Union Budget 2026: With less than a few hours to go, the countdown to the Union Budget 2026–27 has entered its final stretch. As anticipation builds across households, industry and financial markets, the country is gearing up for a financial statement that will mark several firsts in India’s budgetary history.To be presented on a "rare Sunday," the Budget adds a historic twist to a tradition stretching back decades. The unusual timing has only heightened the sense of expectation as finance minister Nirmala Sitharaman prepares to step into the Lok Sabha for a milestone moment.The 2026 Budget will be Sitharaman’s ninth consecutive Union Budget, making her the first finance minister in India to achieve this feat. Expectations from the speech are high, with a strong focus on tax reforms, customs duty rationalisation, and measures to sustain growth at a time of rising geopolitical risks and global trade uncertainty.Beyond immediate policy announcements, the Sunday Budget is also seen as a potential turning point in fiscal strategy. The government is expected to outline a clear roadmap for lowering India’s debt-to-GDP ratio, signalling a shift from short-term deficit management to a more durable, long-term approach to fiscal consolidation.
Income tax relief tops taxpayers’ wishlist
After major relief in Budget 2025, including the income tax exemption limit being raised to Rs 12 lakh and GST rationalisation, individual taxpayers are hoping for further easing, especially through a higher standard deduction.
With the new Income Tax Act, 2025, coming into force from April 1, industry bodies are seeking clarity on transition provisions, rules and FAQs to ensure smoother implementation, PTI reported.There is also an expectation that the government may offer additional incentives to encourage taxpayers to shift to the new tax regime, which offers lower rates but fewer exemptions. Rationalisation of TDS categories into fewer slabs is another key demand.
Under the current new income tax regime, income up to Rs 4 lakh is exempt from tax, making Rs 4 lakh the basic exemption limit. There is a growing demand from taxpayers to raise this threshold further to ease the compliance burden. Income between Rs 4 lakh and Rs 8 lakh is taxed at 5%, while income in the Rs 8 lakh to Rs 12 lakh bracket attracts a 10% tax rate.Earnings from Rs 12 lakh to Rs 16 lakh are taxed at 15%, which rises to 20% for income between Rs 16 lakh and Rs 20 lakh.
Those earning between Rs 20 lakh and Rs 24 lakh face a 25% tax rate, while any income above Rs 24 lakh is taxed at the highest slab rate of 30%. Salaried taxpayers have been urging Nirmala Sitharaman to raise the income threshold for the 30% tax bracket to Rs 30 lakh.Currently, income up to Rs 12 lakh is effectively tax-free after availing the rebate under Section 87A, a limit that extends to Rs 12.75 lakh for salaried taxpayers after factoring in the standard deduction. Tax experts believe this rebate threshold could be increased to Rs 15 lakh to provide greater relief to the middle class. Meanwhile, a significant number of taxpayers continue to opt for the old tax regime, calling for lower tax rates and a higher basic exemption limit under that system as well.
Section 80C
Section 80C remains one of the most widely used tax-saving provisions under the old tax regime, allowing deductions of up to Rs 1.5 lakh on investments in instruments such as provident fund, public provident fund, mutual funds and insurance products.
However, the limit has remained unchanged for several years. Tax experts argue that to encourage household savings, the government should consider raising the Section 80C limit and extending this deduction to the new tax regime as well, which could help boost its wider adoption.
Customs reform and ease of doing business
Customs duty reform is expected to be a major Budget theme, with a possible overhaul similar to GST rationalisation. This could include:
- A possible amnesty scheme to resolve disputes worth nearly Rs 1.53 lakh crore
Such measures are seen as critical for improving ease of doing business and trade competitiveness.
Why the budget matters to households
For households, Budget decisions have an immediate impact through changes in income tax, subsidies and welfare spending. The relief announced in Budget 2025 boosted disposable income for middle-class families, supporting consumption at a time of financial stress.Higher disposable income typically lifts demand for retail, automobiles, housing and FMCG, while policy support for housing strengthens construction and allied industries — highlighting how tax decisions ripple through the wider economy.
Dalal Street’s lens
For investors, the February 1 Budget will signal the government’s stance on growth, fiscal discipline and corporate earnings. In FY26, despite tax relief, the government maintained fiscal discipline with a fiscal deficit target of 4.4% of GDP, down from 4.8% earlier.Market volatility during the special Budget trading session underlined how sensitively investors react to fiscal cues, with benchmark indices swinging sharply before ending nearly flat.
