creator Labs

To promote the Orange Economy, the Government will support the Indian Institute of Creative Technologies, Mumbai, in setting up AVGC Content Creator Labs in 15,000 secondary schools and 500 colleges.

National Institute of Hospitality

A proposal has been made to establish a National Institute of Hospitality by upgrading the National Council for Hotel Management and Catering Technology, bridging the gap between academia and the tourism industry.

Khelo India Mission

The Khelo India Mission has been launched to strengthen the sports ecosystem through talent development, coach training, sports science integration, competitive leagues, and expanded infrastructure.

Medical Value Tourism

Five Regional Medical Hubs will be established in partnership with the private sector to promote India as a global wellness and medical tourism destination, integrating AYUSH centres, diagnostics, post-care, and rehabilitation facilities.

Women in STEM

To encourage female participation in STEM education, one girls’ hostel will be established in every district through Viability Gap Funding or capital support.

Third Kartavya: Sabka Saath, Sabka Vikas

Bharat-VISTAAR for Agriculture

The Bharat-VISTAAR (Virtually Integrated System to Access Agricultural Resources) platform will be launched as a multilingual AI-based tool integrating AgriStack and ICAR data to provide customised advisory services to farmers.

SHE Marts

Community-owned retail outlets called SHE Marts (Self-Help Entrepreneur Marts) will be established within cluster federations, building on the success of the Lakhpati Didi initiative.

Mental Health Infrastructure

The Government reaffirmed its commitment to mental healthcare by announcing NIMHANS-2 and proposing the upgradation of institutes in Ranchi and Tezpur as Regional Apex Institutions.

Purvodaya and North-East Development

A dedicated scheme will develop Buddhist Circuits across North-Eastern states.
The Budget also proposed an East Coast Industrial Corridor with a major node at Durgapur (West Bengal) and the creation of five tourism destinations in five Purvodaya states.

Support for Divyangjan

Targeted measures will be undertaken to empower persons with disabilities through focused welfare interventions, reinforcing inclusive growth.

Tax Reforms under Union Budget 2026–27

The Union Budget 2026–27 introduces a series of tax reforms aimed at simplification, stability, and investment promotion, while maintaining fiscal discipline. The reforms span direct taxes, indirect taxes, customs, tax administration, and sector-specific incentives.

Direct Tax Reforms

Introduction of the New Income Tax Act, 2025

The government has replaced the Income Tax Act, 1961 with a New Income Tax Act, 2025, which will come into effect from 1st April 2026. The new law aims to simplify language, reduce litigation, and improve taxpayer certainty.

Stability in Income Tax Rates

There are no changes in income tax slabs for FY 2026–27, ensuring continuity and predictability for taxpayers and businesses.

Rationalisation of TCS under Liberalised Remittance Scheme (LRS)

Tax Collected at Source (TCS) on:

• Overseas tour packages, and

• Remittances for education and medical purposes

has been reduced to a uniform rate of 2 per cent, without any threshold limit. This measure lowers the upfront tax burden and simplifies compliance.

Rationalisation and Decriminalisation of TDS Provisions

To remove ambiguity:

• TDS on supply of manpower services has been fixed at 1 per cent for Individuals/HUFs and 2 per cent for other entities.

• Non-production of books of accounts and failure to deduct TDS where payment is made in kind have been decriminalised, reducing fear of prosecution and promoting trust-based compliance.

Minimum Alternate Tax (MAT) Relief

The Budget proposes to exempt all non-residents paying tax on a presumptive basis from MAT, improving India’s attractiveness as an investment destination.

Immunity from Prosecution for Minor Foreign Asset Non-disclosure

Non-disclosure of foreign assets valued below ₹20 lakh will be granted immunity from prosecution, with retrospective effect from 1st October 2024, offering relief to small and inadvertent defaulters.

Shift in Buyback Tax Regime

The tax burden on share buybacks has been shifted:

• From the company

• To the shareholder,
  by taxing buybacks as capital gains in the hands of the recipient.

