New Delhi – Finance Minister Nirmala Sitharaman will present the Union Budget 2026 on February 1, marking her ninth consecutive budget presentation. The Union Budget 2026 comes amid widespread expectations of significant reforms, particularly an overhaul of customs duty along the lines of GST rationalization, signaling a transformative approach to India’s fiscal architecture.
Shift in Fiscal Management Focus
The Union Budget 2026 is likely to outline a strategic shift in India’s fiscal management priorities. The focus is expected to transition from managing fiscal deficit to actively targeting the reduction of the Debt-to-GDP ratio from FY27 onwards. This represents a fundamental change in fiscal philosophy, emphasizing long-term debt sustainability over short-term deficit management.
This strategic pivot in the Union Budget 2026 reflects India’s maturing economy and the government’s confidence in maintaining fiscal discipline while pursuing growth objectives. The budget is expected to provide a clear roadmap for achieving sustainable debt levels without compromising developmental priorities.
Income Tax Act Transition
With the new and simplified Income Tax Act, 2025, coming into effect from April 1, 2026, the Union Budget 2026 is expected to outline comprehensive transition provisions. Industry stakeholders anticipate detailed rules and frequently asked questions to facilitate better understanding of the new tax framework. This transition represents one of the most significant tax reforms in recent decades.
The Union Budget 2026 will likely provide clarity on how taxpayers should navigate the shift from the old tax structure to the new simplified regime, ensuring smooth implementation without disruption to revenue collection or taxpayer compliance.
Standard Deduction Enhancement
Individual taxpayers are hoping the Union Budget 2026 will announce a hike in standard deduction limits. This measure would encourage more individuals to shift from the old income tax regime to the new simplified regime. Last year, taxpayers received significant relief through higher income tax exemption limits and GST rate cuts, creating expectations for continued tax rationalization.
The potential increase in standard deduction in the Union Budget 2026 would provide additional disposable income to salaried individuals while promoting adoption of the new tax regime that the government prefers for its simplicity and broader tax base.
TDS Rationalization
The Union Budget 2026 is expected to address the complexity of Tax Deducted at Source provisions by rationalizing TDS categories into fewer rates and slabs. Currently, multiple TDS rates across various transaction categories create compliance challenges for businesses and individuals. Simplification would reduce administrative burden while maintaining revenue integrity.
This rationalization in the Union Budget 2026 aligns with the broader government objective of simplifying tax administration and reducing compliance costs for taxpayers across all categories.
Customs Duty Overhaul
A major expectation from the Union Budget 2026 is a comprehensive overhaul of customs duty into fewer tax slabs, similar to the GST rationalization approach. The budget may also introduce an amnesty scheme to unlock approximately ₹1.53 lakh crore stuck in customs disputes. Procedural simplification is anticipated to boost ease of doing business.
This customs reform in the Union Budget 2026 would represent a landmark change in India’s trade policy framework, potentially improving competitiveness and reducing transaction costs for importers and exporters.
Defense and Security Allocation
Given rising geopolitical tensions, the Union Budget 2026 is expected to allocate a higher defense budget. This increased allocation will strengthen India’s military capabilities and address emerging security challenges in the region. Defense modernization and infrastructure development are likely to receive priority funding.
Rural Employment Initiative
The Union Budget 2026 is anticipated to include significant outlay for the Viksit Bharat—Guarantee for Rozgar & Ajeevika Mission (Gramin) scheme. Under this initiative, costs will be shared between the Centre and States in a 60:40 ratio, promoting cooperative federalism while addressing rural employment challenges.
Pay Commission Implementation
Provision for the 8th Pay Commission, which came into effect on January 1, 2026, is expected in the Union Budget 2026. This allocation will cover salary revisions for central government employees and pensioners, representing a substantial financial commitment.
State Devolution and Finance Commission
The Union Budget 2026 will likely outline tax devolution to states in line with recommendations of the 16th Finance Commission. This constitutional obligation ensures states receive their share of central taxes for implementing developmental programs and maintaining fiscal autonomy.
Sector-Specific Incentives
The Union Budget 2026 is expected to provide targeted incentives for MSMEs and tariff-sensitive sectors including gems and jewellery, apparel, and leather industries. These sectors employ millions and contribute significantly to exports, making them priorities for government support.
Critical Minerals Strategy
Funding for exploration and processing of critical minerals such as lithium, cobalt, and rare earth magnets is anticipated in the Union Budget 2026. These minerals are essential for clean energy technologies, electric vehicles, and electronics manufacturing, making their domestic availability strategically important.
The Union Budget 2026 represents a crucial opportunity for the government to balance growth objectives with fiscal prudence while addressing taxpayer expectations and sectoral needs. The comprehensive reform agenda signals India’s commitment to building a robust, simplified, and globally competitive fiscal framework.
