Union Budget 2026

The premier, full-service Indian law firm, Shardul Amarchand Mangaldas & Co., along with its experts Rohit Garg, Radhika M Dudhat, Aayush Nagpal, Mrinal Kumar, Gouri Puri, Bhoumik Vaidya, Mihir Deshmukh, Rajat Bose, and Sanjiv Malhotra, have analysed the Union Budget 2026, offering sector-wise insights on tax, policy, infrastructure, and growth.

Rohit Garg (Partner) at Shardul Amarchand Mangaldas & Co.

Retrospective amendments and litigation strategy: The Budget fine print provides retrospective amendments to provide much needed clarity over certain disputed issues which are pending for adjudication before the Supreme Court like the amendment on JAO v. FAO issue, DIN issue, Roca Bathroom/Shelf Drilling, etc. Interestingly, all these issues were decided by High Court(s) in favour of taxpayers and against the Revenue.

While such proactiveness of Government in providing the clarity on these issues is laudable, but it will be interesting to see how taxpayers will react to these retrospective amendments and amend their litigation strategy. Most likely, the taxpayers would now need to revisit their pending matters and devise strategy to iron out issues on the merits rather than on technical points.

Radhika M Dudhat,(Partner) atShardul Amarchand Mangaldas & Co.

— ESG-led growth and sustainability vision —

The Union Budget 2026-2027 has created a blueprint for growth and productivity through an emphasis on accelerated technological advancements, innovation, focused industry advancement (through the integration of Al) and robust capital allocation strategies.

It places special emphasis on the targeted growth of industries including Agriculture, Chemicals, Specialized Education, Infrastructure (which focuses not only on Connectivity but also Logistics and Distribution), Medical Tourism, Pharmaceuticals and Semiconductors. In respect to MSMEs, it allocates resources for the creation of clusters with the necessary infrastructure through a plug and play model.

From an ESG Standpoint, the Union Budget 2026-2027 aims to promote environmentally sustainable schemes including Carbon Capture Utilisation (and Storage), the creation of Environmentally Sustainable Passenger Systems by introducing ‘Growth Connectors’ in the form of 7 High-Speed Rail Corridors', integration and use of Al (and emerging technologies) in Agriculture, boosting Education and Employment, simplifying Compliance requirements across sectors.

We see this Budget as a foundation that will help India achieve its global Sustainability initiatives that are based on the principles of co-operation and responsible action.

Aayush Nagpal,(Partner) atShardul Amarchand Mangaldas

— APAs and withholding tax refund issue —

In case of concluded with respect to Intra-group charges and royalty payments by the taxpayers in India to their associated enterprises outside India, the arm’s length price agreed is either equal to the value of transaction or less than the actual payments. The differential is considered as a transfer pricing adjustment which is subjected to the provisions of section 92CE. In most cases, such payments are subjected to withholding tax, however, there is no mechanism for a refund where there is a downward adjustment. The excess tax becomes an added, unrecoverable cost for the group. The government should rationalise the provisions by permitting non-resident AEs to obtain refunds of such excess tax withheld at the time of payments by allowing a modified return to align the AE’s taxable income with the agreed ALP.

— Penalty and appellate reforms —

1. No interest liability on the taxpayer on the penalty amount for the period of appeal before the first appellate authority, irrespective of the outcome of the appeal process. Thus, leading to significant reduction of cash outflow of taxpayers
2. Penalty and assessment proceedings to be undertaken under a common proceeding, hence, reducing multiple proceedings for the same tax year.

Mrinal Kumar, (Partner), at Shardul Amarchand Mangaldas

— Infrastructure, medical hubs and data centres —

1. City Economic Regions (CERs): Proposed INR 5,000 crores per CER over 5 years to develop Tier II/III cities and temple towns along with seven High-Speed Rail corridors being identified as 'growth connectors' between major cities. The improved connectivity will drive demand for residential, commercial, and mixed-use developments in these regions, boosting construction and ancillary industries.
2. Regional Medical Hubs: Proposed five Regional Medical Hubs in partnership with the private sector to promote medical value tourism. These will be integrated healthcare complexes with medical, educational, and research facilities. This proposal will provide opportunity for development of 'medicities' and ancillary hospitality projects (hotels, serviced apartments) catering to medical tourists.
3. Data Centre Tax Holiday: Proposed tax holiday until 2047 for foreign companies providing cloud services globally by using data centre services from India. This is expected to attract foreign investment in data centre infrastructure, accelerating demand for industrial and technology parks with specialised power and connectivity requirements.

— GST amendment on post-sale discounts —

The Finance Bill 2026 proposes to amend Section 15(3) of the Central Goods and Services Tax Act by eliminating the requirement that post-sale discounts must be tied to an agreement specifically referencing the relevant invoices.

Instead, it proposes to link such discounts to the issuance of a credit note under section 34, provided the recipient reverses the corresponding input tax credit.

The Bill also proposes to modify Section 34 to incorporate a reference to discounts covered under clause (b) of sub-section (3) of section 15.

Gouri Puri, (Partner),atShardul Amarchand Mangaldas & Co.

— MAT and shift to new corporate tax regime —

With MAT being a final tax under the old corporate regime, the government seems to be incentivising a push to the new corporate tax regime. This is also evident from the set off of MAT credit being allowed up to 25 per cent of tax liability to domestic companies transiting to new regime.

