Income Tax Stays Put
The much-anticipated Union Budget 2026-2027, presented by Finance Minister Nirmala Sitharaman, brought no respite for the Indian middle and salaried classes
concerning income tax. For the ninth consecutive year, the Finance Minister opted to keep the income tax slabs unchanged under both the traditional and the newer tax regimes. This means that individuals' take-home salaries will remain at their current levels, a decision that has understandably led to widespread disappointment among those who were eagerly hoping for some financial breathing room. The existing tax structure continues, with no alterations to the rebate system for incomes up to Rs 5 lakh in the old regime or the zero tax up to Rs 4 lakh and 30% rate beyond Rs 24 lakh in the new regime. The rebate for those earning up to Rs 12 lakh under the new regime, keeping their effective tax at zero if conditions are met, also remains. This status quo, while perhaps aimed at fiscal stability, has been perceived by many as a missed opportunity to alleviate the financial pressures faced by the common man, especially amidst rising costs of living.
Boosting Manufacturing & Exports
Beyond the headline of unchanged income tax, Budget 2026 introduced significant measures designed to invigorate India's manufacturing and export sectors. A key initiative offers a five-year income tax exemption for non-residents supplying capital goods to toll manufacturers in bonded zones, thereby encouraging foreign investment in domestic production. Furthermore, overseas companies warehousing components in bonded facilities will now receive safe-harbour protection, reducing their operational risks. To ease cash flow for trusted manufacturers, the budget allows for the deferral of duty payments. Exporters, particularly in sectors like seafood, footwear, leather, and textiles, will benefit from higher limits on duty-free input imports and extended timelines for shipping finished goods, with expanded coverage to include items like shoe uppers. This strategic redirection of focus signals a strong governmental commitment to making India a more attractive and competitive hub for both production and international trade, aiming for economic growth through enhanced industrial output.
Trade Facilitation & Duty Adjustments
The budget's push for industrial growth extends to streamlining trade processes and adjusting customs duties to favour domestic production and exports. A notable change involves the removal of basic customs duty on critical components for microwave ovens, aircraft manufacturing, and defence-related maintenance and overhaul activities, which aims to spur growth in these high-value sectors. Importers with a history of clean compliance will now experience fewer procedural checks, a move designed to expedite inbound logistics. Exporters utilizing electronic sealing can directly move their cargo from factory premises to ports, significantly reducing transit times and logistical hurdles. Additionally, a special one-time provision allows eligible Special Economic Zone (SEZ) units to sell their products in the domestic market at a concessional duty rate, underscoring the government's strategy to integrate SEZs more effectively with the national economy while promoting local sales and reducing import reliance.
Tax Law Simplification
While direct tax relief for individuals was absent, Budget 2026 incorporated nearly 100 tax amendments aimed at simplifying the tax landscape and enhancing taxpayer certainty, especially as India transitions to a new direct tax law on April 1, 2026. These amendments are designed to streamline processes and reduce compliance burdens. One significant shift is the taxation of share buybacks as capital gains, aligning them with existing equity gains taxation and providing greater clarity for investors and corporations. For small taxpayers with foreign assets, a six-month compliance window has been introduced without imposing harsh penalties, offering relief to students studying abroad or professionals working overseas who might have overlooked reporting minor foreign holdings. In a practical move for Non-Resident Indians (NRIs) selling property in India, the responsibility for Tax Deducted at Source (TDS) has been transferred to the resident buyer, simplifying compliance and tightening enforcement. Furthermore, taxpayers now have until March 31 to file revised returns, paying a nominal fee, acknowledging the possibility of honest errors and providing more time for corrections.
