Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman delivered her 2026 Union Budget earlier today.

Our leaders have reviewed the key announcements made and provided their views on what the changes could mean for individuals, businesses, and the Indian economy.
 

Vishal Hakani on Buyback Taxation 

Budget moves buyback taxation from "deemed dividend" to "capital gains"—restoring its true nature as gains. While promoters face higher tax (22% for corporates, 30% for others) to curb arbitrage, minority shareholders shall benefit. Investors can now offset acquisition costs directly, instead of being required to carry forward the loss for potential utilization in the future.

For the purpose of this clause, ‘Promoters’ shall mean promoters as defined under SEBI in the case of listed shares. In all other cases, it shall mean a person defined as a promoter under corporate law, or any other person who, directly or indirectly, holds more than 10% of the shareholding in the company.

This amendment would primarily benefit individual or small shareholders (non-promoters), particularly in listed entities. In unlisted entities, where promoters or shareholders hold more than 10%, the benefit would apply to the extent of enabling immediate claiming of the cost base.

Amod Khare on Provisions for Parties Affected by APA

An Advance Pricing Agreement (APA) is entered into between a taxpayer and the Central Board of Direct Taxes (CBDT) to agree on the arm’s length price (ALP) of an "international transaction". An international transaction is a transaction between the taxpayer entering into the APA and its associated enterprise (AE), that is, its "related party".  Under the current tax provisions, if a taxpayer enters into an APA, the taxpayer may file a "modified" tax return to give effect to the terms of the APA signed with the CBDT. 

The modified tax return allows the taxpayer to vary the income reported in the originally filed tax return. However, the modified tax return could only be filed by the taxpayer that entered into the APA. The other party to the "international transaction" was not given this benefit. As a result, if the taxpayer agreed to a lower ALP, which consequently resulted in a reduction of income for the AE, the AE—having filed a tax return and not being eligible to file a modified tax return—would end up reporting a higher income and would not be able to claim a refund of the excess tax paid due to the change in the ALP.

An amendment is now proposed that permits the AE to file a modified tax return, thereby improving the efficacy of the APA process and making it fair to both the parties to an international transaction.

Vishal Hakani on Interest deduction against investment income 

The Union Budget 2026 proposes a significant change to taxation on investment income by removing the ability to deduct interest expenses incurred to earn dividends or mutual fund income.

Interest paid on loans taken to invest in shares or mutual funds cannot be offset against dividend income or income from units of mutual funds, rendering the previously allowed 20% deduction ceiling obsolete.

This means gross dividend or mutual fund income will be fully taxed without any interest deduction—resulting in a higher cash tax outflow. The move appears to be part of the government’s broader effort to simplify the tax framework and remove deductions.

The proposed amendment is expected to be effective from tax year 2025–26, unlike most other direct tax proposals, which are effective from tax year 2026–27.

Amod Khare on Budget 2026 Amendments to Fast-Track UAPAs for IT Services

The Budget 2026 proposes a time-bound process to conclude unilateral Advance Pricing Agreements (UAPAs) for IT services within a targeted timeline of two years. According to the Central Board of Direct Taxes (CBDT) Annual Report released in September 2025, UAPAs took an average of 43 months to conclude, with IT services accounting for 44 of the 109 UAPAs signed. By fast-tracking UAPAs for IT services, the proposal accelerates certainty for the industry and frees administrative bandwidth for APAs in other sectors, which should translate into shorter APA timelines overall and further enhance the effectiveness and attractiveness of the APA program.

Amod Khare on Safe Harbour Provisions

Hitherto, India’s safe harbour regime has not been popular with taxpayers engaged in international transactions. The Finance Minister announced proposals, with detailed rules to be notified, that may encourage Indian information technology (IT) and IT-enabled services (ITES) companies to seek coverage under the safe harbour regime.

The Budget 2026 speech stated that various IT services—software development, knowledge process outsourcing (KPO), business process outsourcing (BPO), research and development (R&D), and others—may be covered under a single service category with one safe harbour rate of cost plus 15.5%. Taxpayers seeking coverage for IT services through an Advance Pricing Agreement (APA) have typically been offered higher cost-plus profit margins and faced higher cost-plus margins during regular tax assessments.

These forward-looking proposals should increase the attractiveness of India’s safe harbour regime, which have been underutilized by taxpayers. We would expect more Indian IT companies to participate in the safe harbour regime. Further, the Finance Minister’s proposal to increase the turnover limit to ₹3,000 crore for safe harbour participants should increase the number of eligible companies who can seek coverage.