FE Reviews Union Budget 2026 HIGHIGHTS: How Sitharaman stepped on the Reform Express to ‘Trump-proof’ India

The Union Budget allocated a whopping Rs 7.85 lakh crore to Defence Services for the Financial Year (FY) 2026-27. This allocation stands at 2% of the estimated GDP for the next Financial Year and shows a significant increase of 15.19% over the Budgetary Estimates of FY 2025-26. The total defence budget is 14.67% of the Central Government expenditure and is the highest among the Ministries.

- A proposal was made to extend the period of incorporation from 10 years to 15 years (extension of 5 years) for start-ups to allow them to claim tax benefits if incorporated before 1st April 2030. Aimed at supporting deep-tech startups with longer gestation periods.

- A new scheme to be launched for 500,000 women, Scheduled Castes and Scheduled Tribes first-time entrepreneurs. This will provide term loans up to Rs 2 crore during the next 5 years.

The stock markets will absorb the changes in Securities Transaction Tax and gradually adjust, with no significant impact on the asset quality of stock brokers or exchange-listed entities, Ashish Chauhan, Managing Director and CEO of the National Stock Exchange, said on Sunday.

Chauhan told ANI that the increase in STT is unlikely to affect the proposed IPO of NSE or companies that are already listed.

"Overall, the market tends to absorb such changes in its own way and gradually adjusts. Going forward, the asset quality of stock brokers and exchange-listed entities will not be significantly impacted," he said

The Indian markets are trading lower --- with the Sensex down 1.38% at 81,137 and the Nifty falling 1.51% to 24,939 around 2:55 pm. Brokerage and commodity-related stocks came under heavy selling pressure after the Union Budget 2026-27 raised the Securities Transaction Tax on commodity futures from 0.02% to 0.05%.

Follow updates: Stock Market Budget 2026 LIVE

Your next vacation may become cheaper after Finance Minister Nirmala Sitharaman announced a reduction in the Tax Collected at Source for overseas tour packages. The TCS has been reduced from 5% and 20% to an uniform 2% for all overseas tour programme packages

Read More: Budget 2026-27: Here's why your dream overseas vacation may be cheaper

Under the current framework, there are two distinct categories of tax discrepancies:

* Underreporting: Typically due to mistakes or oversight, carrying a penalty of 50 percent of the tax amount.

* Misreporting: Occurs due to providing wrong or faulty information or misrepresenting the type of income, which carries a much higher penalty of 200 percent of the tax amount.

Expansion of immunity

The Finance Minister proposed extending the immunity framework (previously available only for underreporting) to cases of misreporting. To avail of this immunity from both penalty and prosecution, taxpayers must meet specific payment requirements:

* Standard Misreporting: The taxpayer must pay 100 percent of the tax amount as an additional income tax, over and above the core tax and interest due.

* Unexplained Cash Credits: Misreporting involving unexplained cash credits, unexplained investments, or similar special incomes must be settled with a payment of 120 percent of the tax.

* Exclusion: Immunity will not be granted if prosecution proceedings have already been initiated.

Rationalization of special income taxes

For incomes involving unexplained investments or cash credits (charged under section 195), the tax rate is being rationalized from 60 percent to 30 percent. However, the associated penalty for these cases is now merged with the standard misreporting penalty of 200 percent of the tax amount.

Procedural simplifications

* Common Order: Assessment and penalty proceedings will now be integrated into a single common order to reduce the multiplicity of proceedings and fast-track dispute settlements.

* Interest Relief: Interest on the penalty amount will be kept in abeyance while an appeal is pending before the first appellate authority, regardless of the eventual outcome.

* Updated Returns: Taxpayers are now permitted to update their returns even after reassessment proceedings have started, provided they pay an additional 10 percent tax over the applicable rate for that year. If additional income is reported through an updated return, penalties will generally not be leviable on that income.

"A 150% hike in Securities Transaction Tax on Futures and a 50% hike in STT on Options is a surprise . Already F&O volumes are down in FY2026...and as against the target of Rs 75000 crores collections are at Rs 48,000 crores as of mid-January. Markets have not liked this increase in tax . This was an opportunity to reduce STT and the increase is a big surprise," Bagga said.

