The Finance Minister (FM). Ms. Nirmala Sitaraman presented her ninth budget in Parliament today. Given the backdrop of significant geopolitical uncertainty, the Finance Bill 2026, while aimed strongly at promoting growth and maintaining the international competitiveness of the Indian economy, continues to have a hawkish focus on lowering the fiscal deficit and debt to GDP ratio. The budget predicts a nominal GDP growth of 10%, with a real GDP growth projected at 7% to 7.5%.

On the policy front, the following key points being made by the FM:

Manufacturing, Clusters and Exports Push

• Focused schemes for textiles, fibres, footwear, and leather, plus revival of 200 legacy industrial clusters and targeted customs tweaks, are aimed at building globally competitive, job‑rich manufacturing value chains.

Energy Transition and Tech as Growth Drivers

• Duty support for batteries, solar glass, and EV components, alongside AI/data‑centre and digital services initiatives, positions green energy and technology as core long‑term growth and investment themes.

Deepening of the Debt Market

• Introduction of a market‑making framework for corporate bonds, with “suitable access to funds” and derivatives on corporate bond indices to improve secondary‑market liquidity and price discovery.
• Launch of total return swaps on corporate bonds, enabling investors to take or hedge exposure without holding the underlying bond, supporting more sophisticated risk‑management and participation including foreign institutional investors (FIIs), insurers, and pension funds.
• Plan to develop derivatives on corporate bond indices, expected to tighten spreads, create benchmark curves, and support passive and active credit strategies.

 Other Key Policy Announcements

• Comprehensive review of the Foreign Direct Investment regulations in India.
• Incorporating the requirements of Income Computation and Disclosure Standards (ICDS) into the Indian Accounting Standards (IndAS) itself and hence scrapping the ICDS requirements.
• Creation of a dedicated Real Estate Investment Trust (REIT) for Central Public Sector Enterprises (CPSEs).

Tax Proposals

From a taxation perspective the following key changes are being proposed in addition to now implementing the new Income-tax Act, 2025.

Tax Rates Including Withholding Tax and Tax Collection at Source

• Tax rates have remained unchanged for most taxpayers other than Securities Transaction Tax (STT) rates on derivatives, which are proposed to be increased as under –
  •  From 0.1% to 0.15% of the option premium on sale of Option in Securities
  • From 0.125% to 0.15% of intrinsic value on sale of Exercised Option
  • From 0.02% to 0.05% of the traded price on sale of Future in Securities.
• Tax collection at source (TCS) rates for LRS remittances for education/ medical purposes (subject to threshold of ₹10 lacs i.e., approx. USD 11,000) and overseas tour packages as well as sale of certain other specified products are proposed to be rationalized to a uniform rate of 2%.

Mergers and Acquisitions (M&A)

 Buyback of Shares

• Consideration received on buy-back of shares taxable as Capital gains (instead of deemed dividend).
• “Promoters^[1]” will be liable to additional income tax for such capital gains arising on buy-back of shares as tabulated below:

Transfer Pricing

• The issue of the manner of computation of sixty days for passing an order by the Transfer Pricing Officer is proposed to be clarified by prescribing fixed calendar cut-off dates. This retrospective amendment directly addresses judicial precedents where TP adjustments were quashed on limitation grounds.
• It is proposed that Associated Enterprises impacted by an Advance Pricing Agreement (APA) will be permitted to file a return or a modified return, in addition to the APA signatory. This addresses the jurisdictional mismatch that resulted in economic double taxation in APA cases and allows corresponding income alignment and refund claims.
• A time-bound process has been proposed in the Budget Speech for concluding unilateral APAs for IT services, with a targeted completion period of two years.
• The issue relating to the interaction between assessment timelines in cases following the Dispute Resolution Panel (DRP) route and the overall time limit for completion of assessment is proposed to be addressed by separating the timelines applicable to cases proceeding through the DRP from the general assessment deadlines.
• In the Budget Speech, inter-connected IT services including software development, IT-enabled services, Knowledge Process Outsourcing (KPO), and contract R&D, are proposed to be consolidated into a single “Information Technology Services” category, subject to a uniform safe harbour margin of 15.5%. The eligibility threshold is proposed to be increased from ₹300 crores to ₹2,000 crores. 

Corporate Tax

Benefits to IFSC Units and OBUs

• Units in International Financial Services Centre (IFSC) and Offshore Banking Units (OBUs) are eligible for a tax holiday. This tax holiday is for a period of 10 consecutive years in a block of 15 years for IFSC units and 10 consecutive years in case of OBUs. This tax holiday period is now proposed to be extended to 20 consecutive years in case of OBUs and 20 consecutive years in a block of 25 years in case of units in IFSC. Further, a lower tax rate of 15% (instead of the current 22%) is proposed for such units post the tax holiday period.
• In the case of OBUs or units in the IFSC referred above, commencing operations on or after April 1, 2026, formed by splitting up, reconstruction, reorganization, or transfer of an existing Indian business, no tax holiday will be available.
• Currently, loans or advances between group entities routed through a Global Treasury Centre (GTC) located within an IFSC are exempt from deemed dividend provisions, provided the parent or principal entity of the group is listed on a stock exchange outside India. It is proposed to add a condition that the counterparty group entity in such transactions must be located in a notified foreign jurisdiction, thereby tightening the scope of this exemption. Also, the definition of the term ‘parent’ is sought to be broaden to also cover entities which exercise control over more than half of the voting power or control the board of directors.

