Indian Budget 2026 | Pre-Budget Expectations

Pre-budget Expectations

BACKDROP

The Indian economy is in an excellent shape, with growth expected to be around 7.3% in fiscal year 2025-26, fueled by strong domestic demand and government capital spending.

However, factors like continued domestic demand, fiscal consolidation, macro-economic headwinds, continued employment would influence this momentum.

• Strong Domestic Demand: Private consumption and investment have been major drivers, aided by lower inflation in 2025.
• Fiscal Consolidation: The government is expected to maintain fiscal discipline, with a fiscal deficit of roughly 4.2%-4.5% of GDP in FY27, shifting the focus to a debt-to-GDP ratio objective.
• Global Headwinds: Challenges include global trade disputes, geopolitical threats, and prospective tariff pressures from western economies, all of which could have an impact on exports.
• Employment: While unemployment rates have decreased, providing enough job opportunities for the big workforce remains a top challenge, particularly in manufacturing and MSMEs, which require de-regulation and ease of doing business initiatives.

OVERALL

  India's GDP grew 7.3% in FY 2025-26, among the world's greatest. Budget 2026 should prioritize manufacturing, green economy, and technology to become the "Vagus Nerve" of the world's business.  

GOVERNANCE

1. For over ten years, the NDA administration has followed the principle of "minimum government and maximum governance" to implement bold reforms like privatizing non-functional public sector undertakings, automating processes, and centralizing governmental functions to cut costs and improve governance.
2. Strengthen monitoring of public spending to ensure funds are efficiently utilized and misappropriation minimized.
3. The Budget 2026 is expected to prioritize governance reforms through tax certainty, reduced litigation and enhanced ease of doing business via administrative simplification and regulatory capacity building.
4. In addition, budget is expected to be allocated to build supporting administration for India become the "Vagus Nerve" of the world's business and to play a significant role in geo-politics.

MSMEs

1. Budget 2026 is expected to expand credit guarantee schemes with lower interest rates to reduce collateral dependance.
2. Better logistics, MSME Friendly procurement and faster payments is expected to be prioritized.
3. Continued support for AI, e-commerce, and digital payments adoption is expected. Skill programs for quality control, pricing, and market expansion ways should be introduced
4. Professional Tax (PT) and ESI collection and compliance is expected to be simplified, as the current system causes bureaucratic headaches for many small businesses. Which was a miss for last 3 budgets.
5. A one-time waiver of penalties is anticipated for all MSMEs that have failed to adhere to tax compliance regulations.
6. In accordance with the projections outlined in the 2022 budget, it is advisable to enhance the local sourcing mandates for significant public enterprises, governmental bodies, and multinational e-commerce platforms in order to invigorate the MSME sector. This is significant opportunity given how Trump administration is restricting it's sourcing to enhance US economy through un-reasonable tariff structure.
7. Enhance the incentives allocated to start-ups that engage in innovation and contribute to employment within the defense, agriculture, and national construction sectors.
8. Incentives for renewable energy, waste reduction, and eco-friendly materials are in demand. Sustainable practices will help MSMEs access new markets and reduce operational costs.

GST

1. Amnesty Scheme: An amnesty system is expected to be implemented in GST to clear outstanding claims as per recent GST Notices and the delayed GST return filing.
2. Simplified Input Tax Credit: The existing regulations governing ITC claims are highly intricate. It is expected to be proposed to streamline the procedures for claiming input tax credit, such as permitting ITC based on tax invoices and verification of payment.

INCOME TAX

1. The primary objectives of the 2026 Budget and income tax reforms in India should be the broadening of the tax base and the streamlining of tax compliance.
2. It is anticipated that Budget 2026 will sunset the old tax regime and declare the complete implementation of the new tax regime. A single Tax regime will eliminate confusion and streamline the compliance for both taxpayers and Tax Department
   
   We have been recommending this for last few years. As of last year, more than 78% chose New Tax Regime (NTR) while filing income tax returns (ITR).
3. The reporting of foreign income and foreign taxes must be aligned with the calendar year, rather than the financial year.
   
   This would facilitate the reporting process for taxpayers with foreign income and reduce confusion. This would also facilitate the transmission of information between tax authorities in India and other countries by ensuring that Indian tax reporting is consistent with international standards.
4. Encourage reimbursement for a small family of four, consisting of a wife, spouse, and two children. Establish "Family" as an IT return category for incentivized family tax filing.
   
   The importance of family in our nation should be reflected in our IT compliance.
5. The TDS provisions regarding payments to non-resident Indians (NRIs) such as rental income and property purchases should be simplified.
6. Refine the definition of a capital asset; proceeds can be reinvested in any other capital asset while remaining taxed at a single rate. Without short or long- term capital gain type.
   
