NEW DELHI: Union Budget 2026-27, presented by Finance Minister Nirmala Sitharaman in Parliament on Sunday, turned out to be a story of unrealised expectations rather than bold reforms. There were no big-bang announcements or path-breaking policy pushes. Instead, the government appeared keen not to disturb the current ‘Goldilocks phase’ of moderate growth and low inflation.
Expectations were not particularly high, given that the Budget followed two major tax overhauls—Direct Tax Code and GST rate rationalisation—yet, there was hope for a fresh reform impulse. In the end, the finance minister held back more than she unveiled.
There were numerous small measures in the Budget, but none large enough to excite the markets. Instead, a few unexpected moves unsettled the equity market which was already under pressure from persistent foreign institutional investment outflows. Contrary to expectations of a reduction in securities transaction tax (STT), the Budget proposed higher levies on futures and options. The move did not go down well with the markets, which fell over 2%.
The FM clarified that the increase in STT was aimed at curbing high-risk speculative trade and to protect gullible retail investors who were losing money.
As expected, there were no changes in individual tax slabs following last year’s increase in the minimum tax threshold to Rs 12 lakh.
At the same time, the Budget rolled back the controversial buyback tax rule under which buyback proceeds were treated as deemed dividend income without allowing deduction of acquisition cost. These proceeds will now be taxed as capital gains for all shareholders. Other relief measures included a limited overseas tax amnesty scheme for small taxpayers and a reduction in tax collected at source (TCS) on overseas spending.
Sitharaman’s Rs 53 lakh crore Budget adopted a cautious rather than ambitious approach. It adhered to the fiscal glide path by pegging the fiscal deficit at 4.3%, just 10 basis points lower than the current year’s 4.4% target.
The FM also formally announced a shift in fiscal management focus from fiscal deficit to a debt-to-GDP ratio target of 50±1% by 2030–31.
“In line with this, the debt-to-GDP ratio is estimated at 55.6% of GDP in BE 2026–27, compared to 56.1% in 2025–26. A declining debt-to-GDP ratio will gradually free up resources for priority sector expenditure by reducing interest outgo,” she said.
The minister told the media that the government has consistently delivered on its fiscal commitments without compromising on social sector needs.
The modest fiscal targeting comes amid muted revenue growth, with the government missing its FY26 tax collection target of Rs 42.7 lakh crore by nearly Rs 2 lakh crore.
Despite revenue constraints, the FM increased capital expenditure from Rs 11.2 lakh crore to Rs 12.2 lakh crore after two years of relatively subdued growth. “We have announced Rs 12.2 lakh crore in public expenditure this time. It is 4.4% of GDP, the highest in at least the last 10 years. Such sustained increases in capital expenditure have not happened before,” she said.
The government also accepted the 16th Finance Commission’s recommendation to retain the vertical devolution share to states at 41%.
In order to support exporters amid global trade uncertainties, the Budget introduced a series of customs duty changes aimed at lowering input costs for manufacturing and exports, while tightening tax rules in selected areas. This came as part of the strategy to help exporters hit by the US trade policies and cut dependence on China for raw materials.
Technology and sunrise sectors received incentives, while the Budget announced a tax holiday until 2047 for foreign companies providing services to customers outside India using data centres located in India. In addition, the government proposed a safe harbour margin of 15% on costs where the data centre service provider in India is a related entity.
The Budget also had a provision for exempting income tax for five years to non-residents providing capital goods or equipment to any toll manufacturer in a bonded zone.