Budget 2026 Expectations: Top 9 Expectations from Union Budget

As India is pacing steadily on the path of development, clearly indicative of the performance of the economy in Q2 FY 2025-26, the Union Budget 2026 is expected to promote robust economic growth by promoting key areas like manufacturing, climate change and green energy, MSMEs, artificial intelligence and robotic technologies, through incentives, improving public infrastructure, and reducing taxation and compliance burden.

1. Direct Tax

Interest Deduction under Section 24(b)

• As far as individual taxation is concerned, the maximum ceiling limit for interest deduction for self-occupied house properties under Section 24(b) could be relaxed.

Joint Taxation for Married Couples

• To facilitate compliance and other benefits, the introduction of a joint taxation scheme for married couples is likely to be proposed in the upcoming budget.

Foreign Tax Credit at the TDS deduction stage

• As per the current provisions, Foreign Tax Credit (FTC) can be claimed only at the time of filing the return of income. 
• Creating an option to claim Foreign Tax Credit at the TDS deduction stage is long overdue - a likely amendment in the budget 2026.

ESOP Taxation for Relocated Employees

• As far as ESOP taxation of employees relocated outside India is concerned, there is ambiguity regarding the taxation of perquisites upon vesting of ESOPs. 
• No guidelines show clarity on the tax treatment of employees who were partly present in India during the vesting period.

Increased Depreciation Benefits for Manufacturing Industries

Although additional depreciation is available in the first year for manufacturing entities, providing more depreciation benefits to manufacturing entities in the subsequent years can boost the development of the manufacturing sector. 

It is to be noted that wear and tear is more significant in this sector as compared to other industries, and this could be a possible area of discussion in the budget 2026.

Artificial Intelligence and Robotic Technology - Expected Tax Benefits

• It is worth noting that emerging technologies such as artificial intelligence, robotics, and space received attention in the 2025 budget. 
• Further tax benefits in these areas will boost the sector and increase India’s international relevance.

Car Perquisite Valuation for Electric Vehicles

• Currently, section 17, read with rule 3 of the Income Tax Act, 1961, deals with the valuation of car perquisite provided to the employees. 
• However, the valuation is based on the cubic capacity of engines, which is not relevant to electric vehicles. 
• This amendment is long overdue and is likely to be expected in the budget 2026.

Taxation of Capital Gains on Contingent Consideration

• In mergers and acquisitions, a portion of the consideration is often contingent on future, uncertain events, namely the company's performance with respect to EBITDA and revenue targets. 
• The current provisions of the act do not address the taxation of capital gains in these situations. 
• Clarifying tax provisions on this issue is expected to be a matter of discussion in the forthcoming budget.

Relaxation of Section 80JJAA

• As the employment situation in India remains sluggish, a relaxation under section 80JJAA, which provides a tax benefit for generating new employment, is expected to improve job creation.

Decriminalization of Income Tax Provisions

• In the 2025 budget, certain provisions, such as non-compliance with selected TCS provisions, were decriminalized. 
• As a continuation, further decriminalization of income tax provisions is expected in the impending budget.

2. Indirect Tax - GST Reforms

As GST 2.0 was introduced during the financial year 2025-26, improving tax revenue and tax compliance at the same time, further simplification of GST provisions is expected, especially in the area of Input Tax Credit, to ensure free flow of working capital and ease of doing business in the Indian economy.

3. Customs and Foreign Trade

Reforms in Customs Litigation 

• Digitalization of customs litigation and the introduction of faster dispute resolution mechanisms can significantly enhance compliance certainty for importers, while improving efficiency and predictability in international trade processes.

Reforms in Tariff Structure

• Simplification and global alignment of customs tariff structure can reduce complexity in duty determination and ease the compliance for both importers and exporters.

Measures for Liberalization of Export Rules

• As a measure to increase global competitiveness in a volatile geopolitical environment, providing additional incentives and benefits for exports may improve overall economic performance and the balance of trade and payments.

Advance Rulings

• Advance rulings are seen as an effective tool for reducing customs litigation in complex matters. 
• Expanding the scope of the same is expected to reduce litigation volume, litigation costs, and the time spent on litigation.

4. Encouraging Global Engagement

To encourage foreign entities to increase participation in the Indian Economy, an optional presumptive tax scheme can be introduced for foreign entities engaged in technical consultancy, digital and E-commerce, and management and software.

5. Artificial Intelligence and Robotic Technology

To increase India's technological relevance on the global stage, advancing recent technologies such as artificial intelligence, robotics, and advanced machine learning, as well as space research, is vital. Therefore, more production-based incentives for entities engaged in these businesses and public infrastructure spending to facilitate growth in these areas are expected matter in the upcoming budget.

6. MSME Development

The development of small and medium industries had always been a crucial matter of concern in the job-dependent Indian economy. Various policy reforms benefiting the MSMEs on the following terms are expected in the approaching union budget.

• Credit support and access to finance
• Enhance resilience to address global uncertainty
• Last mile support

7. Climate change and Green Energy

Since pollution has been a major concern in a population-dense nation like India and the global focus on climate change has increased, incentives such as increased green credits, tax benefits, and relaxed compliance burdens are expected in the renewable energy and environmental development sectors.

Additionally, since the chemical industry is closely associated with renewable energy, both economic and tax incentives are expected in the upcoming budget.

8. Defense Spending

Rising global tensions are likely to drive higher allocations toward indigenous defense manufacturing and increased subsidies for domestically produced defense equipment.

9. R&D Expenditure

An increase in the percentage of the deduction for research and development expenditure will promote Aatmanibhar Bharat.

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