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The Union Budget 2026 has introduced significant changes with wide-ranging implications. Our experts at Lakshmikumaran & Sridharan Attorneys have analysed these announcements in detail.
Please find their commentary below. Should you have any immediate questions or wish to explore further insights, feel free to reach out.
Attributed to Shivam Mehta, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Inverted Duty
The refund provisions have now been amended to extend the facility of a 90 % provisional refund to cases of inverted duty structure claims as well, a benefit that was previously limited to zero-rated supplies of goods or services. This change is in alignment with the recommendations made by the 56th GST Council and aims to improve liquidity for businesses facing refund delays. However, many in industry had hoped that Budget 2026 would also address the long-standing demand of refund of unutilised input tax credit on services and capital goods, which remains unresolved, leaving stakeholders likely to pursue such demand with the GST Council.
Discount Schemes
The removal of the pre-agreement requirement for claiming deduction of discounts from the value of supply has been widely welcomed by taxpayers, as it introduces much-needed commercial flexibility and addresses a long-standing demand of industry. Even though the pre-agreement requirement for discount deduction has been removed, the term 'discount' remains in the law, with no defined meaning. It remains to be seen whether longstanding debates from the pre-GST era over what qualifies as a discount will resurface. This amendment could give industry players a useful opportunity to re-evaluate their discount schemes to fully benefit from the revised provisions.
Attributed to Asish Philip, Executive Partner, Lakshmikumaran & Sridharan Attorneys
Covering three points:
- Reforms under NDI rules as part of reform express
- Infrastructure
- Contract Manufacturing: Tech, Talent, and Tax Certainty
1. Regulatory Reforms: Shifting the "Reform
Express" to Top Gear
"The Union Budget 2026 signals that the
'Reform Express' is moving beyond incremental tweaks toward
deep, structural overhauls. Building on the momentum of the Labour
Code and GST 2.0, the proposed comprehensive review of FEMA
(Non-Debt Instrument) Rules is a gamechanger for foreign capital.
The budget session will see amendment s to Arbitration Act and IBC
(Amendment) Bill 2025, which introduces Group Insolvency and
Cross-Border protocols. India is aiming to offer investors not just
'Ease of Doing Business,' but 'Legal
Predictability.' This is critical for high-stakes sectors like
Semiconductors and Data Storage, where fast-track mergers and exit
certainties are as important as the initial entry.
2. Infrastructure: Building the "Nervous
System" of Industry
"The record ₹12.2 lakh crore Public Capex
outlay is designed to create a massive multiplier effect across the
economy. By prioritizing High-Speed Rail and new Dedicated Freight
Corridors (like the Dankuni-Surat link), the government is
effectively de-risking the logistics for new industrial clusters.
This infrastructure push is creating a 'plug-and-play'
ecosystem for allied industries. The focus on high-tech tool rooms
and construction equipment manufacturing ensures that the 'Last
Mile' of our supply chain is as robust as the 'First
Mile' of our rail and sagarmala corridors."
3. Contract Manufacturing: Tech, Talent, and Tax
Certainty
The Budget has finally addressed a major
'deal-breaker' for global tech giants. The 5-year income
tax exemption for foreign OEMs providing capital goods and tooling
to contract manufacturers in bonded premises effectively removes
the 'business connection' tax risk that has long stalled
local scaling. Along with the 5-year tax exemption on global income
for non-resident expats. This will enable transfer of technology
ans souring of global talent . However, the 'devil is in the
detail'—to truly unlock this potential, we need
Regulatory Harmonization. We must see calibrated changes in GST and
Customs to simplify the movement of machinery from Domestic Tariff
Areas (DTA) and rationalize the usage of second-hand
goods.
Textile
The Union Budget 2026 has taken a significant step towards revitalizing the textile sector, severely impacted by US tariffs, by leveraging the crisis as an opportunity to enhance the ecosystem. The proposal focuses on promoting highly value-added manmade and tech fibres alongside natural fibres, aiming to boost the sector's competitiveness. Alongside MSME support measures, these initiatives are expected to have a positive impact, enabling India to leverage upcoming FTAs and strengthen its position in the global textile market, ultimately benefiting the sector's large employment base.
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