Athena Legal Key Budget Highlights 2026

The Union Budget 2026 has introduced several significant policy and regulatory changes that may impact businesses across various sectors. We highlight key elements of the budget which has implications on the businesses and the economy.

DIRECT TAXES

• INCOME TAX
• • The Income-tax Act, 1961 will be replaced with a new Income Tax Act, 2025 effective from 1^st April 2026, with simplified language, rationalised provisions, and reduced interpretational ambiguity. The Government shall be notifying the simplified Income Tax Rules and Forms accordingly.
• EASE OF LIVING
• • Reduction of TCS for sale of overseas tour program package from 5% and 20% to 2% without any stipulation of amount and for pursuing education and for medical purposes under the Liberalized Remittance Scheme (LRS) from 5% to 2%.
  • Supply of manpower services shall be brought within the ambit of TDS to be at the rate of either 1% or 2%.
  • Introduction of scheme for small taxpayers through a rule-based automated process.
  • Immunity from prosecution with retrospective effect from 1^st October 2024 has been granted for nondisclosure of foreign assets (excluding immovable property) with aggregate value less than ₹20 lakh.
• TAX ADMINISTRATION AND LITIGATION REFORMS
• • Assessment and penalty proceedings will be merged into a single common order to streamline compliance.
  • Extension of time available for revising IT Returns from 31 December to 31 March with the payment of a nominal fee.
  • Pre-payment for appeals is reduced from 20% to 10% of the disputed tax demand. No interest will be charged on penalties during the first appeal process.
  • Taxpayers can update returns even after reassessment has begun by paying an additional 10% tax.
  • Immunity from penalty and prosecution is extended to misreporting cases, provided the taxpayer pays 100% additional income tax on the dues.
• SECTOR SPECIFIC INCENTIVES
• • Unilateral Advance Pricing Agreements (APAs) for IT services aim to be concluded within two (2) years.
  • For the Cooperatives sector, the tax deductions are extended to cattle feed and cotton seed production. Inter-cooperative dividends are deductible, if redistributed to members. National cooperative federations shall get a 3-year tax exemption on specific investment dividends.
• SECTOR SPECIFIC INCENTIVES FOR GLOBAL INVESTMENTS
• • The eligibility threshold for safe harbour has been increased from ₹300 crore to ₹2,000 crore for IT services providers, covering a wider set of Global Capability Centres (GCC's).
  • A common safe harbour margin of 15.5% has been introduced for IT/IT-enabled service providers, replacing multiple disparate margins.
  • Safe harbour approvals will be available under an automated, rule-based process with validity of up to five years, reducing annual uncertainty and compliance burden. These changes significantly improve predictability of tax outcomes and reduce transfer pricing disputes for GCC's.
  • All categories of IT and related services including software development, IT-enabled services (ITES), knowledge process outsourcing (KPO), and R&D services are now clubbed under a single Information Technology Services category resulting in simplified classification and alignment of tax treatment for GCC's.
  • Foreign companies using Indian data centres for global cloud services receive a tax holiday until 2047, provided they use an Indian reseller for local customers.
  • A 2% profit margin safe harbour is introduced for component warehousing in bonded zones (effective tax of 0.7%). A 5-year tax exemption is granted to non-residents providing capital goods or tooling to Indian toll manufacturers.
  • Non-resident experts are exempt from tax on their global (non-India) income for a period of 5 years.
  • Non-residents paying tax on a presumptive basis are now exempt from Minimum Alternate Tax (MAT).
  • Individual Persons Resident Outside India (PROI) can now invest in listed Indian equity. Individual limits are raised from 5% to 10%, with the aggregate limit for all individual PROIs increasing from 10% to 24%.
• CAPITAL MARKETS AND CORPORATE TAX ADJUSTMENTS
• • To protect minority shareholders, share buybacks will now be taxed as Capital Gains. However, promoters will be subject to an additional tax, bringing their effective rate to 22% (Corporate) or 30% (Non-Corporate).
  • Securities Transaction Tax (STT) rates have been increased for Futures (0.05%) and Options (0.15%).
  • Minimum Alternate Tax (MAT) rate is reduced from 15% to 14% and will become a final tax with no further credit accumulation after 1^st April 2026. Existing MAT credit can only be set off under the New Tax Regime, capped at 1/4th of the annual tax liability.

