Union Budget 2026: Strategic Reforms and Industry Implications

2026 BUDGET: Expert Reactions from Lakshmikumaran & Sridharan Attorneys

The premier, full-service Indian law firm, Lakshmikumaran & Sridharan Attorneys, along with its experts Shivam Mehta and Asish Philip, have analysed the Union Budget 2026 and its significant changes with wide-ranging implications.

Attributed to Shivam Mehta, Executive Partner, Lakshmikumaran & Sridharan Attorneys

Inverted Duty

The refund provisions have now been amended to extend the facility of a 90% provisional refund to cases of inverted duty structure claims as well, a benefit that was previously limited to zero-rated supplies of goods or services. This change is in alignment with the recommendations made by the 56th GST Council and aims to improve liquidity for businesses facing refund delays. However, many in industry had hoped that Budget 2026 would also address the long-standing demand of refund of unutilised input tax credit on services and capital goods, which remains unresolved, leaving stakeholders likely to pursue such demand with the GST Council.

Discount Schemes

The removal of the pre-agreement requirement for claiming deduction of discounts from the value of supply has been widely welcomed by taxpayers, as it introduces much-needed commercial flexibility and addresses a long-standing demand of industry. Even though the pre-agreement requirement for discount deduction has been removed, the term ‘discount’ remains in the law, with no defined meaning. It remains to be seen whether longstanding debates from the pre-GST era over what qualifies as a discount will resurface. This amendment could give industry players a useful opportunity to re-evaluate their discount schemes to fully benefit from the revised provisions.

Attributed to Asish Philip, Executive Partner, Lakshmikumaran & Sridharan Attorneys

Regulatory Reforms: Shifting the "Reform Express" to Top Gear

"The Union Budget 2026 signals that the 'Reform Express' is moving beyond incremental tweaks toward deep, structural overhauls. Building on the momentum of the Labour Code and GST 2.0, the proposed comprehensive review of FEMA (Non-Debt Instrument) Rules is a gamechanger for foreign capital. The budget session will see amendments to Arbitration Act and IBC (Amendment) Bill 2025, which introduces Group Insolvency and Cross-Border protocols. India is aiming to offer investors not just 'Ease of Doing Business,' but 'Legal Predictability.' This is critical for high-stakes sectors like Semiconductors and Data Storage, where fast-track mergers and exit certainties are as important as the initial entry."

Infrastructure: Building the "Nervous System" of Industry

"The record ₹12.2 lakh crore Public Capex outlay is designed to create a massive multiplier effect across the economy. By prioritizing High-Speed Rail and new Dedicated Freight Corridors (like the Dankuni-Surat link), the government is effectively de-risking the logistics for new industrial clusters. This infrastructure push is creating a 'plug-and-play' ecosystem for allied industries. The focus on high-tech tool rooms and construction equipment manufacturing ensures that the 'Last Mile' of our supply chain is as robust as the 'First Mile' of our rail and sagarmala corridors."

Contract Manufacturing: Tech, Talent, and Tax Certainty

"The Budget has finally addressed a major 'deal-breaker' for global tech giants. The 5-year income tax exemption for foreign OEMs providing capital goods and tooling to contract manufacturers in bonded premises effectively removes the 'business connection' tax risk that has long stalled local scaling. Along with the 5-year tax exemption on global income for non-resident expats, this will enable transfer of technology and sourcing of global talent. However, the 'devil is in the detail'—to truly unlock this potential, we need Regulatory Harmonization. We must see calibrated changes in GST and Customs to simplify the movement of machinery from Domestic Tariff Areas (DTA) and rationalize the usage of second-hand goods."

Textile Sector Reforms

The Union Budget 2026 has taken a significant step towards revitalizing the textile sector, severely impacted by US tariffs, by leveraging the crisis as an opportunity to enhance the ecosystem. The proposal focuses on promoting highly value-added manmade and tech fibres alongside natural fibres, aiming to boost the sector's competitiveness. Alongside MSME support measures, these initiatives are expected to have a positive impact, enabling India to leverage upcoming FTAs and strengthen its position in the global textile market, ultimately benefiting the sector's large employment base.

Conclusion

Overall, the Union Budget 2026 reflects a pragmatic and forward-looking approach, addressing key industry concerns while laying the groundwork for long-term structural reforms. The measures on GST refunds, regulatory simplification, infrastructure development, and contract manufacturing demonstrate a clear intent to improve business liquidity, ease compliance burdens, and enhance India’s global competitiveness. While certain long-pending issues remain to be addressed, the policy direction is encouraging and is expected to create a more predictable, investment-friendly, and growth-oriented ecosystem in the years ahead.

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