Budget 2026 Explained: Income Tax Changes, GST Updates & Startup Benefits

The ninth consecutive budget by Finance Minister Nirmala Sitharaman, which was presented to the country on Sunday, February 1, 2026, was based on a Yuva Shakti-driven agenda in building Viksit Bharat. The first historical budget of Kartavya Bhawan is based on the Three Kartavyas (Duties): faster growth with productivity, recognition of citizen aspirations with capacity building, and ensuring that access to all citizens under Sabka Sath, Sabka Vikas.

Key Macro Figures:

• Total Expenditure: Rs 53.47 Lakh Crore (7.7% increase).
• Capital Expenditure (Capex): Rs 12.22 Lakh Crore (11.5% hike, 4.4% of GDP).
• GDP Growth: Projected nominal growth of 10% for FY 2026-27.

The government is focusing on strategic self-reliance with programs such as ISM 2.0 semiconductors and Biopharma SHAKTI to minimise the critical dependence on imports. This fiscal plan balances between vigorous infrastructure investment and fiscal conservatism, aiming at a 4.3% deficit. With India undergoing new structural changes and the New Income Tax Act, 2025, business needs to be elastic to take advantage of SME Growth Funds and rare earth corridors emerging. In order to keep your venture outpacing such complicated regulatory changes and reap the most out of emerging tax incentives, today team with LegalRaasta in achieving your business compliance and tax planning.

1. Direct Tax Reforms: New Income Tax Act, 2025 Implementation

The key feature of the Union Budget 2026 highlights is the structural changes in the tax environment of India by updating all taxes to implemented New Income Tax Act, 2025. This new bill reforming the outdated 1961 Act is set to deliver a more digital-first, faceless experience that places less compliance on the common man. Although the Finance Minister chose to maintain stability by retaining the same tax slabs as last year, the change in the legal system carries with it a number of procedural modifications that are taxpayer-friendly.

Income Tax Slab Comparison for FY 2026-27

Foreign Assets of Small Taxpayers – Disclosure Scheme (FAST-DS 2026)

The Union Budget 2026 highlights provides a six-month voluntary disclosure window to solve the legacy non-disclosure problem faced by students and young professionals.

• Category A: For those who missed disclosing foreign income or assets (totaling up to Rs 1 Crore), immunity from prosecution is granted upon paying 30% tax and a 30% penalty.
• Category B: In cases of those who report income and not the asset (value up to Rs 5 Crore), immunity is granted against a nominal fee of Rs 1 Lakh.
• Retrospective Relief: Persons who hold non-immovable foreign assets less than the value of Rs 20 Lakh will no longer be prosecuted, retrospectively, since October 1, 2024.

Key Highlights of the 2026-27 Tax Structure

• Default Status: The default option is that of the New Tax Regime. To be eligible to qualify for deductions such as HRA or 80C, you need to specifically elect the Old Regime when you file.
• Zero-Tax Threshold: Under the New Regime effective tax-free income of salaried earners (Gross Income) become of Rs 12,75,000, owing to the standard deduction of Rs 75,000 and the rebate of Rs 60,000 under Section 87A.
• Marginal Relief: On income slightly above the Rs 12,75,000 mark, the budget grants Marginal Relief. This will make sure that the tax you pay is not more than the incremental income over the threshold.
• Surcharge Cap: Under the New Tax Regime, the maximum surcharge is 25%, and under the Old Regime, high-net-worth individuals may pay a surcharge to 37%.

2. Stock Market & Securities: Curbing Speculation & Rationalizing Returns

The Union Budget 2026 has established a radical roadmap of the Indian capital markets by giving its prime importance to long-term capital formation as opposed to speculative churn. In response to the “unrestricted growth of retail involvement in high-risk derivatives, the government announced steep increases in the Securities Transaction Tax (STT), even as it remodelled share buyback taxation to provide a fairer playing field to minority shareholders.

The Derivatives Drag: Significant Hike in STT

The Union Budget 2026 has drastically increased the cost of transactions in an effort to cool the F&O segment, where SEBI reports indicate that more than 90% of the retail traders are making losses:

• STT on Futures: The rate has been hiked by 150%, jumping from 0.02% to 0.05%. The traders now pay a sum of Rs 5,000 per Rs 1 crore turnover instead of Rs 2,000.
• STT on Options: The tax on option premiums and the exercise of options has been raised to a unified 0.15% (a 50% increase from the previous 0.1% for premiums).
• Market Impact: This hike primarily targets high-frequency traders (HFT) and algorithmic desks. The government, by raising the break-even price movement necessary to make a profitable trade, tries to discourage such a casino-like speculation by small participants.