Securities and Market-Related Tax Measures

Securities Transaction Tax (STT)

STT has been marginally increased from 0.1 per cent to 0.15 per cent in certain segments, with the objective of curbing excessive speculation in equity markets.

Customs Duty and Indirect Tax Reforms

Customs Duty Rationalisation

• Customs duty on goods imported for personal use has been reduced from 20 per cent to 10 per cent.

• Full customs duty exemption has been granted on:

  • 17 cancer drugs, and

  • Medicines and foods used for the treatment of seven rare diseases, improving affordability and access.

Tax Administration and Ease of Compliance

Harmonisation of Accounting and Tax Standards

The Budget proposes the formation of a Joint Committee of the Ministry of Corporate Affairs and the Central Board of Direct Taxes (CBDT) to:

• Incorporate Income Computation and Disclosure Standards (ICDS) into Indian Accounting Standards (IndAS),

• Eliminate separate ICDS-based accounting from tax year 2027–28, and

• Rationalise the definition of “accountant” under Safe Harbour Rules, reducing compliance burden.

Strategic Tax Incentives for Investment and Industry

Data Centres and Cloud Services

Foreign companies providing global cloud services through Indian data centres will receive a tax holiday up to 2047, encouraging India’s emergence as a global data hub.

IFSC (GIFT City) Incentives

The tax holiday for Offshore Banking Units in IFSC (GIFT City) has been extended from 10 years to 20 years, strengthening India’s offshore financial ecosystem.

Critical Minerals and Green Manufacturing

Customs duty exemptions have been provided on capital goods required for:

• Processing critical minerals such as lithium and cobalt, and

• Manufacturing lithium-ion cells, supporting energy transition and strategic autonomy.

IT Sector Safe Harbour Expansion

The threshold for availing Safe Harbour Rules for IT services has been increased to ₹2,000 crore, with a unified category for software development and KPO services, enhancing certainty for the IT sector.

Customs Modernisation and Export Promotion

Sector-Specific Relief

Duty-free import limits for inputs in the marine, leather, and textile sectors have been enhanced to improve export competitiveness.

Aviation and Defence Manufacturing

Customs duty exemptions have been granted for parts and components used in:

• Aircraft manufacturing, and

• Maintenance, Repair and Overhaul (MRO) activities.

Trade Facilitation and Ease of Doing Business

The Budget proposes:

• A single digital window for cargo clearance,

• Instant customs clearance for compliant goods,

• Rollout of the Customs Integrated System (CIS), and

• Expanded AI-based container scanning.

It also makes fish catch in the Exclusive Economic Zone (EEZ) and High Seas duty-free, revises duty-free baggage allowances, and enables dispute settlement with reduced penalties for honest taxpayers.

Macroeconomic Fundamentals Highlighted in the Union Budget 2026–27

Fiscal Deficit

The fiscal deficit for BE 2026–27 is targeted at 4.3 per cent of GDP, improving from 4.4 per cent in RE 2025–26, and staying on the consolidation glide path.

Debt-to-GDP Ratio

The debt-to-GDP ratio is projected to decline to 55.6 per cent in BE 2026–27, with a medium-term target of 50 per cent by 2030–31, creating fiscal space for development spending.

Capital Expenditure Push

Capital expenditure has been increased to ₹12.2 lakh crore (around 3.1 per cent of GDP) for FY 2026–27.
Including grants-in-aid for capital assets, effective capital expenditure stands at ₹17.1 lakh crore (about 4.4 per cent of GDP), reinforcing infrastructure-led growth.

Growth Assumptions

The Budget assumes:

• Nominal GDP growth of 10.5 per cent, and

• Real GDP growth of around 7 per cent for FY 2026–27.