Fiscal consolidation and debt strategy
Economists expect the Budget to spell out steps to reduce the debt-to-GDP ratio from FY27, alongside higher defence spending amid rising global tensions.A pre-Budget note by Union Bank of India (UBI) expects fiscal consolidation to continue, projecting a FY27 fiscal deficit of 4.2–4.4% of GDP.“We see fiscal consolidation to continue in FY27, albeit at slower pace, to 4.2% of GDP, in order to preserve policy space in an uncertain world & ahead of Pay Commission implementation in FY28,” UBI said.The report also highlights a shift toward debt-to-GDP targeting, with the Centre aiming to reduce debt to around 50±1% of GDP by FY31.
Agriculture and MSMEs in sharp focus
Agriculture and MSMEs — identified by Sitharaman in Budget 2025 as the first and second growth engines — are expected to remain central.Other expectations include:
- Provisions linked to the 8th Pay Commission
- Higher tax devolution under the 16th Finance Commission
- Increased allocations for MSMEs
- Support for tariff-sensitive sectors such as gems and jewellery, garments and leather
- Funding for critical minerals and Viksit Bharat employment schemes
Defence spending
Defence allocation will be closely watched as the capex push continues under Make in India and in the backdrop of Operation Sindoor.FY26 saw emergency defence procurement of Rs 40,000 crore and approvals worth Rs 3.3 trillion, nearly double the budgeted defence capital outlay.FICCI has recommended raising defence capital outlay to 30% of the defence budget, increasing DRDO funding by Rs 10,000 crore, and expanding Defence Industrial Corridors to boost exports, which have grown at a 46% CAGR between FY17 and FY24.
AI, Logistics, Telecom: Industry’s big bets
Technology firms expect Budget 2026–27 to accelerate AI adoption, digital infrastructure and innovation.
The Economic Survey described AI as an economic strategy, advocating a bottom-up, sector-specific approach.Former Tech Mahindra CEO CP Gurnani said the Survey “brilliantly captures India’s AI momentum”.“India's way forward is exciting, which is to leverage our engineering strength to create affordable, human-centric AI that solves local challenges first, then scales globally,” he told PTI.Logistics firm FarEye called for policy support for autonomous logistics and applied AI, while GlobalLogic said the Budget offers a chance to move from digital-first to intelligence-first infrastructure.
Balancing growth, revenue and global risks
Despite pressure on revenues from tax cuts and the end of the GST compensation cess, capital expenditure is expected to remain the Budget’s anchor. UBI projects FY27 capex at Rs 12.4 lakh crore, or 3.2% of GDP, with roads, railways and defence as key focus areas.At the same time, Sitharaman faces the challenge of restoring investor confidence, navigating US trade tensions, volatile commodities and a fragile global recovery — all while finding new growth drivers for the economy.
Tariff-hit sectors seek relief
Export-oriented sectors impacted by US tariffs including textiles, apparel, seafood, gems and jewellery, leather and footwear are seeking targeted relief and policy support in Budget 2026.
Here are the key numbers to watch out for in the Union Budget 2025–26
Fiscal deficit: The budgeted fiscal deficit for FY26 (April 2025–March 2026) is estimated at 4.4% of GDP. Having achieved its fiscal consolidation target of keeping the deficit below 4.5%, markets will look for clarity on the debt-to-GDP reduction path and whether the government signals a fiscal deficit target of around 4% for FY27.Capital expenditure: Capital expenditure for FY26 has been budgeted at Rs 11.2 lakh crore. The government is expected to continue its focus on capex, with a likely increase of 10–15% in the next Budget, taking the outlay beyond Rs 12 lakh crore, as private investment remains cautious.Debt roadmap: In the 2024–25 Budget, the finance minister said fiscal policy from 2026–27 onwards would aim to put central government debt on a declining path as a share of GDP.
Markets will watch for a clearer debt consolidation roadmap, especially the timeline for bringing general government debt-to-GDP down to the 60% target. The ratio stood at about 85% in 2024.Borrowing: The government’s gross market borrowing for FY26 is pegged at Rs 14.80 lakh crore. This figure will be closely tracked as it reflects the country’s fiscal health and the strength of revenue collections.Tax revenue: Gross tax revenue for FY26 is estimated at Rs 42.70 lakh crore, up 11% over FY25.
This includes Rs 25.20 lakh crore from direct taxes and Rs 17.5 lakh crore from indirect taxes, including GST, customs and excise duties.GST collections: GST revenue in FY26 is projected to rise 11% to Rs 11.78 lakh crore. FY27 projections will be keenly watched, especially as GST revenue growth is expected to pick up following rate rationalisation measures introduced from September 2025.Nominal GDP: Nominal GDP growth for FY26 was initially estimated at 10.1%, but has been revised down to 8% due to lower-than-expected inflation. Projections for FY27 nominal GDP growth will offer cues on the inflation outlook, with estimates ranging between 10.5% and 11%.
