Union Budget 2026: Pre-Budget Expectations on Income Tax Reforms

As India prepares for Union Budget 2026, expectations around income tax reforms are centred on improving certainty, reducing litigation, and aligning tax policy with India’s growing role as a global hub for services, technology, and capital.

With the expansion of Global Capability Centres (GCCs), data centres, and cross-border operations, targeted income tax reforms can significantly enhance ease of doing business while ensuring stable tax collections.

The following proposals reflect key income tax expectations from Budget 2026.

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Tax Certainty for Presence of Employees of Foreign Entities in India

In a globalised economy, short-term and project-linked travel of employees to India is inevitable. This is particularly relevant given India’s emergence as a preferred destination for Global Capability Centres (GCCs), where senior executives frequently travel to India to set up or scale operations.

However, uncertainty around potential tax exposure and compliance obligations acts as a friction point. In the context of evolving visa regimes globally, there is an opportunity for India to position itself as a more attractive destination for expatriates and global leadership talent.

A key expectation from Budget 2026 is:

• Expanding the deemed income regime under section 44BBD, currently available to the electronic manufacturing sector, to cover any category of non-resident providing services in India, irrespective of industry.

This would:

• Facilitate predictable tax collections
• Avoid protracted litigation on attribution and permanent establishment issues
• Reduce compliance burden for both taxpayers and tax authorities

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Tax Neutrality for Fast-Track Demergers

Fast-track demergers were introduced to enable quicker corporate restructuring without requiring court or tribunal intervention. However, the absence of tax neutrality has significantly diluted their effectiveness.