Union Finance Minister Nirmala Sitharaman presented the Budget 2026-2027 in Parliament on Feb.1, 2026. The budget included several proposals to boost growth: scale up manufacturing in seven strategic sectors, incentivize MSME growth, and establish Rare Earth corridors. However, the stock market reacted negatively to the proposal to raise Securities Transaction Tax (STT) on futures and options (F&O). The benchmark Sensex was down over 900 points, and Nifty tested 25k, as of 2.20 p.m.
To be specific, STT on futures is raised to 0.05% from 0.02%. STT on options premium and exercise of options will be raised to 0.15% from the rates of 0.1% and 0.125%, respectively.
The budget is presented against the backdrop of strong growth and low inflation in India. However, consumption has softened, with rural demand remaining patchy, and urban spending is uneven across income groups. Private investment remains cautious and has yet to pick up pace.
Capex Increased
Government spending (public capital expenditure) is driving growth, with investments in roads, railways, and logistics corridors. Continuing the government-led capex initiatives, the government sought to boost economic growth by increasing capex to Rs. 12.2 trillion in FY 2027. In line with the government’s infrastructure push, the government proposed to launch 7 new high-speed rail corridors in the country.
Tax Proposals
The middle class remains the engine of consumption-led growth in India. In last year’s budget, the government had comprehensively overhauled tax slabs to put more money in the hands of the salaried class. The New Income Tax Bill, introduced in Budget 2025, will come into effect on April 1, 2026.
The finance minister did not make any new announcements regarding income tax slabs in the Budget 2026. While the Budget 2026 did not have specific tax proposals other than the increase in STT for futures and options, the government proposed to tax buybacks. Accordingly, tax buybacks for all types of shareholders will be treated as capital gains. However, promoters will pay an additional buyback tax.
However, the Budget proposed some changes to TDS and TCS rates. While TCS on overseas tour packages has been cut to 2% (5% to 20% earlier), the TCS rate under the Liberalized Remittance Scheme (LRS) for education and medical expenses abroad is proposed to be cut from 5% to 2%.
Regarding tax filing, the existing timeline to file ITR-1 and ITR-2 will remain as July 31. However, for those who file revised income tax returns, the deadline has been extended till March 31, subject to a small fee.
Another significant change proposed in the Budget is the cut in the Minimum Alternate Tax (MAT). Accordingly, the MAT will be cut from 15% to 14%.
Watch this space as we decode the Union Budget in the coming days.