Budgetary Numbers

• RE 2025–26:

  • Non-debt receipts: ₹34 lakh crore

  • Total expenditure: ₹49.6 lakh crore

  • Capital expenditure: ₹11 lakh crore

• BE 2026–27:

  • Non-debt receipts: ₹36.5 lakh crore

  • Net tax receipts: ₹28.7 lakh crore

  • Total expenditure: ₹53.5 lakh crore

To finance the fiscal deficit, net market borrowings are estimated at ₹11.7 lakh crore, with gross borrowings of ₹17.2 lakh crore, supplemented by small savings and other sources.

Concerns Regarding the Union Budget 2026–27

Global Economic Headwinds

The Union Budget 2026–27 assumes a nominal GDP growth of about 10 per cent based on the First Advance Estimates of FY 2025–26. However, this assumption may be challenged by a global economic slowdown, ongoing geopolitical conflicts, and disruptions in international trade and supply chains.

Weak Revenue Buoyancy

Shortfalls in income tax and GST collections have reduced fiscal space for the government. As a result, expenditure compression has been observed, including potential cuts in capital expenditure and key social sector spending, which could weaken growth momentum.

Excessive Dependence on Supply-Side Growth

The Budget relies heavily on supply-side measures such as infrastructure creation to drive economic growth. However, private consumption, which accounts for nearly 60 per cent of GDP, remains subdued, particularly in rural areas, limiting the overall multiplier effect of public investment.

Implementation and Institutional Capacity Constraints

High-technology schemes such as Bharat-VISTAAR and Biopharma SHAKTI require advanced institutional capacity and effective coordination. These initiatives often face bureaucratic delays, execution bottlenecks, and land acquisition challenges, which may slow their impact.

Job Creation Challenges

The capital expenditure–led growth strategy focuses on capital-intensive sectors such as semiconductors and biopharma. These sectors have limited labour absorption capacity, raising concerns about jobless growth and a widening mismatch between education and employment skills.

Green Transition and Resource Constraints

The transition towards green technologies has increased demand for water, energy, and critical minerals. This may heighten import dependence and trigger greenflation, increasing input costs for MSMEs and domestic manufacturing.

Uncertainty in Capital Flows

Persistent foreign portfolio investment outflows and uncertainty regarding foreign direct investment inflows pose risks to external financing stability and long-term investor confidence.

External Aid Prioritisation Concerns

While the Budget allocates grants-in-aid to foreign countries, with Bhutan as the largest beneficiary, the absence of funding for the strategically significant Chabahar Port project raises concerns regarding India’s regional connectivity and strategic outreach.

Measures to Strengthen India’s Economy Beyond Budget 2026–27

Reviving the Twin Engines of Growth

India’s economic growth requires both investment and consumption to grow simultaneously. Faster implementation of schemes such as SHE Marts and Bharat-VISTAAR can raise rural incomes and stimulate consumption due to a higher marginal propensity to consume.

Ensuring Strategic Autonomy in Critical Resources

As critical minerals become vital for the green economy, India must strengthen domestic initiatives such as Rare Earth Corridors while also securing overseas mineral partnerships. At the same time, higher investment in research and development is necessary to support semiconductor and biopharma ecosystems.

Strengthening Skills for Emerging Sectors

The expansion of sectors such as AVGC and semiconductors must be supported by large-scale skill development initiatives, including Skill India 2.0, to prevent talent shortages and enhance employment generation.

Improving the Quality of Public Expenditure

There is a need to shift the focus from expenditure outlays to measurable outcomes. Public spending under schemes such as Mahatma Gandhi Gram Swaraj should be evaluated based on asset creation and sustainable income generation.

Correcting Inverted Duty Structures

Inverted duty structures in sectors such as textiles and electronics increase the cost of domestic manufacturing. A sector-specific rationalisation of customs duties is required to ensure that domestically manufactured goods remain competitive.

Conclusion

The Union Budget 2026–27 combines fiscal prudence with a strong emphasis on high-technology manufacturing and inclusive development. However, its success will depend on effective implementation, meaningful job creation, and revival of private consumption to ensure that economic growth reaches the last mile.