Union Budget 2026: Direct Tax Expectations for the Financial Services Sector

As India’s financial services sector continues to deepen and globalise, tax certainty, timing of taxation, and compliance simplicity have become critical policy priorities. Union Budget 2026 presents an opportunity to address long-standing issues that impact cross-border investments, capital markets transactions, and fund structures, while maintaining revenue certainty for the exchequer.

The following proposals outline key direct tax expectations for the financial services sector.

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Enhancing Tax Certainty for Treaty Benefits

Recent rulings by the Apex Court in relation to tax treaty benefits applicable to non-residents and foreign companies have heightened uncertainty around eligibility conditions.

Industry expects Union Budget 2026 to:

• Clarify or elaborate statutory requirements for availing tax treaty benefits.
• Provide guidance on whether documentation beyond a Tax Residency Certificate (TRC) is required.
• Reduce ambiguity that could lead to inconsistent interpretations and increased litigation.

Clear legislative guidance will provide predictability for cross-border investors and strengthen India’s attractiveness as an investment destination.

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Removing Withholding Tax on Off-Market Securities Transactions

Under current income tax provisions, transactions in securities outside Indian stock exchanges are subject to withholding tax provisions applicable to sale of goods.

Budget 2026 is expected to:

• Extend the existing exemption from withholding tax, currently available for listed securities traded on stock exchanges, to all transactions in securities, including off-market transfers.
• Ease compliance burden for investors, intermediaries, and counterparties.
• Reduce operational complexity and unintended tax exposures.