INDIRECT TAXES

• SECTORAL CUSTOMS DUTY AND ENERGY TRANSITION
• • Basic Customs Duty (BCD) is exempted for sodium antimonate used for solar glass manufacturing and capital goods for Lithium-Ion battery storage used for BESS facilities.
  • BCD exemption for Nuclear Power Projects is extended to 2035 for all plants.
  • Capital goods for critical mineral processing are now exempt.
  • BCD is exempted for components used in civilian aircraft manufacturing and MRO (Maintenance, Repair, and Overhaul) for the defense sector.
  • Specified parts for microwave ovens are also exempted.
  • The value of biogas will be excluded when calculating excise duty on biogas-blended CNG.
• EXPORT PROMOTION AND SEZ REFORMS
• • Duty-free import limits for seafood processing inputs are tripled (from 1% to 3%). Duty-free imports are extended to Shoe Uppers.
  • Exporters of leather and textiles now have 1 year (up from 6 months) to export finished products.
  • As a one-time measure, SEZ units can sell goods to the Domestic Tariff Area (DTA) at concessional rates, based on their export proportions.
  • The ₹10 lakhs value cap on courier exports will be removed.
  • Customs duty on the fish catch by an Indian vessel in the Exclusive Economic Zone (EEZ) or on High Seas shall be removed to make it free of duty.
• MODERNIZING CUSTOMS PROCESSES
• • The Government shall take steps to move the system towards a minimal intervention model.
  • Duty deferral for AEOs (Tier 2 and 3) is doubled to 30 days and validity of Advance Rulings is extended from 3 to 5 years.
  • A new Customs Integrated System (CIS) will launch within 2 years. Low-risk cargo will be released immediately upon arrival through auto-notification.
  • Non-intrusive AI-driven scanning will be expanded with the goal of scanning every container at major ports.
  • By April 2026, 70% of regulated cargo (food, drugs, etc.) will be cleared via a single digital window.
• EASE OF LIVING AND COMPLIANCE
• • Basic Customs Duty (BCD) is exempted for 17 cancer drugs and medicines for 7 rare diseases.
  • The duty rate for goods imported for personal use is slashed from 20% to 10%.
  • International baggage rules and duty-free allowances will be revised to match modern travel needs.
  • Honest taxpayers can now settle disputes by paying a specific amount in lieu of a penalty, removing the criminal stigma of non-compliance.

