The Union Budget 2026-27

The Union Budget 2026–27 continues the focus on long-term growth through investment, while maintaining fiscal discipline. The emphasis remains on capital expenditure, manufacturing, infrastructure, employment, and human capital, with the objective of building productive capacity and crowding in private investment rather than relying on short-term stimulus. The Budget follows a path of policy continuity and gradual reform, aligned with the broader vision of Viksit Bharat.

Key Budgetary Allocations and Policy Announcements

Manufacturing and Industrial Development

• Bio-pharma SHAKTI: A five-year, Rs.10,000 crore programme to strengthen India's capabilities in biopharmaceutical and biologics manufacturing through enhanced R&D, clinical trials, and regulatory capacity.

• India Semiconductor Mission (ISM) 2.0: An expanded and renewed programme covering the full semiconductor ecosystem, including fabrication, materials, equipment, and design.
• Electronics Components Manufacturing Scheme: Rs.1,500 crore allocation to support domestic manufacturing of key electronic components and improve value addition within the country.
• Capital Goods and Infrastructure Equipment (CIE) Scheme: Dedicated support for the domestic manufacturing of construction and infrastructure equipment to reduce import dependence.
• Scheme for Rare Earth Permanent Magnets: A comprehensive initiative focusing on the entire value chain, from research and mining to processing and manufacturing.
• Revival of Legacy Industrial Clusters: A plan to rejuvenate 200 legacy industrial clusters, breathing new life into established manufacturing hubs.
• Integrated Programme for Textiles and the establishment of 3 Dedicated Chemical Parks to enhance domestic production and competitiveness.

• A Scheme for Container Manufacturing to reduce import dependency and a Dedicated initiative for manufacturing of affordable Sports Goods to tap into a high-growth consumer segment.

MSMEs and Entrepreneurship

• Equity Support: The establishment of a dedicated Rs. 10,000 crore SME Growth Fund to scale high-potential enterprises. This is complemented by a separate top-up of Rs. 2,000 crore for the Self-Reliant India Fund.

• Liquidity Support through TReDS: The Trade Receivables Discounting System (TReDS) will be mandated as the settlement platform for all purchases from MSMEs by Central Public Sector Enterprises (CPSEs), ensuring faster payment cycles. A credit guarantee mechanism will also be introduced for invoice discounting on the platform.

• Professional and Compliance Support: The government will facilitate the development of ‘Corporate Mitras’ in Tier-II and Tier-III towns to provide MSMEs with affordable professional and compliance support, alongside institutional measures to improve their governance and operational efficiency.

Infrastructure, Urban Transformation & Logistics

Public capital expenditure has scaled to Rs. 12.2 lakh crore in budget estimate 2026-27 to power these initiatives:

• Dedicated Freight Corridors: Establishment of new dedicated freight corridor from Dakuni (East) to Surat (west) to connect industrial heartlands for faster cargo movement.

• National Waterways: Operationalization of 20 new waterways to enhance logistics and connect mineral-rich zones to ports.
• Purvodaya Industrial Corridor: Development of an Integrated East Coast Industrial Corridor to drive growth in India’s eastern region.
• Infrastructure Risk Guarantee Fund: Rs.1,000 crore fund designed to mitigate construction and execution risks for projects.
• Urban Challenge Fund: Rs.10,000 crore allocation for reform-linked infrastructure projects in cities.
• City Economic Regions: Targeted development of specific urban zones to support job creation and regional balance. Rs. 5000 crores is to be allocated for each City Economic Region over the next 5 years.

• Multimodal Connectivity: Continued expansion across rail, road, and maritime sectors to reduce overall national logistics costs. 7 new high speed rail corridors are to be established.

Energy Security & Climate Initiatives

The budget prioritizes sustainability and reduced import dependency through targeted fiscal support:

• Carbon Capture (CCUS) Scheme: Rs. 20,000 crore outlay over five years for adopting carbon capture technology in hard-to-abate industries.

• Power System Development Fund: Rs.1,100 crore allocation to strengthen and modernize transmission and distribution infrastructure.
• Battery Energy Storage (BESS): Rs.1,000 crore in viability gap funding (VGF) to support grid-scale battery projects for renewable integration.
• Lithium-Ion Manufacturing: Extension of Basic Customs Duty (BCD) exemptions on capital goods for manufacturing lithium-ion cells.