Share Buybacks: Eliminating the “Phantom Loss” Trap

Addressing one of the most significant issues, the Union Budget 2026 has restored buyback taxation to the Capital Gains framework.

• The Shift: Proceeds will no longer be classified as deferred dividends (taxed with a slab tax up to 35.88%). Instead, they will be taxed as capital gains (12.5% LTCG and 20% STCG), enabling investors to deduct their initial cost of purchase.
• Benefit to Retailers: This avoids the trap of the phantom loss, where investors counted the entire amount paid out as income and had an unused capital loss.
• Promoter Check: Corporate promoters are taxed on the lower rate of 22%, and non-corporate promoters, individuals/HNIs, are taxed at 30% to avoid tax arbitrage.

Summary of Stock Market Tax Changes (FY 2026-27)

3. Manufacturing & Technology: ISM 2.0 & Rare Earth Corridors

Union Budget 2026 has refocused on high-value backward integration. Nirmala Sitharaman brought India Semiconductor Mission (ISM) 2.0 with a focus on local manufacturing of equipment, materials, and Indian Intellectual Property (IP). ISM 2.0 will be allocated a certain amount of Rs 1,000 crore in FY 2026-27.

To strengthen this, the Electronics Components Manufacturing Scheme (ECMS) outlay almost doubled to Rs 40, 000 crore. At the same time, the government declared Rare Earth Corridors in Odisha, Kerala, Andhra Pradesh, and Tamil Nadu. These centers will incorporate mining and research of permanent magnets to counter the 90 percent importation into China.

Moreover, the CPSEs will create state-managed High-Tech Tool Rooms that will act as automated offices where MSMEs can produce high-precision components. These reforms will place India as a strong global manufacturing destination with a Rs 10,000 crore container manufacturing program.

4. Health & Biopharma: The “Biopharma SHAKTI” Initiative

Union Budget 2026, under the banner of Biopharma SHAKTI (Strategy for Healthcare Advancement through Knowledge, Technology, and Innovation), was launched in a traumatic effort to transform India out of the generics hub to a high-income innovation dynamo. This program is supported by a large sum of Rs 10,000 crore over the next five years.

Key Pillars of Biopharma SHAKTI

• Infrastructure & Research: The government will develop three new National Institutes of Pharmaceutical Education and Research (NIPERs) and upgrade seven of the existing facilities in a bid to cultivate a skilled workforce in the field of biologics
• Clinical Research Network: To speed up the drug discovery process, we aim to establish 1,000+ approved clinical trial sites across the country, to provide broader research access in other cities outside of Tier-1.
• Regulatory Overhaul: The CDSCO will be strengthened with a dedicated scientific review cadre to align Indian approval timelines with global standards (USFDA/EMA).

Direct Patient Relief: Duty Exemptions

The Union Budget 2026 highlights deals with the increased burden of non-communicable illnesses by immediately alleviating their effects through:

1. Exempting Basic Customs Duty (BCD) on 17 life-saving cancer drugs (including Ribociclib, Abemaciclib, and Venetoclax).
2. Reducing the medicine duty for seven more rare diseases, greatly reducing the price of imported targeted therapies.

Summary of Healthcare & Biopharma Outlay

5. Agriculture & Rural Economy: AI-Powered “Bharat-VISTAAR”

Union Budget 2026 has a historic focus toward high-value agriculture, helping to turn the traditional grain cycles to profitable, technology-based ecosystem. The goal of de-risking farming is the aim of the government, with a total allocation of Rs 1,62,671 crore towards agriculture and allied sectors based on the third Kartavya-Sabka Sath, Sabka Vikas.

The Digital Backbone: Bharat-VISTAAR

A headline announcement is the launch of Bharat-VISTAAR (Virtually Integrated System to Access Agricultural Resources).

• Multilingual AI Support: Backed by a Rs 150 crore outlay, this AI tool integrates AgriStack digital records with ICAR’s scientific practices.
• Customized Advisory: With real-time data-guided farm advice in their commonly spoken languages, farmers save on crop risk by receiving guidance on soil health, pests, and weather patterns.

High-Value Crop Promotion

Union Budget 2026 reflects funding of Rs 350 crore to diversify agricultural production and enhance export competitiveness:

• Coconut Promotion Scheme: Concentrated on reforestation of old low-yielding trees with better varieties to sustain 10 million dependent farmers.
• Regional Hubs: Specialized Sandalwood (Coastal), Agarwood (North-East), and the best nuts such as Walnuts and Almonds (Hilly regions).

Empowering “Nari Shakti”: SHE-Marts

The government has launched SHE-Marts (Self-Help Entrepreneur Marts) as an extension of the Lakhpati Didi program.

