Union Budget 2026: What to Expect for Taxes & Capex

Introduction to Union Budget 2026-27

Union Finance Minister Nirmala Sitharaman is set to present the Union Budget for the financial year 2026-27 on Sunday, February 1, 2026. This will be her ninth consecutive budget presentation, a significant milestone. The event, scheduled for 11 am in the Lok Sabha, is notable for being the first time the annual budget will be tabled on a Sunday. The broader expectation is a budget focused on policy continuity and long-term economic strategy rather than major, unexpected announcements. The presentation comes at a time when the Indian economy is navigating global uncertainties, including trade tariffs and geopolitical tensions, while aiming to sustain its growth momentum.

Economic Context and Global Headwinds

The FY27 Budget is being formulated against a complex global backdrop. While India's domestic demand has remained resilient and inflation has moderated, the international environment presents several challenges. Geopolitical tensions, volatile commodity prices, and inconsistent monetary policies from major central banks create an uncertain outlook. Furthermore, the Indian economy is contending with 50% tariffs from the United States, a significant trading partner. The budget is expected to outline India's strategy to insulate itself from these global trade frictions and maintain its position as the world's fastest-growing major economy. The Economic Survey, tabled on January 29, projected growth for FY27 to be between 6.8% and 7.2%, reinforcing confidence in the country's economic trajectory.

Focus on Capital Expenditure

Capital expenditure (capex) is anticipated to remain a central pillar of the government's fiscal strategy. In recent years, increased public spending on infrastructure has been used to stimulate economic activity and attract private investment. For FY27, economists predict another substantial increase in capex, potentially crossing ₹12 lakh crore, although the pace of growth might be more moderate compared to the sharp post-pandemic expansion. Priority sectors for investment are likely to include railways, renewable energy, power transmission, defence, and urban transport. The government is also expected to continue supporting state-level infrastructure projects through interest-free loans, aiming to create a multiplier effect on growth and employment.

Tax Policy: Stability Over Surprises

On the taxation front, the government is expected to prioritize stability and predictability. Major overhauls to income tax slabs are considered unlikely, especially after the relief provided in the previous year. However, there is widespread anticipation of minor adjustments aimed at providing relief to middle-class and salaried taxpayers to boost consumption. The debate between the old and new tax regimes continues, with a significant number of taxpayers still finding value in the deductions offered by the old framework. The new tax regime, which is the default option, offers lower tax rates but forgoes most exemptions. Any changes are likely to be incremental, focusing on improving compliance and widening the tax base through digitization.

New Income Tax Regime Slabs (FY 2026-27)

The new tax regime remains the default for taxpayers, offering simplified slabs and a standard deduction of ₹75,000 for salaried individuals and pensioners. Here is a summary of the current slabs under this regime:

Expectations for Manufacturing and Job Creation

Creating employment opportunities is a prominent theme expected in the budget. The government may introduce incentives linked to labour-intensive manufacturing sectors to encourage job growth. There could also be a renewed push for skilling and apprenticeship programs to enhance the employability of the workforce. The effectiveness of the Production-Linked Incentive (PLI) schemes will likely be reviewed, with potential refinements to boost manufacturing capacity, exports, and employment further. Support for Micro, Small, and Medium Enterprises (MSMEs) is also anticipated, possibly through enhanced credit-guarantee schemes to help them manage high input costs and tight credit conditions.

Green Transition and Energy Security

India's commitment to its energy transition goals is expected to be reflected in the budget. Increased support for renewable energy, green hydrogen, battery storage, and electric mobility is likely. The government may also announce measures to promote domestic manufacturing of clean-energy equipment to reduce reliance on imports. Simultaneously, to address energy security concerns amid global volatility, allocations for oil and gas infrastructure and the maintenance of strategic petroleum reserves are expected to continue.

Sector-Specific Demands and Reforms

Various sectors have voiced their expectations. Homebuyers and the real estate industry are calling for an increase in the home loan interest deduction limit under Section 24(b) from the current ₹2 lakh to at least ₹5 lakh to reflect rising property costs. There are also calls to revise the definition of affordable housing to make it more viable for developers in metro cities. For investors, there is a hope for rationalization of capital gains taxes and the removal of the Securities Transaction Tax (STT) to reduce transaction costs. Additionally, industry bodies like FICCI have recommended expanding the offices of the Customs Authority for Advance Rulings to improve trade certainty and reduce litigation.

Conclusion: A Balancing Act

Finance Minister Nirmala Sitharaman's ninth budget is poised to be a careful balancing act. The primary objective will be to sustain India's high growth trajectory while maintaining fiscal discipline. The budget is expected to reinforce the government's long-term economic vision through continued investment in infrastructure, manufacturing, and the green economy. While major populist measures are unlikely, targeted relief for taxpayers and support for job-creating sectors will be closely watched. Ultimately, the Union Budget 2026-27 will aim to provide a stable and predictable policy environment to navigate near-term economic risks and build a resilient foundation for future growth.