— Buyback taxation and profit repatriation —

The Buyback tax scheme seeks to draw a distinction between promoter and non-promoter shareholders. Capital gains tax treatment seems to be restored for non-promoter shareholders. However, promoter individuals will suffer higher tax of 30 per cent and promoter companies 22 per cent.

The government seems to have again revisited taxation of share buy backs reverting to capital gains treatment for non-promoter investments. The fine print will have a major impact on profit repatriation strategies of investors

— GIFT City and GCCs —

Gift city receives a major fillip as the tax holiday for units is extended to 20 years out of 25 years from the current 10 out of 15 years. This signals India’s long-term commitment to a stable tax policy for promoting GIFT

India harbours more than half of the GCCs in the world. Extending transfer pricing certainty to them through revised safe harbours and fast tracking APAs shows India’s continued commitment to be a market leader for GCCs and centres of excellence

— Litigation and compliance easing —

Big changes on minimum alternate tax making it a final tax with no credits to be offset against future income. This will impact branch offices in gift city.

The Government has taken cognisance of the increased litigation backlog. Reducing the tax deposit amount needed to litigate claims, integrating assessment and penalty proceeding, allowing taxpayers to file updated returns during the reassessment phase and rationalising penalties for technical defaults should ease the pressure on indian tax dispute framework.

Bhoumik Vaidya, (Partner),at Shardul Amarchand Mangaldas & Co.

— Infrastructure-led real estate growth and capital markets —

The Union Budget 2026 reinforces the link between real estate and India’s infrastructure-led growth strategy, backed by a record capital expenditure of Rs. 12.2 lakh crore with a double-digit annual increase. This scale of public investment is expected to meaningfully reduce development risk by accelerating metro rail projects, transport corridors and urban infrastructure, which directly supports better project viability, consistent end-user demand and long-term value creation across residential and commercial assets.

Equally significant is the policy intent to unlock institutional capital through the monetisation of central public sector enterprise assets via dedicated REIT-type structures, signalling a more evolved and transparent real estate capital market. Together, these measures aim to strengthen the sector’s fundamentals, improve long-term visibility for developers and investors, and reinforce real estate’s position as a stable, infrastructure-linked asset class in India’s growth trajectory.

Mihir Deshmukh, (Partner) at Shardul Amarchand Mangaldas

— Removal of intermediary services under GST —

Indirect taxes, particularly Service Tax and GST, are based on the principle of destination cum consumption-based taxation. This implies that tax is levied where the goods or services are consumed.

However, this principle was distorted through the introduction of the concept of ‘intermediary services’…

Accordingly, as this removal is now proposed in the budget, the services which were treated as “intermediary services” will now qualify as export of services once notified.

Rajat Bose, (Partner), at Shardul Amarchand Mangaldas

— Customs rationalisation and sectoral relief —

From indirect tax perspective, the theme leans heavily towards structural rationalization. There is an endeavour of GST style simplification for customs regulations which aims to reduce cross border trade bottlenecks. Targeted segments include Healthcare where BCD has been waived for 17 essential cancer drugs, energy and tech where exemptions have been extended to lithium ion cells and battery energy storage systems and aviation and defence. Further, rationalizing duty rates and limits for personal baggage imports will bring relief to individuals returning from foreign travel.

— Make in India and electronics manufacturing —

Electronics and mobile manufacturing appear to be the biggest beneficiary of the make in India push. Extension of zero duty benefits on capital equipment to cover sub-assemblies and specialized machinery for mobile phones and lithium-ion cells will augment setting up of high-tech production lines. A new rare earth corridor and dedicated chemical parks aim to secure the supply chain for semiconductor manufacturing and permanent magnets, reducing dependence on China.

— SEZs and export facilitation —

Indirect tax changes are aimed towards promoting exports and ease of doing business on the one hand and reducing litigation.

SEZ rules are being rationalized to ensure capacity utilization by manufacturing units.

Sanjiv Malhotra,Senior Advisor – Head of Tax Practice, at Shardul Amarchand Mangaldas & Co.

— Manufacturing and tax competitiveness —

In the manufacturing space, there is good news, both on the direct and indirect taxes. India has finally recognised the concept of a toll manufacturing model. The safe harbours of 5 years for foreign principals supplying and storing goods in India, preferential GST for supplies from SEZ to DTA units, enabling foreign employees to be in India without paying taxes (for a period of time) on their global income are all positive measure to make India a hub for global manufacturing. Defense, semiconductor and other hi-tech industries will greatly benefit from this. This gels perfectly well with Indian PLI schemes.

— Safe harbours, APAs and data centres —

New safe harbour rules with the mark-up of 15.5 percent and coverage till 2,000 crores will bring down the transfer pricing litigation drastically

Having a time bound closure of unilateral APAs of 2 to 2.5 years is a big positive to bring down the pendency of APAs and will provide timely tax certainty to MNCs who apply for APAs

Tax holiday for data centres till 2047 with a safe harbour of cost plus 15 percent will encourage enhanced investment in the cloud services space

Conclusion

Overall, the Union Budget 2026 reflects a balance between sector-specific incentives, regulatory rationalisation, and infrastructure-led growth. With measures spanning ESG initiatives, digital and technology adoption, APAs and safe harbour rules, real estate, medical hubs, and taxation reforms, this Budget sets the foundation for sustainable economic expansion. Effective implementation will determine its real impact, but the policy direction indicates a strategic and forward-looking approach to India’s growth, competitiveness, and investment attractiveness.

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