Budget 2026 Overview
Finance Minister Nirmala Sitharaman presented Union Budget 2026-27 on February 1, 2026, marking her eighth consecutive budget. The budget focuses on fiscal consolidation, manufacturing incentives, and tax simplification while maintaining status quo on income tax rates.
The landmark New Income Tax Act 2025, replacing the 65-year-old 1961 Act, takes effect from April 1, 2026. While no direct relief was announced for the middle class through tax cuts, significant TCS reductions on foreign remittances and GST rationalization provide indirect benefits to consumers.
Budget 2026 prioritizes structural reforms over populist relief. Income tax slabs remain unchanged, but GST simplification to 2 slabs (5% & 18%) and TCS reduction on foreign spending provide meaningful consumer relief.
Income Tax: Slabs Unchanged
The Budget made no changes to personal income tax slab rates for FY 2026-27. Both the old regime and new regime retain the same income brackets and rates as the previous year. The Finance Minister emphasized that the new Income Tax Act 2025 is "revenue-neutral, with no changes to tax rates or slabs."
New Tax Regime (Default) - FY 2026-27
| Income Slab | Tax Rate | Tax Amount (Max) |
|---|---|---|
| Up to ₹4,00,000 | NIL | ₹0 |
| ₹4,00,001 - ₹8,00,000 | 5% | ₹20,000 |
| ₹8,00,001 - ₹12,00,000 | 10% | ₹40,000 |
| ₹12,00,001 - ₹16,00,000 | 15% | ₹60,000 |
| ₹16,00,001 - ₹20,00,000 | 20% | ₹80,000 |
| ₹20,00,001 - ₹24,00,000 | 25% | ₹1,00,000 |
| Above ₹24,00,000 | 30% | As applicable |
Under the new regime, individuals with income up to ₹12 lakh (₹12.75 lakh for salaried with ₹75,000 standard deduction) pay ZERO tax due to Section 87A rebate of ₹60,000.
New Income Tax Act 2025 - Key Simplifications
- Unified "Tax Year": Replaces confusing "Assessment Year" and "Previous Year" terminology
- Consolidated TDS: All TDS provisions under single Section 393 (previously scattered)
- 50% fewer sections: Simplified structure for easier comprehension
- Digital assets recognized: Explicit provisions for cryptocurrencies and VDAs
- Extended revised return deadline: From December 31 to March 31 (12 months from year-end)
TDS & TCS: Major Relief for Travelers
Budget 2026 delivers meaningful relief for Indians sending money abroad and traveling internationally. The changes significantly reduce upfront tax burden on foreign spending.
- Tour packages: 5% up to ₹10L, 20% above
- LRS Education/Medical: 5% above ₹10L
- Other LRS: 20% above ₹10L
- Complex tiered structure
- Tour packages: Flat 2% (any amount)
- LRS Education/Medical: 2% (any amount)
- Other LRS: 20% (unchanged)
- Simple flat rate structure
A family spending ₹20 lakh on foreign tour package will now pay only ₹40,000 TCS (2%) vs ₹2.5 lakh earlier (5% on ₹10L + 20% on ₹10L). Savings: ₹2.1 lakh!
Other TDS Simplifications
- MACT Interest Exempt: Interest on Motor Accident Claims Tribunal awards now fully tax-free with no TDS
- NRI Property Purchase: TAN requirement eliminated - buyers can deduct TDS using PAN only
- Automated Certificates: Rule-based process for lower/nil TDS certificates for small taxpayers
- Manpower Supply TDS: Explicitly covered at 1% (individual/HUF) or 2% (others)
Capital Gains & STT: Traders Hit Hard
While LTCG (12.5%) and STCG (20%) rates remain unchanged, significant structural changes reshape the capital gains landscape. The STT increases represent the budget's most market-impacting measure.
Securities Transaction Tax (STT) Hikes
| Transaction Type | Old Rate | New Rate | Increase |
|---|---|---|---|
| Equity Futures | 0.02% | 0.05% | +150% |
| Options (on premium) | 0.10% | 0.15% | +50% |
| Options (on exercise) | 0.125% | 0.15% | +20% |
Markets reacted sharply — Sensex fell over 1,500 points on Budget Day. The hike aims to discourage excessive speculative F&O trading and generate additional revenue.
Buyback Taxation Shift
Share buyback proceeds will now be taxed as capital gains in shareholders' hands, instead of the earlier Buyback Tax paid by companies. Key changes:
- Regular shareholders pay standard capital gains tax (15% STCG / 12.5% LTCG for listed)
- Promoters (10%+ holding) face additional tax: 22% effective for corporates, 30% for individuals
- Buyback income, which was tax-free for investors, now becomes taxable
Sovereign Gold Bond (SGB) Exemption Tightened
Capital gains exemption on SGB redemption now applies ONLY to:
- Original subscriber of the bond (subscribed at RBI issue)
- Held until maturity redemption
Impact: Secondary market purchasers lose exemption eligibility entirely. They will face 12.5% LTCG on maturity gains. This is expected to eliminate the 10-15% premium SGBs command on exchanges.
