Union Budget 2026: Key Highlights, New Tax Slabs, and Sectoral Impact

On Sunday, February 1, 2026, Finance Minister Nirmala Sitharaman made history by presenting the Union Budget for the financial year 2026-27 on a weekend. With a theme focused on “Viksit Bharat” (Developed India), the budget strikes a balance between aggressive infrastructure spending and significant tax relief for the middle class.

The budget comes at a pivotal time as India transitions to the New Income Tax Act, 2025, which officially takes effect from April 1, 2026.

1. Direct Tax Revolutions: New Income Tax Slabs 2026-27

The biggest takeaway for individual taxpayers is the further simplification of the New Tax Regime. To combat inflation and boost disposable income, the government has revised the slabs and increased the standard deduction.

Key Personal Finance Updates:

Standard Deduction: Increased from ₹75,000 to ₹1,00,000 for salaried individuals.
Tax-Free Limit: Effectively, individuals earning up to ₹12.75 Lakh (including rebate and standard deduction) will pay zero tax under the new regime.
Senior Citizens: The threshold for TDS on interest income for seniors has been doubled to ₹1,00,000.

2. Infrastructure & Capex: Building the Future

The government continues its “Capex-led” growth strategy. The allocation for capital expenditure has been hiked to a record ₹12.2 Lakh Crore for FY27.

High-Speed Rail: 7 new high-speed rail corridors were announced to connect major economic hubs.
Digital Grid: Introduction of a National Destination Digital Knowledge Grid for tourism.
Urban Growth: A ₹1 Lakh Crore Urban Challenge Fund has been set up to transform next-generation cities.
Energy: Launch of the India Semiconductor Mission (ISM) 2.0 with an outlay of ₹40,000 crore.

3. Support for MSMEs and Startups

Recognizing MSMEs as the backbone of the economy, the 2026 Budget introduced several liquidity-boosting measures:

SME Growth Fund: A new ₹10,000 crore fund to provide equity support to growing small businesses.
Self-Reliant India Fund: An additional top-up of ₹2,000 crore for micro-enterprises.
FDI in Insurance: The FDI limit for the insurance sector has been raised from 74% to 100%, provided the premium is invested within India.

4. Health and Agriculture: “Kisan & Kalyan”

Kisan Credit Card (KCC): Loan limits expanded to cover 7.7 crore farmers with short-term loans up to ₹5 lakh.
Medical Seats: 10,000 new medical seats will be added in FY26-27.
Cancer Care: Establishment of Day-care Cancer Centres in every district hospital across India.
Duty-Free Medicines: 36 life-saving drugs have been made completely custom duty-free to lower healthcare costs.

5. Fiscal Health & Macro Indicators

Despite the high spending, the government remains committed to fiscal discipline:

Fiscal Deficit: Target set at 4.3% of GDP for FY27 (down from 4.4% in the previous year).
GDP Growth: The Economic Survey projects a growth rate of 6.8% to 7.2% for the upcoming year.
Market Borrowing: Net market borrowing is pegged at ₹11.54 Lakh Crore.

Final Verdict

The Union Budget 2026 is a “Growth-First” budget. It provides much-needed breathing room for the middle class through tax cuts while ensuring that India’s infrastructure momentum doesn’t slow down. The transition to the New Income Tax Act 2025 marks a new era of “Trust-Based Taxation.”

Note: The new tax slabs will be applicable for the financial year starting April 1, 2026.

Important Notes for 2026

Rebate Magic: If your taxable income (after standard deduction) is ₹12,00,000 or less, your tax is ₹60,000. However, the Section 87A rebate wipes this out entirely, making your tax zero.
Marginal Relief: If you earn slightly above ₹12.75 Lakh, “Marginal Relief” ensures you don’t pay more in tax than the extra income you earned.
Old Regime Status: The “Old Regime” remains available but hasn’t been updated. It is now only beneficial for those with massive home loan interests (above ₹3-4 Lakh) or specific exemptions.

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