Another year, another Union Budget. On 1st February 2026, the Modi government presented the second budget of its third term, staying true to its familiar theme of strong capital spending to drive long-term growth. While individual taxpayers did not see major reliefs this time, the big headline was the official adoption of the new Income Tax Act, 2025. What does this mean for the economy, businesses, and investors? Check out this blog to know all about the Budget 2026 and its key highlights.
The Union Budget 2026-27, presented by Nirmala Sitharaman under the Narendra Modi government, continues the same broad direction seen in recent years. The focus is on long-term growth rather than short-term relief. The government is trying to walk a fine line between growth and discipline. By aiming for around 10% nominal GDP growth, it expects businesses, incomes, and tax collections to rise in value as the economy expands. At the same time, it is spending carefully and not just on daily expenses like salaries and subsidies, but also on long-term assets such as roads, railways, and infrastructure that can support future growth.
Keeping the fiscal deficit at 4.3% of GDP means the government is still borrowing, but less aggressively than before, which helps control interest costs and inflation risks. Over the longer term, reducing debt as a share of GDP signals that India wants to avoid over-reliance on borrowing and keep its finances healthy. Overall, the message is clear, i.e., grow steadily, invest for the future, but avoid overstretching the country’s finances. This represents a balanced approach that aims to support jobs, stability, and confidence in the economy.
The government has been focusing on long-term growth and infrastructure development in the country for a long time, and it has been a consistent theme in past budgets as well. The government believes that strong infrastructure is the backbone of long-term economic growth. By keeping capital expenditure high at Rs. 12.2 lakh crore, it is investing heavily in assets that will serve the country for decades, such as highways, railways, ports, and urban infrastructure. Projects like high-speed rail corridors aim to cut travel time between major cities, improve productivity, and make the movement of people and goods faster and cheaper. The push for new waterways and freight corridors will reduce pressure on roads, lower logistics costs for businesses, and support exports and manufacturing. By setting up an Infrastructure Risk Guarantee Fund, the government also wants private companies to participate more confidently in large projects by reducing their financial risks.
The government wants India to make more products at home and compete strongly in global markets, while clearly backing this vision with large financial support. Under Biopharma SHAKTI, it has committed Rs. 10,000 crore over the next five years to boost vaccine and pharmaceutical manufacturing, improve research capacity, and create skilled jobs. To reduce dependence on imported chips, Semiconductor Mission 2.0 focuses on building domestic chip-making and allied ecosystems. The electronics components scheme has been expanded to Rs. 40,000 crore, helping India develop strong supply chains for mobiles, consumer electronics, EVs, and digital hardware.
The creation of rare earth development corridors supports critical industries such as electric vehicles, defence, and clean energy, where access to these materials is essential. Alongside high-tech sectors, continued support for textiles, natural fibres, handlooms, and handicrafts ensures that traditional industries also benefit from growth. Thus, with targeted funding and focused sector programmes, the government is pushing manufacturing-led growth that creates jobs, boosts exports, and makes India more self-reliant.
The Budget 2026 recognises that small and medium businesses are the backbone of jobs and local economic activity in India, and tries to make their growth easier. Setting up a Rs. 10,000 crore SME Growth Fund is aimed at improving access to credit and long-term investment so that MSMEs can expand, buy new machinery, and hire more people without constantly worrying about funding. Along with money, the focus is also on professional support, where specialised institutions will help MSMEs with compliance, accounting, taxation, and business planning, i.e., areas that often slow down small businesses. Together, better funding and expert guidance aim to help MSMEs scale up, become more competitive, and contribute more strongly to India’s economic growth, while continuing to generate employment across cities and towns.
Budget 2026 focuses more on fixing the tax system than giving instant tax relief. There are no changes in income tax slabs, which may feel disappointing for salaried taxpayers, but it also avoids sudden shocks. The biggest shift is the official adoption of the new Income Tax Act, 2025, which aims to make tax laws shorter, clearer, and easier to understand, with fewer sections, fewer disputes, and smoother compliance. The government is clearly moving towards a trust-based tax system, where honest taxpayers face fewer notices and less paperwork.
Capital gains rules have remained largely unchanged, as expected after the sweeping reforms in the previous budget. However, one significant amendment has been introduced. Capital gains from Sovereign Gold Bonds (SGBs) will now be taxable if such bonds are acquired through the secondary market. The exemption continues to apply only to investors who subscribed to SGBs at the time of their original issue and hold them until maturity. This change will be applicable from 1st April 2026.
The Union Budget 2026 also introduced major tax compliance reforms under the new Income Tax Act, 2025, effective from April 1, 2026. These include extended timelines for revised returns, easier updated return filing even after notices, reduced pre-deposit for appeals, and a sharp cut in tax on unexplained income. Here are the following key details.
Revised & Updated Returns -
Extended Timeline - Taxpayers now get 12 months from the end of the financial year to file revised returns (earlier 9 months).
Updated Returns - Allowed even after receiving reassessment notices, provided extra tax is paid.
Nominal Fee - A small fee applies for late corrections.
Appeals & Dispute Resolution -
Pre-deposit Requirement - Reduced from 20% to 10% of the disputed tax to get a stay on demand while appealing.
Decriminalisation - Minor offences decriminalised, imprisonment terms reduced.
Simplified Penalty Proceedings - Penalty merged with assessment orders to avoid duplication.
Tax on Unexplained Income -
Rate Cut - Tax on unexplained income reduced from 60% to 30%.
Structured Penalties - Additional penalties apply, but in a clear and predictable manner.
Voluntary Compliance - Encourages taxpayers to disclose income rather than hide it.
Companies in India must still pay a minimum amount of tax even if their accounting profits look low, and this is done through the Minimum Alternate Tax (MAT) system. The Budget 2026 keeps this MAT framework but makes a few important changes to simplify and rationalise it. The MAT rate has been reduced from 15% to 14%, thus, companies will pay a slightly lower minimum tax than before.
Furthermore, from April 1, 2026, MAT will be treated as a final tax under the old corporate tax regime, which means companies cannot carry forward MAT credits in the usual way to offset future tax bills. This makes the tax position clearer and simpler. However, if a company moves from the old regime to the new corporate tax regime, it may be able to use part of its accumulated MAT credit (up to 25% of the tax liability) under specified conditions. The government has also proposed an exemption from MAT for non-resident companies that pay tax on a presumptive basis, which helps encourage cross-border investment.
Budget 2026 changes the Securities Transaction Tax (STT) to make short-term and highly speculative trading in the stock markets slightly more expensive, while keeping things stable for long-term investors. The STT is a small tax you pay on buying or selling securities like futures and options on stock exchanges. The government has raised the STT on futures from about 0.02% to 0.05% of the transaction value, and on options (both premium and exercise) from around 0.125% to 0.15%.
This change takes effect from 1 April 2026 and makes trading in derivatives slightly costlier, especially for frequent traders and speculators who do many such transactions. The aim is to discourage excessive speculative activity and encourage more stable, long-term investment behaviour in the market, helping reduce wild price swings and improve overall market efficiency. Longer-term investors who buy and hold stocks are less affected by this since STT changes mainly hit futures and options trading, rather than delivery-based equity investing.
Budget 2026 tries to make tax deduction (TDS) and tax collection (TCS) rules clearer, fairer, and easier to follow, especially for individuals and small businesses. A very important relief is the complete removal of TDS on interest earned from motor accident compensation, which means accident victims will now receive the full amount without any deduction, helping them manage medical and personal expenses without cashflow stress. The Budget also clearly classifies payments related to manpower supply under specific TDS sections, reducing long-standing confusion, mismatches, and disputes between taxpayers and the tax department.
On the TCS side, the government has moved towards uniform TCS rates of 2% across several categories, such as overseas tour packages, education payments made abroad, scrap transactions, and certain notified goods. Earlier, different rates applied to different transactions, which made compliance complicated and error-prone. By standardising the rate at 2%, the system becomes simpler to understand, easier to implement, and less burdensome. The broader intent is to treat TCS mainly as a tracking and reporting tool, rather than a heavy tax cost.
In Budget 2026, the government has changed the way money received by shareholders from share buybacks is taxed to make the system fairer and more consistent. Earlier, buybacks were treated as dividend income, which meant the full amount received could be taxed at personal income-tax slab rates, sometimes as high as 30% for high earners, thereby creating uncertainty and opportunities for tax planning. Now, all buyback proceeds will be treated as capital gains instead of dividends from 1 April 2026 onwards.