SECTOR SPECIFIC ANNOUNCEMENTS

• MANUFACTURING - STRATEGIC AND FRONTIER SECTORS
• • Biopharma SHAKTI (Strategy for Healthcare Advancement through Knowledge, Technology and Innovation) to be introduced for development of Biopharma manufacturing hub with a proposed outlay of ₹10,000 crore over the next 5 years.
  • Launch India Semiconductor Mission (ISM) 2.0 to produce equipment and materials, design full stack Indian IP, and fortify supply chains.
  • The investment outlay in the Electronics Components Manufacturing Scheme shall be increased from ₹22,919 crore in April 2025 to ₹40,000 crore.
  • In furtherance to current Scheme for Rare Earth Permanent Magnets launched in November 2025, the Government will support states of Odisha, Kerala, Andhra Pradesh and Tamil Nadu to establish dedicated Rare Earth Corridors to promote mining, processing, research and manufacturing.
  • To enhance domestic chemical production and reduce import dependency, the Government will launch a Scheme to support States in establishing 3 dedicated Chemical Parks, through challenge route, on a cluster-based plug-and-play model.
  • To improve strong capital goods capability, the Government, through CPSEs, will take steps to establish digitally enabled Hi-Tech Tool Rooms, introduce a Scheme for Enhancement of Construction and Infrastructure Equipment (CIE) and a scheme for Container Manufacturing to create a globally competitive container manufacturing ecosystem.
  • For improving the labour-intensive Textile Sector, the National Fibre Scheme and Textile Expansion and Employment Scheme shall be introduced. Further, a National Handloom and Handicraft programme shall be implemented to integrate with the schemes including a Tex-Eco Initiative to promote sustainable textiles and Samarth 2.0 to modernize and upgrade the textile skilling ecosystem.
  • Setting up of Mega Textile Parks in challenge mode.
  • Launch of Mahatma Gandhi Gram Swaraj initiative to strengthen khadi, handloom and handicrafts.
  • A dedicated initiative for manufacturing of sports goods will be introduced to promote manufacturing, research and innovation in equipment design as well as material sciences.
• INFRASTRUCTURE
• • Setting up Infrastructure Risk Guarantee Fund to provide prudently calibrated partial credit guarantees to lenders.
  • Recycling of real estate assets of CPSEs through the setting up of dedicated REITs.
  • Develop seven High-Speed Rail corridors between cities as 'growth connectors', namely i) MumbaiPune, ii) Pune-Hyderabad, iii) Hyderabad-Bengaluru, iv) Hyderabad-Chennai, v) Chennai-Bengaluru, vi) Delhi-Varanasi, vii) Varanasi-Siliguri.
  • Establishment of new Dedicated Freight Corridors connecting Dankuni in the East to Surat in the West.
  • Operationalising 20 new National Waterways connecting mineral rich areas, industrial centres and ports.
  • Setting up of ship repair ecosystem catering to inland waterways.
  • Launch a Coastal Cargo Promotion Scheme to increase the share of inland waterways and coastal shipping from 6% to 12% by 2047.
  • Launching a Seaplane VGF Scheme to indigenise manufacturing.
  • ₹2 lakh crore support to states under SASCI Scheme.
• PEOPLE
• • Government shall build a strong Care Ecosystem, covering geriatric and allied care services including training of 1.5 lakh multiskilled caregivers.
  • Self-Help Entrepreneur (SHE) marts to be set up as community-owned retail outlets within the cluster level federations.
  • Divyangjan Kaushal Yojana - providing dignified livelihood opportunities through industry-relevant and customized training specific to disability groups.
  • Supporting Artificial Limbs Manufacturing Corporation of India (ALIMCO) to scale up production of assistive devices, invest in R&D and AI integration.
  • Strengthen PM Divyasha Kendras as modern retail style centres.
  • Setting up of a NIMHANS-2 and upgrading National Mental Health Institutes in Ranchi and Tezpur.
  • Establishing Emergency and Trauma Care Centres in district hospitals.
• AGRICULTURE
• • Modernization of 500 reservoirs and Amrit Sarovars to focus on coastal value chains, market linkages via startups, and empowering women-led groups through Fish Farmer Producer Organisations (FFPOs).
  • A new entrepreneurship drive will provide credit-linked subsidies for livestock enterprises, Scaling up of dairy and poultry value chains, formation of dedicated Livestock Farmer Producer Organisations.
  • The Government is targeting specific geographic regions to boost specialty crop production such as coconut, cashew, cocoa in coastal regions, walnuts, almonds, pine nuts and sandalwood in Hilly and North-East Regions in partnership with State Governments to restore India's global heritage in these markets.
  • Government will launch Bharat-VISTAAR (Digital Transformation), a multilingual AI-driven tool to combine the AgriStack digital portals with ICAR (Indian Council of Agricultural Research) technical knowledge.
• MSME
• • The Government to adopt a three-pronged approach to help MSMEs grow as 'Champions'.
  • Equity Support: Introduce a dedicated ₹10,000 crore SME Growth Fund, to create future Champions, incentivizing enterprises based on select criteria. To further increase and top up the Self-Reliant India Fund set up in 2021, with ₹2,000 crore to continue support to micro enterprises and maintain their access to risk capital.
  • Professional Support: Government to facilitate Professional Institutions such as ICAI, ICSI, ICMAI to develop 'Corporate Mitras' to help MSMEs meet compliance requirements at affordable costs.
  • Liquidity Support: With TReDS, more than ₹7 lakh crore shall be made available to MSMEs which shall include the following four steps:
  • • Mandating TReDS as the transaction settlement platform for all purchases from MSMEs by CPSEs, serving as a benchmark for other corporates;
    • Introduce a credit guarantee support mechanism through CGTMSE for invoice discounting on the TReDS platform;
    • Linking GeM with TReDS to encourage cheaper and quicker financing;
    • TReDS receivables as asset backed securities, to develop a secondary market and enhance liquidity and settlement of transactions.
• INVESTMENTS ACROSS VARIOUS SECTOR
• • Services: High-Powered 'Education to Employment and Enterprise' Standing Committee to focus on the Services Sector as a core driver of Viksit Bharat.
  • Health: 100,000 Allied Health Professionals (AHP) will be trained over 5 years across 10 disciplines (e.g., Radiology, Psychology).
  • Medical Tourism: Schemes to support states in establishing five hubs for Medical Value Tourism in partnership with the private sector.
  • AYUSH: Establishment of three new All India Institutes of Ayurveda and upgrading the WHO Global Traditional Medicine Centre in Jamnagar.
  • Orange Economy: Setting up Animation, Visual Effects, Gaming and Comics (AVGC) content creator labs in 15,000 secondary schools and 500 colleges.
  • Design: Setting up of a new National Institute of Design through the Challenge route in eastern region of India.
  • A new 'Education to Employment and Enterprise' Standing Committee will be established. The goal is to capture 10% of the global services market share by 2047 and assess AI's impact on the workforce.
  • Launch of five Regional Medical Hubs combining treatment, research, and AYUSH centers to make India a global healthcare destination.
  • Five planned academic townships will be developed near major industrial corridors to integrate education with industry.
  • Upgrading four major telescope facilities to promote Astrophysics and Astronomy.
  • Establishing a National Institute of Hospitality and upskilling 10,000 tourist guides through IIMpartnered courses.
  • Launching the National Destination Digital Knowledge Grid to archive cultural and spiritual sites.
  • Development of sustainable mountain trails, turtle nesting trails, and bird-watching sites across India.
  • India will host the first Global Big Cat Summit involving 95 countries.
  • Archaeological revitalization of 15 sites (e.g., Lothal, Sarnath) will be transformed into experiential destinations with immersive storytelling and curated walkways.
  • A 10-year roadmap to develop elite training centers, sports science integration, and a professional coaching ecosystem.
  • Introduction of a capital subsidy scheme to establish private veterinary colleges and hospitals, aiming to add 20,000 professionals to the livestock sector.

