The Union Budget 2026, presented by the Finance Minister on Sunday, is anchored in the government’s long-term vision of building a Viksit Bharat—a developed, inclusive, and resilient India. Being the first Budget prepared in Kartavya Bhawan, it draws inspiration from three foundational ‘kartavyas’: accelerating and sustaining economic growth, fulfilling aspirations of the people and their capacity in building India’s path to prosperity, and ensuring access to resources, amenities and opportunities for meaningful participation of all citizens, in line with vision of ‘Sab ka Sath, Sab ka Vikas’. 

Under the first kartavya, the government proposes to focus on six areas—manufacturing in strategic sectors, rejuvenating legacy industrial sectors, championing MSMEs, pushing infrastructure development, ensuring energy security and stability, and developing city economic regions. 

Budget’s three-fold strategy

The Budget’s three-fold strategy focusses on sustaining forward-looking structural reforms, strengthening a resilient financial sector, and leveraging emerging technologies, including AI. Within this framework, tax policy emerges as a key instrument for simplifying compliance, reducing disputes, and improving taxpayer confidence. The government has reaffirmed that the Income-tax Act, 2025, will be applicable from April 1, 2026.  

In a welcome and expected move to support strategic and future-ready sectors, foreign companies earning income by providing cloud services through Indian data centres have been given tax exemptions until March 2047. However, they have to serve Indian customers to be eligible for the exemptions. A tax holiday has also been announced for non-residents providing capital equipment to electronic goods manufacturers in customs-bonded areas. These proposals reinforce India’s ambition to emerge as a global hub for digital infrastructure and manufacturing. Extension of benefits up to 20 years for units in IFSCs also strengthens India’s position as a global financial services hub. 

Key reform for technology and services sector

A significant portion of Budget 2026 is devoted to dispute reduction and litigation management. A key reform for the technology and services sector is the consolidation of IT, ITeS, KPOs, and software-linked contract R&D under a single ‘information technology services’ category. The introduction of a uniform 15.5% safe harbour margin, a significantly enhanced eligibility threshold, and a fully automated, rule-based framework with multi-year certainty are expected to materially reduce transfer pricing disputes and compliance complexity for the sector. 

Additionally, clarity has also been introduced on the time limits for completion of proceedings under the DRP route, and also with respect to jurisdiction for the issuance of reassessment notices. These clarifications override several judicial precedents in favour of taxpayers on these issues and are expected to settle the plethora of ongoing cases across jurisdictions. 

To address the multiplicity of proceedings and the accompanying prolonged uncertainty, it is proposed that penalties for under-reporting or misreporting of income be levied as part of the assessment order itself. Correspondingly, interest on tax demands would arise only after appellate orders are passed. This integrated approach is expected to provide clarity, consistency, and finality, while reducing litigation costs for taxpayers. 

At the same time, the proposal to replace penalties for technical or procedural delays with mandatory fees is particularly noteworthy. This shift recognises that technical non-compliance should not be treated at par with substantive tax evasion and is likely to reduce avoidable litigation. Also, several provisions related to prosecution have been streamlined.

Rationalisation of TCS rates

Rationalisation of TCS rates across multiple categories further supports cash-flow management for taxpayers. By moving towards uniform and reduced rates, the government aims to simplify compliance while easing the immediate financial impact on collectees. 

The Budget also proposes to rationalise the taxation of buyback shares, treating consideration received as capital gains, instead of dividend income. Promoter companies will face an effective tax of 22%, while individual promoters will be taxed at 30% on gains from buybacks. 

Further, several procedural simplifications have been proposed to ease the compliance burden for taxpayers. The due date for the revision of the tax return has been extended till the end of the assessment year. This will provide sufficient time for taxpayers to amend tax returns filed. Moreover, with respect to timelines for claiming deductions in respect of employee contributions to welfare funds, it is proposed to allow employers to claim deductions up to the due date of filing the return of income. This brings long-awaited relief and aligns tax compliance with commercial realities. 

Non-residents will no longer be required to obtain a TAN for the sale of immovable property to resident individuals, removing an often-cited administrative hurdle. 

Rationalisation of MAT

Rationalisation of MAT provisions stands as a cornerstone reform. With a clear policy shift towards the new tax regime, MAT has been reduced to 14% of book profits and fresh accumulation of MAT credit has been discontinued. This simplifies long-term tax planning and improves predictability for corporates. Excluding specified non-resident businesses taxed under presumptive regimes from the applicability of MAT, removes unintended overlaps and enhances certainty for foreign participants. 

Overall, the Budget reflects a maturing tax policy framework, one that seeks to balance growth imperatives with fairness, certainty with deterrence, and reform with empathy. For taxpayers and businesses, the emphasis on simplification, reduced litigation, and targeted incentives strengthens confidence in India’s tax ecosystem. As implementation unfolds, proactive engagement and careful planning will be key to fully realising the benefits of these reforms. 

(Arora is Director, Deloitte India; Jain is Associate Director, Deloitte India. With inputs from Narendra Kayal, Manager, Deloitte India. Views are personal.)