GST Rationalization: Two-Slab Revolution
A landmark change in the indirect tax landscape — GST has been simplified from a complex multi-rate schedule to essentially two main rates. This is the biggest GST reform since its 2017 launch.
| Rate Slab | Category | Examples |
|---|---|---|
| 5% | Essential Goods | Medicines, dairy, agricultural items, EVs, medical equipment |
| 18% | Standard Goods | Consumer durables, cement, most vehicles, services |
| 40% | Sin/Luxury Goods | Tobacco, pan masala, aerated beverages, premium luxury cars |
Key GST Movements
- 12% → 5%: Most items in 12% slab moved down for consumer relief
- 28% → 18%: Cement, vehicles (except luxury) reduced
- Life/Health Insurance: Made GST-exempt (0%)
- 33 Lifesaving Drugs: Reduced to NIL rate
- Agricultural Implements: Moved from 12% to 5%
The GST rationalization is expected to cost the exchequer approximately ₹48,000 crore in revenue foregone, but is aimed at boosting consumption and simplifying compliance.
GST Law Amendments (Effective April 1, 2026)
- Intermediary Services Fix: Indian intermediaries serving foreign clients now qualify as exporters (no 18% GST)
- Post-Sale Discounts: No longer require prior agreement - simplified with credit notes
- Faster Refunds: 90% provisional refund now available for inverted duty cases
- ₹1,000 threshold removed: Even small export refunds will be paid
TCS Savings Calculator
Calculate how much you save on foreign spending under Budget 2026
Corporate Tax & MAT Changes
While corporate tax rates remain unchanged, significant changes to Minimum Alternate Tax (MAT) will push companies toward the new tax regime.
MAT Rate Reduction & Structural Changes
- Rate Cut: MAT reduced from 15% to 14% of book profits
- Final Tax: MAT becomes a final tax from April 1, 2026 — no fresh credit accumulation
- Credit Transition: Existing MAT credit can only be used after migrating to new regime
- Usage Limit: Maximum 25% of tax liability per year, 15-year carryforward
Companies staying in the old regime (with exemptions) after March 2026 will effectively pay MAT as a sunk cost. This strongly incentivizes migration to the simpler new corporate tax regime (22% + surcharge).
IFSC Tax Holiday Extended
Tax holiday for GIFT City IFSC units dramatically extended:
- 100% profit deduction: From 10-of-15 years to 20-of-25 years
- Post-holiday taxation: Concessional 15% rate
- Ship-leasing, insurance, treasury centers: Extended through March 2030
Data Center Tax Holiday till 2047
Foreign companies providing cloud services through Indian data centers receive tax holiday until March 31, 2047 — a two-decade incentive to attract hyperscale investments and make India a global data center hub.
NRI & Foreign Investor Benefits
Foreign Asset Disclosure Scheme (FAST-DS 2026)
A one-time, 6-month amnesty window for Indians with undisclosed foreign assets:
- Pay 30% of fair market value
- Plus 30% additional income tax
- Complete immunity from prosecution
- Black Money Act relief
- For cases where income was reported
- But asset itself wasn't declared
- Flat fee of ₹1 lakh only
- Immunity from penalty & prosecution
Small Foreign Asset Immunity
Non-immovable foreign assets below ₹20 lakh receive automatic immunity from prosecution — retroactive from October 2024. This covers:
- Dormant foreign bank accounts
- ESOPs/RSUs from foreign employment
- Overseas insurance policies
- Small investment accounts
NRI Investment Limits Expanded
- Individual limit: Increased from 5% to 10% in Portfolio Investment Scheme
- Aggregate limit: Increased from 10% to 24%
- Property TDS: No TAN required for resident buyers purchasing from NRIs
Customs Duty: Manufacturing Boost
Healthcare & Medicines
- 17 cancer drugs exempt: Including Ribociclib, Venetoclax, Ibrutinib, Ipilimumab
- 7 rare diseases added: Duty-free imports for personal medical use
- Personal import duty halved: From 20% to 10%
- Baggage allowance increased: From ₹50,000 to ₹75,000
Manufacturing Sector Exemptions
| Sector | Item | New Duty |
|---|---|---|
| Solar Energy | Sodium antimonate for glass manufacturing | NIL |
| EV / Battery | Capital goods for Li-ion cell manufacturing | NIL |
| Aviation | Aircraft components and manufacturing parts | NIL |
| Nuclear | Power project goods (extended to 2035) | NIL |
| Critical Minerals | Processing capital goods | NIL |
| Electronics | Microwave oven specified parts | NIL |
Sector-Wise Impact Analysis
- ₹10,000 Cr SME Growth Fund announced
- GST simplification reduces compliance burden
- 90% provisional refunds for inverted duty
- Credit guarantee expanded to ₹10 Cr
- STT on futures up 150% (0.02% → 0.05%)
- STT on options up 50%
- Buyback gains now taxable
- Sensex fell 1,500+ points on Budget Day
- Home loan deduction unchanged at ₹2L
- PMAY-Urban up 179% to ₹22,025 Cr
- SWAMIH Fund 2.0 at ₹15,000 Cr
- No affordable housing definition change
- 17 cancer medicines duty-free
- Biopharma SHAKTI: ₹10,000 Cr over 5 years
- Life/health insurance GST-exempt
- 5 regional medical tourism hubs
- No income tax relief (slabs unchanged)
- TCS on foreign travel reduced to 2%
- Extended ITR revision deadline
- GST cuts on essential goods
- Section 80-IAC extended to March 2030
- Data center tax holiday till 2047
- ₹10L courier export cap removed
- India Semiconductor Mission 2.0
Implementation Timeline
Frequently Asked Questions
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