India Union Budget 2026

Foreword

This year's Union Budget arrives against a complex global backdrop and yet stays true to a familiar compass: reform with continuity. The regulatory announcements were largely on expected lines, given the current geopolitical scenario. The emphasis on fiscal consolidation with a continued capex push, MSME enablement, and services competitiveness, without jolting personal tax slabs, reflects stability over spectacle. The government's calibrated approach, maintaining stable deficit targets while sustaining growth-oriented expenditure, offers comfort to markets and investors and lays the foundation for long term economic resilience. A defining structural move is the rollout timeline for the Income Tax Act, 2025, effective April 1, 2026, with the promise of a simpler regime. That change underpins a trust based, compliance light tax administration for individuals and businesses alike.

One of the most interesting announcements is a review and a possible complete overhaul of FDI regulations to attract more investment. We see the seeds of that in the comprehensive review of the FEMA (Non-Debt Instruments) Rules and the decision to permit individuals resident outside India to invest via the Portfolio Investment Scheme (PIS) with higher individual limits, a clear signal toward deeper, more liberal participation in India's markets. These steps align with the broader reform arc aimed at improving the ease of doing business and boosting global competitiveness.

The High-Level Committee on Banking for Viksit Bharat points to a wideangle review of India's financial architecture, covering resilience, inclusion, consumer protection, and potential consolidation themes. Focus on services, MSMEs, and infrastructure continues, as these remain key drivers of growth and employment, and that focus is unmissable: public capex rising to INR 12.2 lakh crore, targeted interventions for seven strategic sectors, and an MSME support architecture, alongside services enablers from tourism and healthcare to IT safe harbours.

While headline corporate tax rates is unchanged, the Minimum Alternate Tax (MAT) is being recalibrated with the rates cut to 14% and the said tax being treated as a final one. On the direct tax administration side, rationalised timelines and streamlined assessment/appellate procedures, with targeted amendments to settle interpretational issues, are the hallmark of the tax proposals. While certain retrospective clarifications may invite debate, they also signal the resolve to decisively settle contentious issues.

Foreword

Extending the GIFT City/IFSC tax holiday to 20 years is a standout, with post-holiday period tax rate at a concessional 15%, which is clearly a long-horizon commitment that should accelerate banking, insurance, treasury, and even ship/aircraft-leasing moves into the IFSC. This continued policy thrust strengthens the IFSC ecosystem, especially GIFT City, and positions India's IFSCs as a globally competitive financial hub.

Penalty rationalisation and reduced prosecution point toward a more taxpayer-friendly income-tax regime. Some other rationalisations include integrating assessment and penalty orders, pausing interest on penalty during first-appeal pendency and wider decriminalisation for minor offences. Structural improvements to dispute resolution aimed at reducing pendency and bringing finality can materially improve taxpayer experience, provided implementation stays true to intent.

The proposed six-month foreign-asset disclosure scheme (with calibrated thresholds, immunity contours, and fees/levies) is pragmatic housekeeping that lets select categories of taxpayers and recently relocated incoming NRIs regularise small, legacy positions without protracted litigation.

For the IT and services sector, transfer pricing safe-harbour reforms are among the best announcements in recent years, with threshold raised to INR 2,000 crore, a unified IT-services category at ~15.5% safe harbour margins, rule-based automated approvals, and a fast-track unilateral APA. Consolidation and expansion of safe-harbour rules under a unified framework, longer validity, and automation align India more closely with global best practices and should substantially reduce compliance burden.

On GST front, proposals such as the special 'intermediary' place-of-supply rule (moving to recipient location), clarification on post-sale discount treatment via credit notes, and expansion of provisional refunds, all of which should ease compliance and trim disputes. On customs front, tariff simplification and exemption pruning are the key features.

Some key misses remain, including lack of clarity on family investment funds in the GIFT City and absence of fast-track demerger tax neutrality. Overall, the Budget reflects continuity in vision with meaningful course corrections, offering clarity where required while advancing long term structural reforms

We remain cautiously optimistic that the spirit of the Budget will translate into tangible outcomes for taxpayers and businesses alike. Our team at Aurtus has analysed the direct and indirect tax proposals that matter for our clients and readers. It may be noted that the reference to the Budget Tax Proposals in our publication is, in most cases, to the 'Tax Year', a terminology used in the Income-tax Act, 2025, which corresponds to the relevant Financial Year.

We hope this publication makes for a useful reading and look forward to your comments and suggestions.

Direct Tax Proposals

PERSONAL TAXATION

Rationalisation of Due Date for Employee Contribution Deductions (Applicable from TY 2026-27 onwards)

• The Finance Bill proposes to amend section 29(1)(e) of the IT Act, 2025 to provide that employee contributions to provident fund, ESI and similar welfare funds shall be allowed as a deduction if such amounts are credited to the relevant fund on or before the due date of filing the return of income under section 263(1) of the IT Act, 2025 thereby aligning the deduction timeline with that applicable to employer contributions.
• The amendment removes existing anomaly and litigation arising from differential due dates for employer and employee contributions, bringing parity in tax treatment.

Sovereign Gold Bonds (Applicable from TY 2026-27 onwards)

• Under the current regime, capital gains arising to an individual from redemption of Sovereign Gold Bonds 2015 issued by the RBI is exempt.
• Finance Bill proposes to amend that Capital Gains arising from redemption of Sovereign Gold Bonds issued by the RBI under the Sovereign Gold Bond Scheme, 2015 or any subsequent scheme shall be exempt only where: – Such bonds are subscribed to by an individual at the time of original issue and held continuously until redemption on maturity.

MAT Reforms: Shift to Final Tax and Regime Transition (Applicable from TY 2026-27 onwards)

• The Finance Bill proposes a fundamental overhaul of the Minimum Alternate Tax (MAT) framework. MAT under the old tax regime is proposed to be treated as a final tax, with the MAT rate is reduced from 15% to 14% of book profits.
• No fresh MAT credit will be allowed for any domestic or foreign company for MAT paid on or after 1 st April, 2026.
• Domestic companies will be permitted to utilise existing MAT credit only upon transitioning to the new tax regime, subject to an annual cap of 25% of the total tax liability. Domestic companies that opt for old regime will not be entitled to any MAT credit set-off.
• Foreign companies will not be allowed any new MAT credit but will be permitted to utilise accumulated MAT credit to the extent normal tax exceeds MAT in the relevant Tax Year.
• Overall, the amendments reflect a deliberate policy shift to limit the prolonged credit accumulation and promote migration of domestic companies to the new tax regime.
• Furthermore, the Finance Bill proposes to extend the exemption from MAT to two additional specified businesses of non-residents that are taxed on a presumptive basis, namely the business of operation of cruise ships (subject to prescribed conditions) and the business of providing services or technology for setting up or supporting electronics manufacturing facilities in India for resident companies.

Buy-back of Shares – Capital gains regime introduced (Applicable from TY 2026-27 onwards)

• Under the existing provisions, consideration received by a shareholder on buy-back of shares by a company is taxed as dividend income
• It is proposed to rationalise the taxation of share buy-backs by providing that consideration received on buy-back shall be chargeable to tax under the head "Capital gains" instead of being treated as dividend income.
• The below table summarizes effective rate of Capital Gains in the hands of various categories of shareholders:

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