The article was first published in Livemint.com on February 01 2026. Please click here to read the article.
Amid a fragile global environment marked by geopolitical tensions, trade fragmentation and financial vulnerabilities, India’s path to progress in FY26 has been commendable. The Economic Survey 2025–26 reaffirms India’s position as the fastest-growing major economy, projecting real GDP growth at 7.4 per cent in FY26 and 6.8–7.2 per cent in FY27.
This strong performance is driven, inter alia, by over 350 reforms, including GST simplification, new Labour Codes and the rationalisation of mandatory Quality Control Orders. Against this backdrop, the Union Budget 2026 (‘Budget 2026’) outlines a growth-focused, youth-driven and reform-centric roadmap that reinforces the government’s long-term vision of Viksit Bharat by 2047.
To begin with, Budget 2026 sets out a comprehensive reform agenda focused on strengthening high-value manufacturing, upgrading services, expanding infrastructure and advancing people-centric development. At its core is a push for strategic industries such as semiconductors, electronic components, biopharma, chemicals, rare-earth magnets, container manufacturing and sports goods, alongside a plan to revive 200 industrial clusters to rebuild industrial depth.
Budget 2026 also positions MSMEs as growth catalysts and provides them with a three-part support architecture comprising dedicated equity funds, faster TReDS-enabled working capital flows, and professional compliance assistance. The Budget further seeks to strengthen the services economy through the setting up of tourism hubs, allied health capacity-building and the promotion of a creative-economy pipeline via AVGC creator labs. Infrastructure priorities include new freight corridors, waterways, coastal logistics and Tier-2 and Tier-3 city economic regions, while social measures expand to cover the care ecosystem, disability support and mental-health capacity-building.
On the direct tax front, the Budget proposes certain retrospective amendments to settle long-standing controversies. First, the JAO–FAO controversy in reassessment proceedings is proposed to be addressed. Earlier, notices relating to reassessment and pre-inquiry were issued inconsistently, by Jurisdictional Assessing Officers (JAOs) in some cases and Faceless Assessing Officers (FAOs) in others, leading to widespread litigation. The Budget now clarifies that reassessment actions initiated by JAOs are valid, eliminating jurisdictional ambiguity and ensuring procedural uniformity.
Second, the Supreme Court’s split verdict in Shelf Drilling created uncertainty over whether timelines for passing a final assessment order pursuant to a DRP order in cases involving non-residents and transfer pricing disputes would be governed by section 144C or section 153 of the Income-tax Act. This has now been clarified: timelines for passing the draft assessment order will be governed by section 153, while timelines for passing the final assessment order will be governed by section 144C.
In addition, measures such as simplified tax compliance, lower TCS rates, staggered timelines for filing tax returns, and the rationalisation of penalties and prosecutions are expected to foster a trust-based, business-friendly tax environment. Other significant proposals include streamlining the international tax framework for the IT/ITeS sector by clubbing services under a single category with a 15.5 per cent safe-harbour margin, raising the safe-harbour threshold to ₹2,000 crore, and fast-tracking unilateral APAs with a targeted two-year timeline. The Budget also proposes a tax holiday until 2047 for foreign cloud service providers serving customers through India-based data centres. On share buybacks, in a marked departure from last year, the Budget proposes to tax shareholder income as capital gains (rather than dividends), with an additional levy on promoters.
From an indirect tax perspective, the government’s focus continues to be on rate rationalisation, simplification of compliance and ease of doing business. GST- related changes align with announcements made at the 56th GST Council meeting. Notably, the taxability of intermediaries shifts from the service provider's location to the service recipient's location, granting export benefits to intermediaries in India providing services to foreign recipients. On the customs front, the government continues efforts to simplify the tariff structure, support domestic manufacturing, promote export competitiveness, correct duty inversion and streamline customs processes.
Despite these reform measures, Budget 2026 fell short of certain expectations on the tax front. Taxpayers had hoped for an upward revision of personal income-tax slabs, but no changes were announced–understandably so, given last year’s significant increase in slab rates. India Inc. was also seeking renewed R&D incentives to enhance global competitiveness, but these did not materialise. Similarly, the industry awaited a clear roadmap to address the mounting backlog of cases at the CIT(A) level, but none was announced. Long-requested rationalisation of the TDS regime also did not find a place in the Finance Minister’s proposals.
As India enters FY26, it stands at a pivotal moment, resilient amid global uncertainty yet ambitious in its long-term aspirations. The Economic Survey’s scenarios suggest that while the world may oscillate between fragile stability, heightened volatility and severe shocks, India’s fiscal strength and reform-driven agenda offer meaningful insulation. By simplifying taxes, easing compliance and sustaining growth momentum, the Budget accelerates progress towards Viksit Bharat, positioning India to convert resilience into opportunity and remain firmly on course despite global turbulence.
