Introduction
On February 1, 2026, the honourable Finance Minister Smt. Nirmala Sitharaman, announced the Union Budget 2026-27, which is the first Budget prepared in Kartavya Bhawan, inspired by 3 kartavyas:
Accelerate Growth
Drive & sustain economic momentum in 6 areas:
- Scaling up manufacturing in 7 strategic & frontier sectors
- Rejuvenating legacy industrial sectors
- Creating “Champion MSMEs”
- Delivering a powerful push to infrastructure
- Ensuring long term energy security & stability, and
- Developing City Economic Regions
Empower Aspirations
Meet the goals & ambitions of youthful India with following measures:
- Setting up a high powered “Education to Employment and Enterprise” Standing Committee
- Creation of 5 University Townships
- Scheme to support states for establishment of 5 Regional Medical Hubs
- Projected requirement of 2 million professionals by 2030
- Pilot Scheme for upskilling 10,000 guides in 20 iconic tourist sites, etc.
Sabka Vikas
Equitable distribution of resources and amenities:
- Increasing farmers income
- Empowering Divyangjan through access to livelihood oppotunities & high-quality assistive devices
- Empowering vulnerable to access to mental health & trauma care
- Focus on North-East region for development & employment opportunities
- Lanching of Bharat-VISTAAR, multilingual AI tool, merging AgriStack portals with ICAR
- Setting up community owned retail outlets, managed by women led SHGs
Let’s look into the eminent proposals notified vide this Union Budget 2026-27 :
A. Proposed Changes in Direct Taxes
- Announcement of New Income Tax Act, 2025, being effective from April 1, 2026. However, simplified Income Tax Rules and forms will be notified gradually.
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Proposed Changes in TCS rates:
- Slashed to a flat 2%, from 5% & 20% earlier, regardless of the transaction amount, on overseas tour packages
- Reduced from 5% to 2%, for pursuing education and for medical purposes under LRS
- Rationalization of TCS rates on specific goods such as alcoholic liquor, scrap and minerals, & tendu leaves, to 2%
- Categorization of manpower supply services under Payment to Contractors, to eliminate confusion regarding TDS category application, wherein TDS will be capped at 1% or 2% fixed rate
- Eliminating need for filing of manual applications with AO, for lower/ NIL TDS certificates
- Taxpayers can directly submit Form 15G/ 15H, to depositories instead of individual companies
- Filing window for revised returns extended from December 31st to March 31st
- Staggered ITR Filing Timelines proposed:
- ITR 1 and ITR 2 – Same (31st July)
- Non-Audit Business cases or Trusts – 31st August
- Introduction of one-time 6-month Foreign Asset Disclosure Scheme, which will be effective from a date to be notified separately, for small taxpayers, like students, young professionals, tech employees, relocated NRIs and such others, who:
- Did not disclose their overseas income or asset and
- Disclosed their overseas income and/ or paid due tax but could not declare the asset required.
- Rationalization of penalties and prosecution framework under Income Tax Act.
- Benefits proposed for Co-operatives:
- Extension of deduction to supply of cattle feed and cotton seed produced by its members
- Allowing inter-cooperative society dividend income, as deduction under the new tax regime, to the extent it is further distributed to its members
- Exempt dividend income received by a notified national cooperative federation, on their investments made in companies up to January 31, 2026, for 3 years.
- Support for IT Sector Growth:
- Threshold for availing safe harbour for IT services enhanced from Rs. 300 crores to Rs. 2000 crores
- Approval of Safe harbour for IT services, by automated rule-driven process, which can be continued for 5 years at a stretch
- Fast Track Unilateral APA, proposed for IT Service companies.
- Increase in STT:
- On Futures, from 0.02% to 0.05%
- On Options Premium, from 0.1% to 0.15%
- On Exercise of Options, from 0.125% to 0.15%
- Exemptions to Non-Residents:
- From MAT, to all non-residents, paying tax on presumptive basis
- To Global (non-India sourced) income, of a non-resident expert, for a stay period of 5 years, under notified schemes
- From income tax for 5 years, to non-resident who provides capital goods, equipment or tooling, to any toll manufacturer in a bonded zone.
B. Proposed Changes in Indirect Taxes & Customs Policy
- Customs Act:
- Increase the limit for duty-free imports of specified inputs used, for processing seafood products for export, from 1% to 3% of the FOB value of the previous year’s export turnover
- Allow duty-free imports of specified inputs, which is currently available for exports of leather or synthetic footwear, to exports of Shoe Uppers as well
- Tariff on all dutiable goods imported for personal use reduced from 20% to 10%, aimed at reducing consumer costs and promoting ease of personal cross-border trade
- Addition of 7 more rare diseases to the list eligible for import duty exemptions, expanding social support via tax policy
- Basic customs duty exemption, on imports of goods required for Nuclear Power Projects, to be extended till 2035
- Complete removal of the current value cap of Rs. 10 lakh, per consignment on courier exports
- Extend the validity period of advance ruling, binding on Customs, from 3 years to 5 years
- Rolling out Customs Integrated System (CIS), in 2 years as a single, integrated and scalable platform for all the customs processes.
- GST Act:
- Extending the provisions of provisional refund, to refunds arising out of IDD
- Removal of threshold limit (i.e., Rs. 1,000), for sanction of refund claims, in case of goods exported out of India, with payment of tax.
Conclusion
The Union Budget 2026-27 marries tax reform, customs rationalisation, and procedural modernisation. Its key thrusts are:
- Simplification of direct taxes and litigation reduction.
- Tariff simplification and targeted customs relief to support manufacturing and exports.
- Trust-based customs administration with digital clearance frameworks.
- Improved import/export facilitation for MSMEs and trade growth.
Disclaimer
The information provided in this article is intended for general informational purposes only and should not be construed as legal advice. The content of this article is not intended to create and receipt of it does not constitute any relationship. Readers should not act upon this information without seeking professional legal counsel.