• Ownership over Credit: They are community-based retail stores established at cluster levels of federation to assist women leave the credit-based livelihoods and own businesses.
• Market Access: SHE-Marts offer organised venues where Self- Help Groups (SHGs) run by women directly sell products to urban consumers.

Summary of Agriculture & Rural Outlay (FY 2026-27)

6. Infrastructure & Connectivity: Logistics and Rail Push

The Union Budget 2026 highlights lays the foundation of India with an all-time high Capex of Rs. 12.22 Lakh Crore (4.4% of the GDP). This investment aims at Growth Connectors initiatives that will reduce logistics expenses and use high-speed integration to bridge the urban-rural divide.

Railways: The Bullet Train Era

The government has a huge expenditure of Rs 2.81 Lakh Crore on tracks other than the normal ones:

• 7 High-Speed Rail Corridors: New bullet train routes include Delhi-Varanasi, Mumbai-Pune, Pune-Hyderabad, and Varanasi-Siliguri, alongside the “South High-Speed Triangle” linking Hyderabad, Bengaluru, and Chennai.
• Freight Efficiency: A new East-West Dedicated Freight Corridor (Dankuni to Surat) will separate cargo from passenger traffic, hastening industrial supply chains.

The 7 New High-Speed Rail Corridors & Travel Time Impact

New routes announced revolve around major IT, manufacturing, and cultural centers. It has the South High-Speed Triangle (or Diamond) at its core that connects Bengaluru to Chennai and Hyderabad.

Roadways & Maritime Logistics

• Highway Expansion: Rs 3.10 Lakh Crore relayed into the Ministry of Road Transport (MoRTH) was to focus on access-controlled expressways and a new “CIE Scheme” to indigenise high-tech construction machinery, including tunnel-boring machines.
• Container Self-Reliance: A Rs 10,000 Crore Container Manufacturing Scheme will generate 1 million TEUs (Twenty-foot Equivalent Units) in India, which will confront international monopolies and favor the new Bharat Container Shipping Line.

7. MSME & Startup Ecosystem: Equity Over Debt

Union Budget 2026 indicates a change of paradigm in India on the regime of supporting its 6.4 crore small-scale enterprises, instead of the heavily indebted system, which is becoming a Growth Champion. The government also seeks to professionalize the sector and to make it a global supply chain by focusing on equity participation and automated liquidity.

SME Growth Fund: Scaling Future Champions

The goal of a headline measure is the introduction of the Rs 10,000 Crore SME Growth Fund. This fund supports high-potential enterprises with equity against conventional credit schemes that charge high interest rates, amounting to a source of debt.

• Target: Small and medium firms demonstrating technical capability and export readiness.
• Objective: Providing “patient capital” to help businesses invest in high-end machinery, R&D, and global certifications without the immediate pressure of monthly repayments.
• Support: This is bolstered by a Rs 2,000 Crore top-up to the existing Self-Reliant India (SRI) Fund for micro-enterprises.

Corporate Mitras: Affordable Compliance Cadre

To solve the “compliance fatigue” often felt in smaller towns, the government introduced Corporate Mitras.

• Role: An emerging group of approved para-professionals educated at the most reputable institutions (ICAI, ICSI, ICMAI).
• Focus: They will be based in Tier-II and Tier-III cities and offer affordable MSMEs with modular support of regulatory filings, tax filing, and legal documentation.

TReDS: Solving the Liquidity Crisis

To solve the longstanding problem of delayed payments, the Trade Receivables Discounting System (TReDS) has been made obligatory for all Central Public Sector Enterprise (CPSE) purchases of MSMEs within the Union Budget 2026 highlights.

• Guaranteed Liquidity: CPSEs are now required to pay invoices using this digital auction, which means that MSMEs receive payments in real time from financiers.
• Secondary Market:  It was also proposed to treat TReeds receivables as asset-backed securities, where institutional investors could further explore the liquidity pool.

8. Education & Employment: Skill-to-Career Path

The Union Budget 2026 transforms the educational process to focus on literacy and to focus on employability, to bridge the classical rooms to the modern labor force. The government is focusing on gender parity in high-tech subjects and specialized healthcare training, with a total expenditure of the Ministry of Education amounting to Rs 1.39 Lakh Crore.

STEM Focus: Removing Barriers for Women

A great infrastructure push has been initiated to close the “accommodation gap,” which fails to ensure rural women can access higher education:

• One Girls’ Hostel per District: According to the budget, at least one girls’ hostel must be opened in each district, with students taking courses in STEM (Science, Technology, Engineering, and Math).
• Support Mechanism: These hostels, supported through Viability Gap Funding (VGF), were built to help students access extended laboratory time and technical research, which will help create a safer and more accessible space than their female scholars.

