The Union Budget 2026–27, to be presented by FM Nirmala Sitharaman, comes at a decisive moment in India’s economic journey. With India firmly on track to consolidate its position as the world economy. Union Budget 2026–27 is expected to focus on turning the Viksit Bharat vision into reality by prioritising agriculture, youth and the middle class.
Alongside capital spending, India must prioritise skills development, innovation and technology to harness AI and emerging sectors that can significantly lift GDP and productivity.
Taxation is a critical pillar of economic development. Accordingly, the following are the key expectations from the Union Budget 2026–27 with respect to proposed changes in the taxation framework:
1. Expected Direct Tax reforms:
- Increase in Standard Deduction: Taxpayer’s expected an increase in limit from ₹75,000 to ₹1,00,000. This would directly reduce taxable income and tax liability for salaried individuals. This will increase the take home salary of the taxpayers.
- Joint Income Tax Filing for Couples: There are discussions about introducing joint tax filing for couples. This move could significantly reduce the tax burden married individuals for dual-income households, moving India with global best practices. Consequently, this will increase spending capacity of taxpayers by reducing the tax liability.
- Perquisite valuation for electric vehicles: Currently, the perquisite value of motor car is determined based on engine cubic capacity of vehicle, which is complex method. With increasing ESG focus and growing adoption of electric vehicles in India, it is recommended to introduce clear and separate valuation guidelines under Income tax rules for perquisites arising from employer provided EVs. This will attract taxpayer towards use of EV vehicles.
- Extend timelines for filing revised/belated returns: Currently, revised or belated returns can be filed only up to 31st December following the end of the Financial Year. For taxpayers with cross-border income, foreign tax returns are often finalised later, leading to reporting mismatches. Allowing an extended timeline in such cases would improve accuracy and compliance for the Tax payers.
- Housing loan interest in new tax regime under Section 202 of Income-tax Act, 2025, (corresponding to Section 115BAC of the Income-tax Act, 1961): Under the new tax regime, taxpayers cannot claim housing loan interest exemption against salary income, including for self-occupied property, which is available under Old Tax regime. Considering the significant burden of home loan repayments and the goal of promoting home ownership, it is recommended that the Government allows such interest deduction on self-occupied property under the new tax regime.
- Minimum Alternate Tax exemption for foreign companies under presumptive tax regime: Minimum Alternate Tax (MAT) exemption for foreign companies under presumptive tax regimes is currently available only where income exclusively arises from specified businesses. Incidental income can trigger MAT exposure, creating uncertainty. A clearer and broader exemption would enhance India’s competitiveness for foreign companies operating under these regimes.
2. Expected Indirect Tax reforms:
- Amnesty Scheme for Old Disputed Tax Demands: Introduce a one-time amnesty scheme to resolve long pending disputed tax demands under GST Rules of earlier years by allowing settlement with reduced interest, penalty, or litigation costs. It will reduce the burden of Tax payers and as well as departmental staff too. It can be in form of waiver of Interest and penalty waiver for old years demand.
- Amendment to place of supply for Intermediary Services (Section 13(8)(b), IGST Act): The proposed changes would shift the place of supply from the supplier’s location to the recipient’s location, which shall align intermediary services with destination based taxation.
- Amendment to post sale discounts (Section 15(3)(b), CGST Act): The amendment is expected to remove the requirement that discounts must be pre-agreed and invoice linked. This shall allow more flexibility in offering post sale discounts and ease compliance under the Law.
- Provisional refunds for inverted duty structure (Section 54(6), CGST Act): The proposed change would allow provisional refund sanctioning for inverted duty structure cases. It shall also help to expedite refunds, improve liquidity, and reduce delays through a risk-based approach. It will the MSME’s by getting more fixability in working capital.
In nutshell, the Union Budget 2026–27 presents an opportunity to rationalise the structure, simplify tax compliance, and enhance certainty of rules and regulations, thereby supporting economic growth, MSME’s and taxpayer confidence.
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