Motor Accident Claims: Interest awarded by tribunals to natural persons exempt from income tax; TDS eliminated.
Overseas Tour Packages: TCS reduced from 5% and 20% to a flat 2% --- regardless of amount.
LRS Education/Medical: TCS cut from 5% to 2% for remittances under Liberalised Remittance Scheme.
Manpower Services: Now explicitly under contractor TDS at 1% or 2% rates to clarify scope.
Non-Resident Property Sales: TDS via resident buyer's PAN-based challan, no TAN needed.

"The simplified Income Tax Rules and Forms will be notified shortly, giving adequate time to taxpayers to acquaint themselves with its requirements. The forms have been redesigned such that ordinary citizens can comply without difficulty," Sitharaman explained.

She also proposed a reduction of TCS rate under certain conditions, a scheme for small taxpayers to instantly secure lower or nil TDS certificates. Depositories are also being asked to accept Form 15G or Form 15H from the investor and provide it directly to various relevant companies.

Finance Minister Nirmala Sitharaman has proposed provisions for a tax holiday till 2047 for any foreign company that provides cloud services to customers globally by using data center services from India. It will, however, need to provide services to Indian customers. customers through an Indian reseller entity.

The cut in fiscal deficit will come as a surprise to many who wanted the government to boost spending at the cost of fiscal prudence.

"Capex to GDP at Rs 12.2 lakh crore is at 3.1% of Crisil’s GDP estimate for next fiscal. The budget estimate for this fiscal was also 3.1%. Grants in aid for capital creation typically should add another 1% points to this," Crisil said.

The analytics company added that capital goods covering areas such as earth-moving and mining equipment, heavy electrical machinery, machine tools, food processing machinery, and similar sectors represented roughly 1.8 % of GDP and accounted for about 12 % of the nation’s manufacturing output. Renewed emphasis on these sectors will help reduce imports in critical industries, especially where import dependence exceeds 50%.

"The plethora of schemes announced for the textile sector, including the National Fibre Scheme, the Textile Expansion Employment Scheme, the Tex Echo Initiative, Samarth 2.0 and the Mahatma Gandhi Gram Swaraj Initiative will boost India’s competitiveness by improving fibre self-reliance, upgrading traditional textile clusters and promoting sustainable textiles, while also modernising the skilling ecosystem to provide employment opportunities to rural youth," it added.

Finance Minister Nirmala Sitharaman laid the 16th Finance Commission report before the Parliament on Sunday. The government has accepted the recommendation of maintaining vertical devolution at 41% of the divisible pool.

She also outlined several fiscal parameters during the Budget speech on Sunday morning:

- Debt to GDP ratio estimated at 55.6 for FY27

- Fiscal Deficit 4.4% of GDP for FY26RE

- Fiscal Deficit estimated at 4.3% of GDP for FY27

- FY26 capital expenditure estimated at Rs 11 lakh crore in FY26RE

- FY27 Net market borrowing Rs 11.7 lakh crore

- FY27 gross market borrowing estimated at Rs 17.2 lakh crore

Sitharaman had proposed several interventions within the health sector --- upgrading existing institutions and establishing new AHP institutions in the private and government sectors.

- FM says 1.5 lakh care givers will be trained in FY27

- FM proposes to launch a scheme to establish five medical hubs in India to promote medical tourism in partnership with the private sector.

- FM proposes setting up of three new All India Institutes for Ayurveda

- FM proposes upgradation of Ayush pharmacies and drug testing labs for higher standards of certification ecosystem and make available more skilled personnel.

- FM proposes upgrading of WHO global traditional medicine centre in Jamnagar to bolster evidence-based research, training and awareness for traditional medicine.

Finance Minister Nirmala Sitharaman announced that all 'Individual Persons Resident Outside India' can now invest in equity shares of listed Indian companies through the Portfolio Investment Scheme. This is a regulated RBI framework that was previously limited to Non-Resident Indians or NRIs. It will now apply for PIOs, OCIs and other foreign individuals. PIOs incidentally are foreign citizens whose parents or grandparents were born in undivided India. They do not hold an Indian passport and had once required regular visas.

The update means these Indian-origin foreign citizens will be able to buy and sell shares and convertible debentures on Indian stock exchanges via designated bank branches, using NRE/NRO accounts, with higher repatriation options under FEMA limits.