The article was first published in The Economic Times Edge Insights.com on 06 February 2026. Please click here to read the article.
The Budget 2026 was presented in the backdrop of significant geopolitical uncertainty where global trade and multilateral frameworks have been the buzz words and resources, and supply chains faced significant disruptions. The Hon’ble Finance Minister has recognised that for India’s advancement towards ‘Viksit Bharat’, it is the Kartavya of the Government to act as an enabler that accelerates and sustains economic growth and towards this creation of a supportive ecosystem has to be the focus of Union Budget 2026.
While India has increasingly embraced globalisation and attempted to move towards the same, its tax and regulatory framework has historically struggled to keep pace with the need for simplification and investor friendly reforms. Over the past decade, however, India’s tax regime has undergone meaningful transformation to provide greater clarity, reduce disputes and align with global norms. Budget 2026 builds on this trajectory by emphasising simplification, digitisation and decriminalisation of tax and regulatory provisions, thereby reducing friction, litigation and policy uncertainty, these being key considerations for global investors deploying long term capital in the country.
Given that the new Income‑tax Act, 2025 had already been notified earlier in the year, while the stakeholders were quietly hopeful for beneficial changes, realistically no major changes were anticipated and accordingly, the Budget 2026 has been largely on expected lines, with no significant departures, and a reaffirmation that the new tax law would come into force from April 1, 2026, with the rules to be notified shortly. Overall, the reforms in Budget 2026 are predominantly procedural and machinery‑driven, with a targeted emphasis on incentivising overseas investment in select strategic sectors. The Finance Bill underscores a slight tilt towards ease of compliance and taxpayer facilitation. The proposals emphasise on end-to-end electronic processes for lower withholding certificates, extended timelines for revised and updated returns, and a calibrated reduction in prosecutions and penalties to promote a more trust-based tax regime.
Other tax amendments include the rationalisation of MAT provisions, which seems to be Government’s way of gently pushing companies towards the new tax regime and extension of tax holiday of IFSC units by an additional period of 10 years.
The Finance Bill, 2026 also reflects a clear policy intent to incentivise foreign companies operating in India, with targeted exemptions aimed at attracting investment into priority sectors such as data centres, critical minerals, electronics manufacturing and advanced technology. By carving out specified foreign businesses from the ambit of MAT and offering sector‑specific tax reliefs, the government has signalled a calibrated approach to encourage foreign participation in strategic industries rather than broad‑based incentives.
However, in relation to the taxation of share buybacks, the Budget marks a reversal of approach, with buyback proceeds once again being taxed as capital gains rather than dividends in the hands of shareholders, thereby reverting to the position that prevailed prior to the introduction of the recent buyback tax regime in 2024. The provisions introducing additional taxes in the hands of promoters, however, are likely to be a limiting factor, especially for foreign investors who were otherwise entitled to more beneficial tax treatment under the treaty.
A notable aspect of Budget 2026 was the absence of any legislative response to the recent Supreme Court ruling that has created uncertainty among foreign investors, particularly private equity funds investing through intermediary holding company jurisdictions. While there had been expectations that the Budget might offer a broad statement of intent to clarify the implications of the ruling or provide greater comfort on GAAR and cross‑border tax certainty, it seems future policy discussions will be required to gain clarity on these matters.
While Budget 2026 stops short of any big‑bang announcements, it reinforces a steady and consistent year‑on‑year reform approach, acting as an enabler of economic growth, trade and long‑term foreign investment.