Under this new approach, non-promoter shareholders (like ordinary investors) will pay tax based on the usual capital gains rules (i.e., 12.5% on long-term capital gains and 20% on short-term capital gains, depending on how long they held the shares), which is often lower and simpler than slab-based tax. On the other hand, the Budget introduces an additional tax for promoter shareholders to discourage using buybacks mainly for tax benefits. As a result, effective tax rates on buyback gains will be about 22% for domestic corporate promoters and 30% for non-corporate (including foreign) promoters.
Thus, the change helps ensure that profits distributed to shareholders are taxed more fairly and consistently, whether as dividends or through buybacks, and reduces opportunities for complex tax planning.
Apart from the above major highlights, Budget 2026 also focused on key pillars of the economy and its goal of Viksit Bharat by 2047. Here are the details of other important announcements in Budget 2026.
Defence & Self-Reliance - Budget 2026 increases defence spending in a measured way, with a clear push towards manufacturing defence equipment within India. The focus is on building fighter jets, weapons, electronics, and systems locally rather than importing them. This strengthens national security, creates high-skill jobs, and supports advanced technologies like electronics, materials, and aerospace.
Welfare Schemes - The Budget continues funding for housing, drinking water, rural jobs, healthcare, and education, but without dramatic expansions. The idea is to improve delivery and efficiency, not increase spending aggressively. This keeps basic services running smoothly while protecting government finances.
Agriculture & Rural Technology - Bharat-VISTAAR, an AI-based advisory tool, is introduced to help farmers make data-driven decisions on crops, inputs, and markets. It will help farmers decide what to grow, when to sell, and how to manage risks and thus aims to improve farm incomes and productivity, especially for small and marginal farmers.
Financial Sector Reforms - A dedicated high-level committee will review banking, financial, and regulatory laws to make them ready for the future. The goal is a stronger, more flexible financial system that supports credit growth, innovation, and ease of doing business.
Energy Transition & Green Growth - Budget 2026 supports carbon capture technologies and offers duty relief for importing clean energy and green technology equipment. This helps companies cut emissions, meet global climate rules, and stay competitive in international markets.
Export Promotion - Budget 2026 extended duty-free import periods for exporters, especially in textiles, footwear and other labour-intensive exports. By extending duty exemption periods, the Budget lowers input costs for exporters. This helps Indian products remain competitive globally and supports employment-heavy sectors, especially textiles and footwear.
Transport & Logistics Modernisation - The Budget continues its push beyond highways by announcing 7 high-speed rail corridors and 20 new national waterways. Faster trains will help in reducing travel time between major cities, while waterways offer a cheaper and cleaner way to move bulk goods like coal, food grains, and cement, making them more competitive.
Healthcare, Medical Tourism & Mental Health - India aims to become a global medical tourism hub by supporting hospital infrastructure and skilled healthcare workers. The announcement of NIMHANS-2 highlights the growing focus on mental health care, research, and training.
Women Entrepreneurship - The government will introduce SHE-Marts nationwide. SHE-Marts are dedicated platforms for women entrepreneurs and self-help groups to sell their products. These marketplaces improve visibility, access to customers, and income opportunities for women-led businesses.
Skills, Education & Employability - Budget 2026 strengthens skilling programs to ensure students gain job-ready skills, not just degrees and increases funding for skilling & vocational training with priority towards sectors like Electronics, AI, healthcare, and manufacturing. Thus, the focus is on industries where jobs will grow in the future, aligning education with real market needs.
Budget 2026 does not present much bang on the surface like its predecessor, especially for individual taxpayers. However, it is more grounded and is aimed at unlocking the long-term growth potential of the country, thereby further steering it towards the goal of Viksit Bharat 2047. With the adoption of the New Income Tax Act 2025 and amendments in STT and share buyback, the government aims for a simplified tax framework and predictability for markets. Thus, the Budget 2026 signals policy continuity, fiscal discipline, and long-term wealth creation, making it constructive for patient, long-term investors in India.
We hope this article was able to simplify the major highlights of Budget 2026 for our readers. Let us know if you have any queries on Budget 2026 or need further information on the same, and we will address them soon.
Till then, Happy Reading!
Read More: Understanding the Impact of GST Reforms on Consumption Funds
Marisha Bhatt is a financial content writer @TrueData.
She writes with the sole aim of simplifying complex financial concepts and jargon while attempting to clarify technical and fundamental analysis concepts of the stock markets. The ultimate goal is to spread vital knowledge and benefit the maximum audience. Her Chartered Accountant background acts as the knowledge base to help clarify crucial concepts and create a sound investment portfolio.
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