• Nuclear Power Projects: Extension of BCD exemptions on essential goods for nuclear plants until 2035 to boost clean energy capacity.

Human Capital, Skilling, and the Services Sector

The budget focuses on leveraging India’s demographic dividend through targeted employment schemes and high-growth service sector reforms:

• Rural Employment & Livelihoods: Rs.95,700 crore allocation for the Viksit Bharat Rozgar and Ajeevika Mission (Gramin) to drive job creation and income stability in rural areas.

• Skill Infrastructure (PM SETU): Rs.6,100 crore investment to upgrade ITIs and align vocational training with modern industrial requirements.
• Innovation & Research: Rs.3,200 crore allocation for Atal Tinkering Labs and the creation of a National Destination Digital Knowledge Grid to digitize national heritage data.
• Industry-Academia Hubs: Establishment of five University Townships strategically located near major industrial corridors to integrate education with employment.
• Medical Value Tourism: Partnership-based schemes to establish five global Medical Tourism Hubs and upgrade AYUSH infrastructure, including three new All India Institutes of Ayurveda.
• Tourism & Heritage: A pilot program to upskill 10,000 guides.
• Orange Economy (AVGC): Expansion of the creative economy by setting up AVGC Content Creator Labs across 15,000 schools and 500 colleges.
• IT Services Tax Rationalization: Increase of the Safe Harbour threshold to Rs.2,000 crore and the provision of tax holidays until 2047 for cloud service providers using Indian data centers.

• Compliance Acceleration: Fast-tracking of the Advance Pricing Agreement (APA) process to a two-year limit and the introduction of automated, rule-driven approvals for IT safe harbour claims.

Agriculture and Rural Value-Addition

The strategy focuses on high-value segments and digital modernization to enhance farmer productivity and income:

• High-Value Plantation Schemes: Launch of a new Coconut Promotion Scheme to rejuvenate plantations with high-yielding saplings. Dedicated programs are also introduced for cashew, cocoa, and sandalwood to boost export competitiveness and self-reliance.

• Horticulture Rejuvenation: A plan to rejuvenate old orchards and expand high-density cultivation for premium hilly-region produce, including walnuts, almonds, and pine nuts.
• Fisheries & Coastal Economy: Integrated development of 500 reservoirs and strengthening of the coastal value chain to improve the livelihoods of fish farmers.
• Allied Sector Support: Broadened focus on high-value agriculture through entrepreneurship development in dairy and animal husbandry, utilizing credit-linked subsidies.
• Digital Agriculture (Bharat-VISTAAR): Rollout of a multilingual AI tool that integrates AgriStack portals with ICAR research to provide real-time, data-driven advisory (weather, soil health, and pest management) to farmers.
• Water Management: Continued investment in Irrigation and Water Management Schemes to ensure year-round water availability and improved crop yields.
• Cooperative Sector Tax Relief: Deduction allowed for inter-cooperative society dividend income (when distributed to members) to prevent double taxation under the new tax regime. 

Personal Taxation

No changes in personal tax slabs since last year. The slab rates are:

• Individuals earning up to Rs. 12 lakhs, and salaried taxpayers earning up to Rs. 12.75 lakhs are exempt from tax.
• Income Tax Act, 2025 will be effective from April 1st, 2026.

TDS/TCS Rationalization:

Impact on Financial Markets

The most direct change for market participants is the proposed revision in the Securities Transaction Tax (STT) for derivatives trading.

Buybacks: Earlier, share buybacks were taxed at the company level, making them tax-free in the hands of shareholders. Subsequently, buybacks were treated as dividend income, with shareholders taxed at their applicable slab rates on the entire amount received.

Under Budget 2026, the taxation of buybacks has been shifted back to capital gains, ensuring that shareholders are taxed only on the actual gains—i.e., the difference between the buyback price and the original purchase cost.

Conclusion

With a fiscal deficit target at 4.3% of GDP, the Union Budget 2026–27 is a continuity-focused, investment-led Budget. It prioritises infrastructure, manufacturing, employment, and human capital, with an emphasis on capacity building rather than short-term stimulus.