As the government prepares to present the Union Budget 2026–27 on February 1, the Finance Ministry on Tuesday reflected on key Budget announcements made in recent years and the progress achieved under them, while a separate report projected that reforms will continue, albeit with fiscal restraint.
The Finance Ministry highlighted that the Finance Act, 2025 brought comprehensive changes to the personal income tax structure under the New Tax Regime (NTR), leaving more disposable income in taxpayers' hands. These changes, effective from FY 2025–26 (AY 2026–27), include liberal tax slabs, lower rates and enhanced rebates. Individuals earning up to Rs 12 lakh — effectively Rs 12.75 lakh for salaried taxpayers due to the standard deduction of Rs 75,000 — are not required to pay any income tax under the revised regime.
The ministry also pointed to the Income Tax Bill, 2025, which seeks to replace India's six-decade-old direct tax framework, balancing investor confidence, taxpayer relief and administrative efficiency.
In corporate taxation, reforms include a 22 per cent tax rate for companies that do not claim specified deductions and exemptions, and a concessional 15 per cent rate for new manufacturing companies for a specified period. The Finance Act, 2025 also extended Section 10(23FE) benefits, allowing eligible sovereign wealth funds (SWFs) and pension funds to make qualifying infrastructure investments until March 31, 2030, while continuing to enjoy tax exemptions on dividends, interest and long-term capital gains.
The government also fulfilled its Budget promise of providing certainty of taxation for Alternative Investment Funds (AIFs) by clarifying the classification of income from securities. In addition, expanded activities and extended timelines for the International Financial Services Centre (IFSC) were fully implemented through the Finance Act, 2025, with amendments taking effect from April 1, 2025.
Meanwhile, an HSBC report said that the wave of reforms is likely to feature prominently in the upcoming Budget, with the government focusing on two key pillars — restraint and reforms. The report expects the Centre to meet its FY26 fiscal deficit target of 4.4 per cent of GDP, aided by strong RBI and PSU dividends and lower current expenditure, despite revenue losses due to tax rate cuts.
HSBC forecasts a further reduction in the fiscal deficit to 4.2 per cent of GDP in FY27, supported by pruning of schemes and controlled expenditure. Net market borrowing is expected to remain unchanged at Rs 11.5 lakh crore in FY27, though gross borrowing may rise to around Rs 16 lakh crore due to high redemption pressures. However, borrowing growth is expected to remain below nominal GDP growth, keeping fiscal pressures manageable.
The report noted that the fiscal consolidation path is aligned with the Centre's public debt target for FY31, although state governments may see higher debt ratios in the coming years. On the domestic front, the report expects continued deregulation by the Centre and states, manufacturing incentives for small firms, capex diversification favouring loans to states, and rationalisation of subsidies and centrally sponsored schemes.
On the external front, HSBC expects a major rationalisation of customs duties, further easing of non-tariff barriers and greater openness to foreign direct investment across sectors.
(With inputs from IANS)
