By Dinesh Kanabar & Ashish Agrawal
Budget 2026-27 marks a decisive shift in India’s fiscal and tax policy narrative—from expansion and experimentation towards consolidation and credibility. Anchored around three kartavyas—accelerating growth, meeting citizen aspirations, and ensuring inclusion—it signals a clear directional intent: India is now optimising its economic architecture for durability, predictability, and long-term capital formation.
The FM has remained committed to the consolidation path, with the fiscal deficit estimated at 4.3% and central government debt placed on a declining trajectory at 55.6% of GDP in FY27. This macroeconomic stability forms the bedrock of the Budget’s investment-led growth strategy. Public capital expenditure has been raised to a record `12.2 lakh crore, complemented by targeted policy support and measures aimed at easing MSME liquidity constraints.
Securities, Corporate Distributions, and Market Measures
The Budget also introduces calibrated steps affecting securities markets and corporate distributions. Securities transaction tax on futures and options has been increased to moderate retail-driven volatility while consciously preserving market depth and India’s competitiveness as a trading hub. In direct tax, the taxation of share buybacks has been restructured. The return to a capital gains-based approach brings greater clarity, with corporate and non-corporate promoters being taxed at 22% and 30% respectively, and other shareholders being taxed at standard capital gains rates. This will likely influence corporate capital allocation and payout strategies while curbing promoter-led arbitrage.
Targeted income tax holidays continue to underscore India’s global ambitions. Foreign cloud service providers using Indian data centres to serve global markets will enjoy tax exemptions until 2047, while non-resident suppliers to bonded-zone electronics makers are granted a five-year exemption. These are for positioning India as a credible hub for global tech, manufacturing, and digital infra.
Transfer pricing reforms provide long-awaited certainty to the IT and R&D ecosystem. Software development, IT-enabled services, and knowledge process outsourcing have been consolidated under one safe harbour regime with a uniform margin of 15.5%. The eligibility threshold has been raised significantly from `300 crore to `2,000 crore, providing meaningful relief to mid-sized IT firms. Fully automated approvals, five-year lock-in of safe harbour terms, and a two-year timeline for Unilateral Advance Pricing Agreements in IT services address one of the most persistent sources of tax disputes for multinational enterprises.
Recognising the challenges of global employee mobility, the Budget introduces the Foreign Assets of Small Taxpayers-Disclosure Scheme, 2026 (FAST-DS). The scheme covers two categories—taxpayers with undisclosed foreign income or assets up to `1 crore, and those who disclosed income but failed to report foreign assets up to `5 crore. The scheme reflects a pragmatic recognition of cross-border reporting complexities while safeguarding revenue interests.
Several long-pending procedural uncertainties have been addressed through “retrospective” clarification amendments. While retrospective amendments are generally viewed with caution, these changes seek to resolve conflicting judicial interpretations and provide procedural certainty going forward.
A major structural reform is visible in the rationalisation of the penalty and prosecution framework under the Income Tax Act. To encourage companies to move to the new tax regime, the Budget proposes to restrict the use of accumulated minimum alternate tax credits only to companies that opt for the new regime.
Remaining Gaps and Future Outlook
Budget 2026 advances India’s structural and tax reforms with a clear emphasis on certainty, stability, and institutional credibility. However, some long-standing expectations remain unaddressed. There is no extension of manufacturing-linked tax incentives under the Make in India framework, limited movement on mechanisms to resolve protracted tax litigation, and a relatively modest focus on emerging areas such as AI. The absence of a clear road map for a comprehensive overhaul of the Income Tax Act also leaves deeper structural reform for another day.
How these gaps are addressed will shape the next phase of India’s tax and growth architecture.
The article is authored by Dinesh Kanabar, Chairman and CEO, and Ashish Agrawal, Partner, at Dhruva Advisors.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.