Budget 2026 expectations largely revolve around simpler taxes, steady growth support, and credible fiscal discipline, especially after the big reliefs in Budget 2025.

Key themes expected in Budget 2026

• Focus on Viksit Bharat 2047, competitiveness and productivity, with reforms that push manufacturing, AI‑led growth, and energy transition, while keeping the fiscal deficit on a glide path.

• Continued public investment in infrastructure, but with sharper emphasis on execution—projects moving faster from allocation to on‑ground outcomes.
• Support for domestic production and supply‑chain resilience via duty rationalisation, trade safeguards, and incentives for value‑added manufacturing.

Taxpayer expectations

• Revision of income‑tax slabs and basic exemption limit in the old regime so relief is closer to the new regime, plus possible increase in rebate limits.

• Higher deduction limits under Section 80C (from ₹1.5 lakh to about ₹2 lakh), better support for housing (home‑loan interest cap) and healthcare/medical insurance benefits.
• Simpler and more reliable tax system under the new law—cleaner slab structure, fewer rules, faster refunds and easier TDS/ITR compliance.

Key Sectoral Expectation

Particulars	Key budget expectations	Positive/Negative for stocks
Defence	Potential higher allocation for defense capital expenditure. Focus on R&D, UAV/drones, anti-drone systems	HAL, BEL, BDL
Railways	Higher budget allocation expected after muted growth periods. Capacity augmentation, safety works (Kavach)	RVNL, RITES, Titagarh, Kernex
NBFC-MFI	Credit guarantee scheme for NBFC-MFIs to help them raise funds and lend to low-income borrowers	CreditAccess, Fusion MFI
Oil & gas	Likely excise duty hike on petrol and diesel	IOCL, BPCL, HPCL
Fertilisers	Potential higher subsidy of Rs.1.7tn – 2.0tn due to higher raw material prices.	Coromandel , Deepak Fertilisers
Affordable housing	Redefinition of "affordable" (price/size) to attract lower 1% GST rate	Aptus Housing, Home First
Precious metals	Potential import duty on Precious metals	Hind Zinc, Muthoot Finance
Goods Exports	Any incentive for exporters to shield the tariff impact especially for sector like textiles, engineering, auto ancillary, chemicals	Welspun India, Bharat Forge

Navigating the Trade-off Between Consumption and Capex

The Union Budget 2026–27 is being presented against a challenging domestic backdrop marked by slowing corporate earnings, a decline in nominal GDP growth leading to tax revenue shortfalls, and heightened geopolitical tensions arising from U.S. tariff actions and rising gold prices, which have contributed to record depreciation of the Indian rupee. We expect the upcoming Budget to address these pressures while aiming to reignite the domestic growth engine, striking a careful balance between fiscal discipline, government borrowing, and targeted support for capital expenditure and consumption. We do not expect any major changes in direct and indirect tax regime in 2026-27 budget.

• FY27E capex growth be in-line with nominal GDP; likely higher focus in defence & allied sectors: We expect government to under-achieve its FY26 capex estimate of Rs11 lakh crore given focus on fiscal consolidation and FY27E capex to grow in-line or slightly higher than nominal GDP growth with higher focus on defence capex amid geopolitical concerns. We expect overall capex/GDP to remain at 3-3.1% of GDP for FY27 (broadly similar to FY26).
• Emphasis on lowering debt/GDP to 50% by FY31; fiscal deficit to remain at 4.3-4.4% in FY27E: Although we expect shortfall in government tax revenue but on the other hand focus would be to cut down subsidies and calibrated capex approach, which would ensure FY26 fiscal deficit target of 4.4% (of GDP) is quite achievable. Government would prioritize its focus to reduce debt/GDP ratio to 50% (+1%/-1%) by FY31, which would mean continued focus on fiscal consolidation over next 5 years. Having said that, FY27E fiscal deficit would be in the range of 4.3-4.4% (largely similar to FY26E).

• Measured expectations; avoid disruptive announcements: Market expectations from the Union Budget remain measured, with investors focused on policy continuity rather than major reforms. The key challenge for the finance ministry will be to avoid disruptive tax measures that could unsettle sentiment or strain the fiscal framework. With fiscal constraints largely priced in, the Budget must balance capex and consumption support while avoiding any sharp cut in capex below ~3% of GDP, which could hurt growth. The scope and timing of any structural reforms, ahead of the 2029 elections, remain uncertain.

Strengths of the current expectation set

• Aligns with clarity and steadiness—more focus on better execution than on headline schemes.

• Keeps fiscal discipline in view even as growth and capex demands stay high.
• Addresses middle‑class pain points—tax complexity, slow refunds, and high cost of housing and healthcare.
• Prioritises structural themes like manufacturing, exports, AI and green energy rather than short‑term populism.
• Seeks to convert policy intent into simpler rules across the year instead of one‑day announcements.

Risks and challenges

• Fiscal space is tighter after prior cuts in income‑tax and GST; room for big new tax giveaways may be limited.

• High expectations from taxpayers and industry could lead to disappointment if changes are incremental.
• Global uncertainties (tariffs, geopolitical tensions, slower world growth) make balancing growth and prudence harder.
• Implementation risk—without strong delivery mechanisms, even good announcements may not translate into outcomes.
• Too much focus on stability may underwhelm markets hoping for bold reforms in labour, land, disinvestment and deep tax simplification.

FAQs

1. When will Budget 2026 be presented?

• Budget 2026 is expected to be presented in on Sunday 1^st February 2026, continuing the recent practice of a pre‑March presentation aligned with the new financial year.

2. What are the key income tax expectations from Budget 2026?

• Taxpayers expect some relief through higher basic exemption, a possible tweak in slabs, and an increase in Section 80C limits, along with simpler TDS and faster refunds for salaried and small‑business taxpayers.

3. Will Budget 2026 favour the old tax regime or the new tax regime?

• The broad expectation is that the new regime will remain the default with minor sweeteners, while the old regime may see limited, targeted relief so that both structures can co‑exist without major revenue loss.

4. Which sectors are likely to be in focus in Budget 2026?

• Infrastructure, manufacturing, MSMEs, housing, healthcare, agriculture, green energy, EVs, and digital/AI‑driven businesses are expected to be key themes for allocations and incentives.

5. Can we expect big populist giveaways in Budget 2026?

• With fiscal space constrained and past reliefs already delivered, most analysts expect incremental, targeted measures rather than large populist schemes, to keep growth support and fiscal discipline in balance.