Union Budget 2026: Sitharaman's Plan for Growth & Tax Relief

Introduction to Union Budget 2026

Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget for the fiscal year 2026-27 on Sunday, February 1, 2026. This presentation marks her record ninth consecutive budget, a significant milestone in India's parliamentary history. The budget comes at a time of heightened global uncertainty and fragile trade conditions, placing a strong emphasis on domestic economic resilience. It is expected to align with Prime Minister Narendra Modi's vision of 'Reform, Perform, and Transform,' aiming to shift from addressing long-standing problems to implementing long-term solutions.

Economic Outlook and Projections

The Economic Survey 2026, tabled in Parliament on January 29, provides the foundational context for the upcoming budget. It projects India’s economy to grow between 6.8% and 7.2% in the financial year 2027, with an estimated potential growth rate of around 7%. The Survey describes India as an 'oasis of macro stability,' highlighting strong domestic demand, moderate inflation, and robust macroeconomic buffers as key strengths. This optimistic yet cautious outlook suggests the budget will focus on sustaining public capital expenditure while encouraging a revival in private investment to anchor the growth trajectory.

Key Taxpayer Expectations

For millions of salaried individuals and investors, expectations from Budget 2026 are centered on direct tax relief. After significant reforms in Budget 2025 that made income up to ₹12 lakh effectively tax-free under the new regime, taxpayers are now looking for incremental benefits to offset rising living costs. Key demands include an increase in the standard deduction from ₹75,000 to ₹1 lakh and raising the tax-free limit for Long-Term Capital Gains (LTCG) from ₹1.25 lakh to ₹2 lakh. Additionally, with medical inflation running in double digits, there are calls to enhance health insurance deductions under Section 80D.

The New Income Tax Regime

The upcoming budget is critical as it precedes the implementation of the simplified Income Tax Act, 2025, from April 1, 2026. The government is expected to introduce further incentives to encourage more taxpayers to shift to the new tax regime, which offers lower rates without most exemptions. Industry stakeholders are seeking clear transition provisions and operational rules to ensure a smooth shift. There is also a strong case being made for the rationalization of surcharges, with experts suggesting the maximum rate be brought down to 15% to spur investment activity.

Sectoral Demands and Policy Focus

Various sectors have presented their expectations, hoping for targeted policy support to foster growth and competitiveness.

Startups and Capital Markets: India's startup ecosystem, with over 1.25 lakh registered entities, is seeking improved access to domestic capital. Key demands include targeted incentives for angel investors, rationalization of LTCG on unlisted shares, and simplified compliance for Alternative Investment Funds (AIFs) to improve capital flow into early-stage ventures.

AI and Skilling: Industry leaders have highlighted a significant AI skilling gap, noting that fewer than 25% of graduates are job-ready for AI roles. The budget is expected to prioritize tighter industry-academia integration and provide incentives for enterprises to invest in AI adoption and workforce training, given AI's potential to add over $150 billion to India's GDP by 2030.

Space Sector: The private space industry has called for space assets to be classified as critical infrastructure. This status would enable access to low-cost, long-term financing, which is crucial for capital-intensive businesses. The industry also seeks assured government demand for products and services from domestic companies to help them scale operations.

Real Estate: The real estate sector is demanding 'industry' status to improve access to institutional funding and reduce borrowing costs. Enhanced tax benefits on housing loans under Section 24(b) and incentives for affordable housing projects are also on the wishlist to support both homebuyers and developers.

A Historic Sunday Budget

For the first time since 2017, the Union Budget will be presented on a Sunday. To capture immediate market reactions, both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) will remain open for regular trading hours. This move underscores the government's commitment to enabling real-time market participation and reflects a modern approach to the budget process. This will be only the second time in history that a budget is presented on a Sunday, the first being in 1999.

Conclusion

Union Budget 2026 is poised to be a balancing act, navigating the need for fiscal consolidation while providing targeted stimulus to key sectors and relief to taxpayers. As Finance Minister Nirmala Sitharaman presents her ninth consecutive budget, the focus will be on laying a stable policy foundation for the 'Viksit Bharat 2047' vision. The announcements on February 1 will be closely watched for their impact on consumption, investment, and India's overall economic trajectory amid a challenging global environment.