MAT Exemption and Rationalization 

• The Minimum Alternate Tax (MAT) rate under the old tax regime is proposed to be reduced from 15% to 14%, and MAT would be the final tax. Consequently, no carry forward of MAT credit to subsequent years will be allowed. 
• Brought forward MAT credits (i.e., accumulated up to March 31, 2026) are proposed to be available for set-off only for Indian companies opting for the lower tax rate regime (capped at 25% of the tax liability for the relevant year) and foreign companies (to the extent of the difference between normal tax and MAT for the year).
• MAT exemption to be extended to non-residents who have opted for presumptive taxation for the business of operating cruise, ships and providing services or technology in relation to electronics manufacturing in India.

Due Date for Depositing Employee’s Contribution to Welfare Schemes

• The due date for the employer to claim a deduction for depositing the employees’ contribution to welfare funds (PF, ESIC, etc.) to be revised from the statutory due date prescribed under the respective laws to the due date for filing the return of income.

Non-life Insurance Companies to be Allowed Deduction in the Year of Payment of Withholding Taxes

• In the case of non-life insurance companies, existing provisions do not permit a deduction for expenses in the year of deposit of withholding taxes, which is generally available to other taxpayers. It is now clarified that the amounts disallowed for non-withholding of taxes shall be deductible in the subsequent tax year when the withholding taxes are deposited.

Tax Relief for Foreign Companies Procuring Data Centre Services

• To encourage investment in data centres and support India’s AI focused data centre framework, it is proposed to grant an exemption to notified foreign companies on income earned from procuring services from a specified data centre in India. The exemption would be available up to tax year ending March 2047, and would be subject to following conditions:
  • The foreign company does not own or operate physical infrastructure of the data centre.
  • Sales to users in India must be routed through an Indian reseller entity.
  • Maintenance and furnishing of requisite information in the prescribed form and manner.

Rationalizing Penalty and Prosecution

• Integration of penalty and assessment proceedings: To avoid multiplicity of proceedings, penalty proceedings for under-reporting/misreporting of income is to be included under the assessment or reassessment order itself. Thereby eliminating the requirement for separate penalty proceedings. Further, interest on the penalty demand is to be charged only after the order of the appellate commissioner/tribunal is passed.
• Misreporting of income also to be eligible for immunity from penalty and prosecution: Immunity from penalty to be extended even to cases of misreporting of income. This is subject to payment of the applicable tax and interest, additional income tax equal to 100% of the tax payable on the misreported income and non‑filing of appeal.

Other Miscellaneous Proposals

• A clarification has been proposed that the authority responsible for conducting pre-assessment enquires and issuing re-assessment notices, shall be an Assessing Officer other than the National Faceless Assessment Centre or its Assessment Units. This retrospective amendment addresses the conflicting judicial precedents.
• No deduction for interest expense against dividend or mutual fund income (earlier allowed subject to a 20% cap).

Indirect Tax Proposals

Key GST Proposals

• The place of supply of “intermediary services” to be amended from location of supplier of service to location of recipient of services (effective from the date of assent of the Finance Bill 2026). Indian suppliers of intermediary services may evaluate zero rating of supplies owing to this amendment.
• Various trade facilitation measures, pertaining to refunds and deduction for post supply discounts as recommended in the 56^th GST Council meeting, to be incorporated from a date to be notified.
• Government to be empowered to notify any existing authority constituted under any law for the time being in force to hear appeals made to the National Appellate Authority for advance rulings. 

Key Customs Proposals

Tariff rationalization measures undertaken covering:

• Grant of customs duty exemptions for sectors of importance such as pharmaceuticals, renewable energy, nuclear power generation, aircraft, and consumer durables.
• Withdrawal of exemptions/concessional rates where the goods are being domestically manufactured or imports are negligible.
• Incorporation of effective rates within the tariff and corresponding deletion of exemption/concessional rate.
• Review and extension of sunset dates for exemptions/concessional rates, where deemed necessary.

Other Trade Facilitation Measures

• Deferred payment of import duty to be allowed for “eligible manufacturer importer” up to March 31 2028. Further, duty deferral period for Tier II & III Authorized Economic Operators to be extended to 30 days from 15 days.
• Validity of advance rulings to be extended from three years to five years or till there is a change in law or facts on the basis of which the advance ruling has been pronounced, whichever is earlier.
• Trade facilitation measures envisaged for fast tracking cargo clearance including leveraging Authorized Economic Operator status.
• Integrated single window for facilitation of various agency approvals to be rolled out by March 2027. 

Conclusion

From a tax perspective with the new simplified Income-tax Act 2025, now in force, the focus of the FM was more on providing clarity and reducing ambiguity on some contentious provisions while continuing to support key sectors and areas (such as data centres and IFSC GIFT city). That said, certain unfinished agenda items remain, such as implementation of Base Erosion and Profit Shifting (BEPS), additional certainty to fund managers managing funds of offshore entities, etc., which we hope would be addressed over time.

[1] “Promoters” means, in the case of listed companies, promoters as defined under the SEBI (Buy-Back of Securities) Regulations, 2018, and in other cases, promoters as defined under the Companies Act, 2013, and includes any person holding, directly or indirectly, more than 10% of the shareholding in a company.

[2] Tax rates are excluding applicable surcharge and cess