Allied Health Professionals: The 10 Core Disciplines

The Allied Health Professionals (AHP) initiative seeks to educate one lakh professionals within the next five years to eliminate the doctor-centric model. The scheme is aimed at filling certain gaps in diagnostic and surgical support:

Empowering the “Care Economy”

Along with the AHP push, the Union Budget 2026 highlights reported that there is a multi-skilled caregiver training of 1.5 lakh members in the year 2021. These NSQF-oriented programs will be a combination of fundamental nursing care and Wellness, Yoga and the use of medical assistive equipment to meet the increasing geriatric population in India.

9. TCS Rate Rationalization: Relief for Global Citizens

Union Budget 2026 highlights has substantially cut Tax Collected at Source (TCS) rates to lower the initial cash outlay on people sending money overseas. In the past, high rates of up to 20 percent tended to tie up big amounts of taxpayer funds until they were able to retrieve their refunds many months later.

Key TCS Changes (Effective April 1, 2026):

• Overseas Tour Packages: The previous two-tier structure—5% up to Rs 10 lakh and 20% above—has been replaced by a flat 2% rate with no minimum threshold.
• Education & Medical Remittances: For payments exceeding Rs 10 lakh under the Liberalised Remittance Scheme (LRS), the TCS rate has been cut from 5% to 2%. Remittances for education funded by a loan continue to enjoy a 0% TCS rate.
• Other LRS Purposes: Remittances to invest (stock, real estate, or cryptocurrencies) or a personal gift above Rs 10 lakh are still subject to a 20% TCS rate on the surplus amount.

These reforms are expected to boost the household cash flow, and international education, healthcare, and travel will be accessible to the middle class.

10. Conclusion

The Union Budget 2026 highlights is a long-term strategic manifesto that aims at structural strengths instead of populist succours. The government targets to take the lead in the global technological race by pegging the Fiscal Deficit at 4.3% and increasing Capital Expenditure to Rs 12.22 Lakh Crore. The prominent programs, such as ISM 2.0, Rare Earth Corridors, and Biopharma SHAKTI, focus on the decline of importation and the creation of the local IP.

To individuals and businesses, the New Income Tax Act, 2025, and the SME Growth Fund offer a digital-first wealth creation roadmap. With India shifting to a USD 5 trillion economy, it is important to remain in compliance with new tax codes. In order to ease the complicated rules and obtain the maximum tax benefits, collaborate with LegalRaasta to get professional compliance and planning today.

10. FAQs

Q1. What are the key highlights of the Union Budget 2026 for individual taxpayers?

The budget is aimed at digital-led governance through the New Income Tax Act, 2025. It proposes a Foreign Asset Disclosure Scheme allowing small taxpayers to disclose offshore holdings with no hefty penalties.

Q2. How does the New Income Tax Act of 2025 change the filing process?

It replaces the 1961 Act, making it easier to evaluate facelessly. It substitutes Financial/ Assessment Year with a single Tax Year to decrease litigation by use of integrated penalty orders.

Q3. What is the tax-free income limit under the New Tax Regime for FY 2026-27?

Salaried people can obtain a tax-free effective income of Rs 12.75 Lakh. This results from a Rs 75,000 standard deduction combined with the Section 87A rebate.

Q4. How has the STT hike in Budget 2026 impacted F&O trading?

To curb speculation, the Securities Transaction Tax (STT) on Futures rose to 0.05% and Options to 0.15%. This 150% hike in futures STT targets high-frequency traders by raising “break-even” points.

Q5. What is the new tax rule for share buybacks?

Buyback proceeds are now treated as Capital Gains (12.5% for LTCG; 20% for STCG) rather than “deemed dividends”. This allows investors to deduct original acquisition costs.

Q6. What is the Biopharma SHAKTI initiative?

It is a Rs 10,000 crore initiative that seeks to turn India into a biologics center. It has set up 1,000 clinical trial locations and has provided duty exemptions on 17 cancer drugs.

Q7. How can MSMEs benefit from the new SME Growth Fund?

The Rs 10,000 crore fund provides equity support rather than debt. It offers “patient capital” for high-potential firms to scale manufacturing and global R&D.

Q8. Who are “Corporate Mitras”?

They are qualified specialists (ICAI/ICSI trained) who offer low-price compliance support to MSMEs in Tier-II and Tier-III cities to ease the transition to the new tax laws.

Q9. What are Rare Earth Corridors?

These zones are situated in Odisha, Kerala, Andhra Pradesh, and Tamil Nadu, with a focus on extracting some of the most important minerals to produce EV motors and military technology, and becoming less dependent on imports.

Q10. How does mandatory TReDS integration help MSME liquidity?

The required TReDS to purchase CPSE will provide MSMEs with guaranteed access to liquidity. Invoices are discounted automatically, eliminating the late payment of government enterprises.