The Finance Minister presented the Union Budget for FY 2026-27 in Parliament on 1 February 2026. The Budget was framed around domestic manufacturing, the services sector and infrastructure spending. From a practitioner’s lens, the noteworthy direct-tax, indirect-tax and customs proposals are summarised below. We have flagged the items that materially change a client’s tax position or compliance workflow.
Direct tax
Slabs unchanged under the new regime
The income-tax slabs under the new tax regime remain unchanged from the changes made in the previous Budget. Individuals and HUFs already on the new regime continue with the same rate band; those still on the old regime see no slab-level change either.
MAT credit set-off restricted
To accelerate the migration of companies to the new tax regime, the Budget proposes that the set-off of brought-forward MAT (Minimum Alternate Tax) credit be allowed only in the new regime, with set-off capped at one-fourth (25%) of the tax liability in the new regime in any given year. Companies sitting on a large MAT credit balance will need to model whether the slower set-off under the new regime, combined with the lower base rate, still beats sticking with the old regime.
Securities Transaction Tax (STT) hike on derivatives
STT rates on derivatives have been raised:
- Futures — from 0.02% to 0.05%
- Options — on premium — from 0.10% to 0.15%
- Options — on exercise — from 0.125% to 0.15%
The increase is meant to dampen retail F&O speculation, in line with SEBI’s broader move to discourage low-ticket derivatives trading.
TCS rationalisation
TCS rates have been rationalised for sellers of specific goods:
- Alcoholic liquor, scrap and minerals — TCS rate moves to 2%
- Tendu leaves — TCS rate reduced from 5% to 2%
The rationalisation simplifies the TCS rate card and reduces the friction for low-margin trades.
Customs & indirect taxes
Personal-use imports — tariff cut
The tariff rate on dutiable goods imported for personal use is reduced from 20% to 10%. This is significant for individuals returning from overseas postings or NRIs bringing goods into India under the personal baggage rules — the effective duty on items above the duty-free allowance roughly halves.
Withdrawal of long-standing customs exemptions
The Budget proposes to remove certain customs duty exemptions that have been in place for years on items now being manufactured domestically or where imports are negligible. Importers should expect the next round of CBIC notifications to specify which tariff lines lose the exemption.
Indirect tax collections
Total indirect tax collections for FY 2026-27 are estimated at ₹16,79,130 crore. CGST is expected to contribute ₹10,19,020 crore.
What we’re telling clients
- Companies sitting on MAT credit: get a partner-led modelling done before the next quarterly tax provision is booked. The 25% set-off cap changes how quickly that credit unwinds.
- Active F&O traders: the higher STT will eat noticeably into thin-margin strategies. Backtest your edge against the new costs.
- Importers of goods that compete with Indian manufacturing: watch the post-Budget customs notifications. If your tariff line loses an exemption, the cost-up needs to land in your contract pricing for FY 2026-27.
- Personal-baggage / NRI clients who routinely bring in dutiable items: the tariff cut to 10% reduces the cost of one-time movement.
- Liquor, scrap and mineral traders: recalibrate the TCS line in invoice templates to 2% from the date the rationalisation takes effect.
What was not in the Budget
For perspective, the Budget did not include:
- A change to the basic exemption limit or income-tax slabs (under either regime).
- An increase in Section 80C / Chapter VI-A deduction limits.
- A change to long-term capital gains rates on equity (which had been adjusted in the previous Budget).
Taxpayers expecting any of these from this Budget should plan for FY 2026-27 on the existing structure.
What we recommend
- Refresh your annual tax projection for FY 2026-27 with the new STT, TCS and customs numbers baked in.
- Re-look at your regime choice if you’re a company carrying MAT credit. The arithmetic has shifted.
- Update invoice templates for clients in alcoholic liquor, scrap, minerals and tendu leaves trade to reflect the new TCS rates.
- Review your customs duty assumptions if you import goods that are now being produced domestically — CBIC notifications post-Budget will name names.
- Watch the Finance Bill 2026 progression through Parliament and the assented Finance Act for the final form of these provisions.
If you would like a tailored Budget 2026-27 impact note for your business or family-investment portfolio, write to us at [email protected].
Sources
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