Income Tax Landscape
The Budget 2026 is expected to bring alterations to India's income tax regime. Tax experts are advocating for revisions, including potentially higher deductions
and relief within the 30% tax bracket. The anticipation centers on whether the government will maintain the existing tax system or implement changes aimed at simplifying the process and reducing litigation. The previous Income Tax Act 2025 will be effective from April 1st of the budget year. In this scenario, taxpayers should understand the nuances of both the old and new tax regimes to optimize their financial strategies, including potential deductions for home loans and health insurance. It will also be important for non-residents, as they may now have more straightforward access to Indian stocks directly.
STT and Market Impact
A significant point of discussion in the financial community is the rise in Securities Transaction Tax (STT) on futures. The government has raised the STT on futures from 0.02% to 0.05%, prompting discussions about its potential effects on market behavior. Some market analysts suggest that these increases may reduce speculative activity in the futures and options (F&O) segment. This has raised concerns among various market participants, including arbitrage mutual fund investors. These changes are scheduled to take effect from April 2026. The increase in STT contributed to a significant market downturn, with the Sensex plummeting by 1,843 points and the Nifty closing below 25,000. These events underscore the importance of understanding the impact of tax changes on investment strategies.
Infra & Economic Growth
Budget 2026 is likely to see a substantial emphasis on infrastructure development, with industry leaders pushing for the doubling of infrastructure spending to an estimated Rs 3 lakh crore. The government's capital expenditure (Capex) is projected to rise to Rs 12.2 lakh crore in the fiscal year 2027, aimed at boosting economic growth. Simultaneously, the fiscal deficit target is being lowered to 4.3%. Such investments are intended to drive faster project approvals and streamlined delivery. The Economic Survey also indicated that the government is considering raising the Foreign Direct Investment (FDI) limit in public sector banks to 49% to improve their capital base. Moreover, the Budget will also outline a high-level panel to shape the banking roadmap for Viksit Bharat 2047.
Banking & Financials
The banking sector is another area of focus in the lead-up to Budget 2026. Experts are anticipating the government's strategic plans and initiatives aimed at strengthening and developing the financial sector. The potential for raising the FDI limit in public sector banks highlights the government's aim to boost the capital base and improve operational efficiencies. The RBI launched an Integrated Ombudsman Scheme in 2026, which is scheduled to become operational from July 1st, intending to streamline grievance redressal processes. Banks might face disruptions due to employee strikes, with some employees demanding a five-day workweek, resulting in potential closures.
Tax Implications Explored
The Budget 2026 will bring modifications to income tax regulations. Changes to the ITR revision deadline, moving from December 31 to March 31, are expected. It is also important to consider that the government may be looking into adding deductions for home loans and health insurance. Changes to the STT will affect profits starting from April 2026. The shift could influence the taxation of share buybacks, treating them as capital gains from April 1, which affects investors. The introduction of new income tax rules effective from April 1 will require taxpayers to be well-informed to ensure compliance and leverage any benefits within the new framework.
Market Reactions & Insights
Market reactions to Budget 2026 are expected to be varied. The impact of the STT hike sparked significant market volatility, with the Sensex and Nifty experiencing substantial fluctuations. Experts are analyzing how these tax changes may influence trading strategies. Several factors might drive market rallies, including India-US trade deals and adjustments to interest rates. Investors are advised to adapt their strategies based on the changes in taxation and regulatory policies. The NSE IPO received a no-objection certificate from SEBI, indicating further developments in the market.