FINANCIAL SECTOR REFORMS AND DEVELOPMENT

• Setting up of High Level Committee on Banking for Viksit Bharat to align with India's next growth phase.
• Incentive of ₹100 crore for single issuance of municipal bonds of more than ₹1,000 crore. Current scheme under AMRUT which incentivises issuance of bond up to ₹200 crore will continue.
• Restructuring of the Power Finance Corporation and Rural Electrification Corporation.
• Introduction of Market making framework and total return swaps on corporate bonds.

FISCAL POLICY

• The Government has accepted the recommendation of the Finance Commission to retain the vertical share of devolution at 41%.
• The debt-to-GDP ratio is estimated to be 55.6% of GDP in BE 2026-27, compared to 56.1% of GDP in F.Y. 2025-26.
• Ministry of Finance has provided ₹1.4 lakh crore to the States for the FY 2026-27 as Finance Commission Grants including Rural and Urban Local Body and Disaster Management Grants.
• The Fiscal Deficit in Budget Estimates (BE) 2026-27 is estimated to be 4.3 percent of GDP.
• In F.Y. 2025-26, the non-debt receipts and the expenditure are estimated as ₹36.5 lakh crore and ₹53.5 lakh crore respectively. The Centre's net tax receipts are estimated at ₹28.7 lakh crore.

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