   (OR)
   
   Introduce the super-long term capital gain type where proceeds can be reinvested in any capital asset with single uniform rate.
7. Introduction of Housing Loan deduction under new tax regime. It will boost the Housing sector and support first-time homebuyers

EASE OF DOING BUSINESS

1. Ease of Starting Business: It is proposed that for limited liability partnerships (LLPs) and private companies generating an annual revenue below Rs. 10 crores, the majority of professional certifications should be abolished. Concurrently, stringent compliance standards ought to be implemented for annual revenue surpassing Rs. 10 crores.
2. Ease of Doing Business: Facilitation of Business Operations: Implement Aadhaar-based eSignatures and Know Your Customer (KYC) protocols for Income Tax Returns (ITR), and Registrar of Companies (ROC) Compliance. This will enhance usability and mitigate the risk of DSC fraud.
3. Simplification of Compliance: Private limited companies must complete numerous filings annually. Moreover, the repercussions for failing to meet the deadlines are exceedingly severe.
4. Introduction of Amnesty Scheme: Introduction of Amnesty scheme for private limited companies and provide an one time opportunity to clear all pending ROC filings.
5. Rationalization of Penalties: Currently the penalties for private limited non compliances are very high, and it has no reasonable correlation to the size of the company and its turnover. Budget 2026 should rationalize the penalties based on the turnover and other factors.
6. Fast Track closure mechanism should be introduced for private limited, one- person companies and LLPs with minimum Govt fee. Currently the time limit for closure of companies is more than 3 months and Rs 10000 is charged as closure fee apart from notary charges.

LOANS

1. Budget 2026 is expected to strengthen the asset valuation standards and link the GST turnover with income tax to eliminate the inflated revenues for Loan purposes. This helps in identifying the root causes of loan defaults.
2. Extend or revive interest subvention schemes for MSMEs in stressed sectors, export-oriented units, and startups. Provide one-time restructuring windows without downgrading asset classification to help viable borrowers recover post-global slowdown.
3. Cost of Money: Promote zero-MDR government payment and wallet services (Rupay and UPI). All payment gateways should implement this immediately as not all have done so after three years. Paper currency and digital currency should have no transaction expenses. The 2.5% MDR makes digital Rs. 100 Rs.97.5 today (need to fix it soon).
4. EZ Loans to SMEs: Allow GST turnover and sector-specific variables to determine online EZ Loans. Eliminate non-material third-party / professional balance sheet certifications, Turnover certification etc to create STP loan criteria.
5. Cost of Credit: 1 year of interest-free, collateral-free credit for qualified MSMEs (providing components to military space) with credit history or collateral.

HIGHER EDUCATION

1. Budget 2026 is expected to continued to boost AI, deep tech and skill embedded programs. Expansion of digital and hybrid education infrastructure is a key expectation, including AI-driven learning platforms, virtual laboratories etc
2. Funding allocations should be explicitly linked to IIQ metrics to strengthen institutional–industry synergy. By anchoring innovation at academic institutions and incentivizing entrepreneurship, IIQ-led funding can accelerate research commercialization and job creation.

BANKING SECTOR

1. Budget 2026 is expected to introduce targeted tax incentives on long term bank deposits, small savings rates, new schemes for senior citizens etc. This will help the banks in converting the household savings into banks and support the sustained credit expansion without relying on high-cost borrowings
2. Re-enforcing asset value to reduce NPAs, privatizing some banks, and redefining banks' roles as strategic rather than infrastructural will provide significant funds for the government to invest in next-generation infrastructure.
3. Rationalization of compliance requirements, alignment of overlapping regulations, and policy clarity on digital banking, cyber security, and AI-based lending models is expected in Budget 2026.

AUTOMATION

1. Budget 2026 is expected to provide the significant boost to "Artificial Intelligence" with higher allocations and expansion of Centers of Excellence (COE).
2. Budget 2026 is expected to strengthen domestic sourcing mandates across all public sector procurement to promote automation adoption and create growth opportunities for domestic technology enterprises and startups.

SUMMARY

To summarize, with a strong predicted GDP, now is the moment for more aggressive reforms in the areas of "ease of doing business," a more open economy, and counter-tariff measures to preserve the local economy and business environment for India's national security.

Like the previous year's budget, this year's budget must focus on long-term sustainable goals to "Make India Great Again" (MIGA) by establishing the administration required to transform India into the "Vagus Nerve" of the global economy.

It is our expectation that the budget for Fiscal Year 2026-27 would reflect this vision.

Current vs. Expected tax benefits

A quick summary on Current vs. expected tax benefits expected in this budget: