Union Budget 2026-27: A Complete Decode of Tax Changes, Infrastructure & What Both Sides Are Saying

The Union Budget 2026-27, presented by Finance Minister Nirmala Sitharaman on February 1, 2026, marks her eighth consecutive budget presentation. With total expenditure of ₹53.5 lakh crore and capital expenditure of ₹12.2 lakh crore, the government has framed the budget around three "kartavya" (duties): accelerating economic growth through productivity and competitiveness, fulfilling aspirations of people and building their capacity, and ensuring inclusive development under the "Sabka Sath, Sabka Vikas" principle.

The fiscal deficit target has been set at 4.3% of GDP, down from 4.4% in the previous year, continuing the government's fiscal consolidation path. The debt-to-GDP ratio is projected to decrease from 56.1% to 55.6%. Net tax receipts are estimated at ₹28.7 lakh crore, up from ₹26.7 lakh crore in the revised estimates for FY 2025-26.

The most significant tax announcement is the introduction of the Income Tax Act, 2025, which comes into effect from April 1, 2026, replacing the Income Tax Act, 1961. The government states the new act is simplified with redesigned forms and rationalized provisions.

Several relief measures have been announced. Motor accident tribunal interest becomes fully exempt with no TDS deduction. Overseas tour package TCS has been rationalized to a flat 2% from the earlier 5%/20% structure. The deadline for revised returns has been extended from December 31 to March 31 (with fee), and the ITR due date for non-audit businesses moves from July 31 to August 31.

A six-month window allows taxpayers to disclose foreign assets. For undisclosed assets up to ₹1 crore, taxpayers can pay 60% (30% tax plus 30% penalty) for immunity from prosecution. For already-taxed income with undeclared assets up to ₹5 crore, a ₹1 lakh fee provides immunity.

Assessment and penalty proceedings have been merged into a single order to reduce litigation. Pre-payment for appeals has been reduced from 20% to 10%. Maximum imprisonment has been reduced to 2 years from 7 years, non-production of books has been decriminalized, and minor offences now attract only fines.

The budget significantly increases Securities Transaction Tax on derivatives trading, a move that has drawn sharp reactions from market participants.

Buyback proceeds will now be taxed as capital gains instead of dividends. Promoters will pay additional buyback tax: 22% effective rate for corporate promoters and 30% effective rate for non-corporate promoters.

Minimum Alternate Tax becomes final tax at 14% (reduced from 15%) with no more MAT credit accumulation from April 2026. Existing MAT credit set-off is allowed only in the new regime, up to 25% of tax liability. For NRI investors, individual PROI limits under Portfolio Investment Scheme increase from 5% to 10%, and overall PROI limits from 10% to 24%.

Capital expenditure rises to ₹12.2 lakh crore from ₹11.2 lakh crore last year. The government notes this has grown from ₹2 lakh crore in 2014-15, representing a six-fold increase over a decade.

The budget announces seven high-speed rail corridors: Mumbai-Pune, Pune-Hyderabad, Hyderabad-Bengaluru, Hyderabad-Chennai, Chennai-Bengaluru, Delhi-Varanasi, and Varanasi-Siliguri. These corridors aim to transform intercity connectivity across major economic centers.

A dedicated freight corridor from Dankuni (East) to Surat (West) has been announced. The budget commits to 20 new national waterways over five years with ship repair facilities at Varanasi and Patna. The Coastal Cargo Promotion Scheme aims to increase waterways share from 6% to 12% by 2047. A Seaplane VGF Scheme will support operations at suitable water bodies.

The government will allocate ₹5,000 crore per City Economic Region over 5 years, focusing on Tier II and III cities to create distributed growth poles beyond metro areas.

The budget allocates substantial resources to manufacturing with several new schemes and enhanced allocations for existing programmes.

A ₹10,000 crore SME Growth Fund targets future champion enterprises. A ₹2,000 crore top-up to Self-Reliant India Fund enhances existing support. TReDS (Trade Receivables Discounting System) becomes mandatory for CPSE purchases from MSMEs. Corporate Mitras—para-professionals—will provide compliance support to small businesses.

All IT services including software, ITES, KPO, and R&D have been clubbed into a single category with a safe harbour margin of 15.5%. The threshold has been raised from ₹300 crore to ₹2,000 crore with automated safe harbour approval. Fast-track Unilateral APA targets completion within 2 years.

Foreign cloud companies using Indian data centres get tax holiday until 2047. A 15% safe harbour applies to related-party data centre services. Non-residents providing equipment to toll manufacturers get 5-year tax exemption.

The budget focuses on high-value agriculture and technology integration for farmers.

A Coconut Promotion Scheme covers replanting old trees in major coconut states. The Indian Cashew and Cocoa programme targets premium branding by 2030. Sandalwood cultivation revival proceeds with state partnerships. Cultivation of walnuts, almonds, and pine nuts expands in hilly regions.

Bharat-VISTAAR is a multilingual AI tool integrating AgriStack and ICAR data to provide customized advisory to farmers across different crops and regions.

Integrated development covers 500 reservoirs and Amrit Sarovars. Fish catch in EEZ/High Seas becomes duty-free when brought to India. Fish landing at foreign ports will be treated as exports for incentive purposes.

SHE-Marts (Self-Help Entrepreneur Marts) will function as community-owned retail outlets for graduates of the Lakhpati Didi programme, creating sustainable livelihoods for women entrepreneurs.

The budget commits to training 100,000 allied health professionals over 5 years and 1.5 lakh caregivers this year. Five Regional Medical Hubs will be developed in PPP mode for medical tourism. Three new All India Institutes of Ayurveda will be established. NIMHANS-2 will be set up in North India, and National Mental Health Institutes in Ranchi and Tezpur will be upgraded. Emergency and Trauma Care Centres will be increased by 50%.

Five University Townships will be developed near industrial corridors. One girls' hostel will be built in every district for STEM students. AVGC Content Creator Labs will be established in 15,000 schools. A new National Institute of Design will come up in Eastern India.

A National Institute of Hospitality will be established. 10,000 guides will be trained at 20 iconic sites. 15 archeological sites will be developed as experiential destinations.

Divyangjan Kaushal Yojana provides training for IT and hospitality. Divyang Sahara Yojana offers ALIMCO support for assistive devices. Assistive Technology Marts will function as retail centres for specialized equipment.

Purvodaya for Eastern States includes the East Coast Industrial Corridor with Durgapur node, 5 tourism destinations across 5 states, and 4,000 e-buses. Buddhist Circuits in 6 North-Eastern states cover temple preservation and pilgrimage facilities.

17 cancer and other drugs now have nil duty, down from 5-10%. Monazite (critical mineral) duty reduced from 2.5% to nil. Sodium antimonate for solar glass reduced from 7.5% to nil. Li-ion cell manufacturing equipment now duty-free. Nuclear power goods exemption extended to 2035 at nil rate. Aircraft parts for manufacturing now duty-free. Personal imports rationalized to flat 10% from April 1.

Potassium hydroxide increased from nil to 7.5%. Umbrellas now attract 20% or ₹60 per piece, whichever is higher.

Seafood processing duty-free inputs increased from 1% to 3% of previous year exports. Export obligation period extended from 6 months to 12 months. Courier export value cap has been removed entirely, facilitating e-commerce exports.

Advance ruling validity extended from 3 years to 5 years. Deferred duty payment extended from 15 days to 30 days for AEOs. A single digital window for all agency approvals is targeted by year-end.

The government has accepted the Finance Commission's recommendation to retain vertical share of devolution at 41%. Finance Commission Grants to states are set at ₹1.4 lakh crore for FY 2026-27.