India Union Budget 2026-27

The government is promoting fast-track mergers and demergers. However, the Income-tax Act, 2025 does not provide for tax neutrality to fast-track demergers, creating uncertainty for businesses. Granting tax-neutral status is expected to streamline restructuring, cut compliance burdens, and allow businesses to reorganise swiftly and unlock new growth opportunities.

Another expectation is the rationalisation of holding period for slump sale transactions. While most assets qualify as long-term after 12 or 24 months, undertakings transferred through slump sale still require a 36-month holding period. Lowering this threshold to 24 months would align regulations and enhance the appeal of asset transfers and reallocating capital effectively.

On the international tax front, MAT exemptions for foreign companies taxable in India under presumptive tax regimes (i.e., operation of ships, aircrafts, civil construction, oil exploration services) is available only if their income solely comprises of income from the said specified businesses. The current provision creates a challenge when incidental income is earned alongside business income, potentially exposing these foreign companies to MAT. A clear exemption would help improve India’s competitiveness for foreign companies engaged in these businesses in India.

Similarly, removing ambiguity in the definition of Associated Enterprises would reduce compliance complexity and disputes in transfer pricing. Overlapping clauses and unclear thresholds often lead to litigation. A more objective and streamlined definition would simplify reporting and enhance certainty for multinational groups.

Extending dividend tax exemption for IFSC investors is expected to make India’s financial ecosystem more competitive globally. While interest income from IFSC units is exempt, dividends to non-resident shareholders are taxed at 10 per cent. Removing this tax would attract long-term foreign capital and strengthen India’s position as a hub for wealth management and global investment funds.

In addition, several GST‑related measures are expected to significantly improve cash flows, reduce disputes, and enhance ease of doing business. A key anticipated reform is the deletion of Section 13(8)(b) of the IGST Act, which would shift the place of supply for intermediary services from the supplier’s location to the recipient’s location. This change would align India’s GST framework with global tax principles, reduce litigation in cross‑border transactions, and provide much‑needed clarity for service exporters.

Simplification is also expected in relation to post‑sale discounts through amendments to Section 15(3)(b) of the CGST Act. Removing the requirement for discounts to be pre‑agreed and linked to specific invoices would bring GST provisions closer to commercial realities, reduce procedural complexity, and ease compliance for businesses operating high‑volume or incentive‑based pricing models.

Further, the proposed omission of Section 54(14) of the CGST Act, which currently prescribes a minimum threshold for export refund claims, would be a major relief for small and medium exporters. This measure would enable exporters using courier and postal channels to access GST refunds without value restrictions, directly improving liquidity and export competitiveness.

Another impactful expectation is the introduction of provisional refunds for inverted duty structure cases by amending Section 54(6) of the CGST Act. Allowing risk‑based provisional sanction of refunds would speed up access to working capital, reduce prolonged refund delays, and place inverted duty refunds on par with zero‑rated supplies, offering timely relief to affected industries.

One hopes that the direct and indirect tax changes in the upcoming budget will deliver a tax ecosystem that is simpler, predictable, and aligned with the best global practices. By reducing disputes, easing compliance, and improving cash flow efficiencies, the budget has the potential to unlock investment, support exporters and MSMEs, and reinforce India’s position as a preferred destination for global capital.