India’s Union Budget for 2026-27 prioritises long-term growth by stepping up capital expenditure, tightening fiscal discipline, and advancing sector-specific reforms. Key measures span infrastructure, manufacturing, MSMEs, technology, healthcare and tourism, while the government has clarified there is no proposal to abolish long-term capital gains tax on equities.
Capital expenditure outpaces fiscal deficit
For the first time, effective capital expenditure exceeds the fiscal deficit, underscoring a shift towards asset creation over revenue spending. Effective capex is pegged at ₹17.1 lakh crore against a fiscal deficit of ₹16.9 lakh crore. Funds are slated for transport corridors, rail modernisation, airports and core public infrastructure to crowd in private investment and spur jobs.
The fiscal deficit is targeted at 4.3% of GDP, lower than 4.4% in the previous year, with the revenue deficit at 1.5%. Nominal GDP growth is assumed at 10% in FY27. The Centre has outlined a glide path to bring outstanding liabilities down to 50% of GDP by 2031 from an estimated 55.6% currently. Interest payments remain a pressure point, accounting for 26% of total expenditure and nearly 40% of revenue receipts.
Tax policy: clarity on capital gains, tweaks in market levies
The Finance Ministry has confirmed there is no proposal to remove LTCG tax on equity investments and clarified that the Section 87A rebate cannot be set off against capital gains income. Securities Transaction Tax has been revised: options will attract 0.15% (from 0.1%) and futures 0.05% (from 0.02%). Share buybacks will be taxed as capital gains, implying an effective rate of 22% for corporate promoters and 30% for non-corporate promoters.
There is no change in income tax slabs for Assessment Year 2026-27. The Tax Collected at Source on overseas tour packages and on remittances above ₹10 lakh for medical or education purposes has been cut to 2%.
On corporate taxes, the Minimum Alternate Tax has been reduced to 14% from 15%. To bolster digital infrastructure, foreign companies offering global cloud services via Indian data centres will receive a tax holiday until 2047.
Manufacturing, MSMEs and technology push
The government will discontinue the $23 billion Production-Linked Incentive scheme after limited progress—official reviews show 37% of production targets achieved by October 2024 and under 8% fund disbursal amid implementation bottlenecks. Alternative support mechanisms are being explored, including investment reimbursements in select sectors to deepen domestic manufacturing.
For small enterprises, a ₹10,000 crore SME Growth Fund will target “Champion SMEs” by improving access to capital and shortening cash-conversion cycles.
The electronics ecosystem receives fresh impetus, with ₹40,000 crore for the Electronics Component Manufacturing Scheme and the launch of Semiconductor Mission 2.0 to strengthen chip design and fabrication capacity. Industry has also sought broader ESOP tax reliefs and scaled AI computing infrastructure to aid startups.
Transport, tourism, healthcare and climate
Transport and regional connectivity remain priorities. The government plans seven high-speed rail corridors linking major cities and 120 new regional airports under UDAN to enhance last-mile aviation access. States will receive ₹20,000 crore to upgrade tourism infrastructure at key destinations.
In healthcare, the Biopharma SHAKTI scheme is allocated ₹10,000 crore to expand domestic biologics manufacturing and R&D. On climate action, ₹20,000 crore over five years will back Carbon Capture, Utilisation and Storage projects, supporting industrial decarbonisation and India’s net-zero pathway.
Growth strategy anchored in investment and stability
The budget signals a steady policy stance: higher public capex to build productive assets, targeted tax adjustments to improve the business environment, and clarity on capital markets taxation to reduce investor uncertainty. Alongside a path to lower public debt, measures such as a reduced MAT, lower TCS on select remittances, and incentives for cloud infrastructure aim to reinforce competitiveness and attract long-term investment across the economy.
