Budget Highlights 2026: Finance Minister Sitharaman makes big announcements on STT, tourism, manufacturing, MSMEs

The Indian tyre industry stands to gain from the government's steps to enhance spending on infrastructure announced in the Union Budget 2026-27, Automotive Tyre Manufacturers Association (ATMA) said on Monday.

"The tyre industry's growth is intrinsically linked to the pace of infrastructure expansion in the country. The government's focus on elevating public capex reinforces demand momentum for tyres across both passenger and commercial vehicles," ATMA Chairman Arun Mammen said.

India's medium-term macro outlook remains constructive as the Union Budget for FY27 signals continuity in capital expenditure alongside a softer fiscal drag, according to a report by Goldman Sachs.

The Goldman Sachs report said: "the FM reaffirmed the commitment to keep central government public debt (as a share of GDP) on a declining path toward 50% ( /- 1%) by FY31 (from 55.6% target in FY27). We see this as an important signal, given India's relatively elevated public-debt burden versus most EM peers."

Indian Council of Medical Research (ICMR) Director General Rajiv Bahl said the government has initiated a significant push to transform the country's pharmaceutical landscape by addressing regulatory gaps and enhancing research infrastructure.

Bahl told ANI: "A big step has been taken to overcome the shortcomings in the regulator in the pharma sector."

The three-time increase in allocation for the Production Linked Incentive (PLI) scheme for automobiles and auto components in the Union Budget 2026 is likely to significantly support electric vehicle (EV) penetration and localisation of component manufacturing.

In the Budget, the allocation under the PLI scheme for automobiles and auto components has been increased threefold to ₹59.4 billion for FY27, compared to ₹20 billion in FY26.

Finance minister Nirmala Sitharaman on Sunday announced setting up of an infrastructure risk guarantee fund to ease financing bottlenecks and revive stalled projects.

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Finance Minister Nirmala Sitharaman, in her Union Budget 2026 speech on Sunday, 1 February, announced a one-time foreign asset disclosure scheme for small taxpayers like students, tech professionals, and relocated Non-Resident Indians (NRIs).

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Under the Budget 2026 proposal, FM Nirmala Sitharaman has announced that Self-Help Entrepreneur (SHE) Marts will be set up as community-owned retail outlets within cluster-level federations.

The initiative aims to create stronger market access for enterprises set up by women residing in rural areas, and giving local products a more visible space.

It is also intended to help women business owners reach larger markets, build their brands and create steadier sources of income, while strengthening local institutions such as self-help groups.

On the capital markets front, the Budget has introduced a market making framework, providing access to fund and derivatives on corporate bonds total return swaps, and permission to Persons Resident Outside India for making direct investment in listed equities.

“These initiatives are expected to significantly deepen market participation and improve liquidity,” said Sunil Badala, National Head of Tax, KPMG in India.

However, he added the increase in STT on derivatives may dampen the sentiment in the trading community. In order to curb the F&O frenzy the Finance Minister Nirmala Sitharaman has proposed to increase the Securities Transaction Tax (STT) on the Futures and Options transactions.

In the Union Budget 2026-27, the government proposed measures to reduce prices of leather products, cancer drugs and seafood by extending policy support, allowing duty-free imports and granting customs exemptions, with the objective of strengthening domestic industries while easing costs for patients and producers.

Meanwhile, trading activity and some corporate cash-distribution mechanisms are expected to turn more expensive due to proposed revisions to buyback taxation, the securities transaction tax (STT), and tax collected at source (TCS), indicating a stricter approach toward tax arbitrage and compliance.

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The Budget places particular emphasis on export-oriented sectors such as marine products, leather and textiles. To support seafood exports, Sitharaman proposed raising the limit for duty-free imports of specified inputs used for processing seafood products from 1% to 3% of the previous year’s export turnover.

This announcement comes as India faces hefty tariffs in the United States, prompting the government to step up support for exporters. In August, the Trump administration imposed 50% tariffs on New Delhi, including a 25% penalty for purchasing Russian oil.

Commenting on the announcement, SR Patnaik, Partner and head of taxation at Cyril Amarchand Mangaldas said, “the export-linked relaxations for marine, leather, and textile sectors are fiscally modest but strategically sharp; they lower working capital friction while signalling that India intends to compete on speed, scale, and predictability in global value chains.”

The Union Budget 2026 said that the Government will support States, through challenge route, in creating 5 University Townships in the vicinity of major industrial and logistic corridors.

These planned academic zones will host multiple universities, colleges, research institutions, skill centres and residential complexes.

In another announcement, Sitharaman also proposed an ‘orange economy’ to foster a strong support for India's creative industries, creating future-ready creative jobs.

The government will also set up a new National Institute of Design (NID) in the eastern region of India.

“The budget has shifted focus to workforce readiness from capacity creation. The proposal to set up university townships within industrial and logistics corridors will enable closer integration of education, research and industry requirements, as well as encourage targeted investments in gender-inclusive infrastructure, thereby addressing long-standing access constraints in higher education. Along with promoting investments in design and frontier research, the proposals will deepen India’s innovation pipeline and future-skills ecosystem,” said Binaifer Jehani, the Business Head of Assessments at Crisil Intelligence on Education Sector.

In a significant taxpayer-friendly reform announced in the Union Budget 2026–27, Finance Minister Nirmala Sitharaman on Sunday proposed extending the deadline for filing revised income-tax returns (ITRs) from 31 December to 31 March of the relevant financial year, on payment of a nominal fee.

The change, to be implemented under the forthcoming Income Tax Act, 2025, is aimed at improving voluntary compliance and reducing avoidable disputes.

The Finance Minister Nirmala Sitharaman did not announce any new changes in income tax slabs this year, while though she proposed exemptions on duties for several goods.

Union Finance Minister Nirmala Sitharaman announced in the Union Budget 2026 on Sunday a comprehensive scheme to strengthen the Central Drugs Standard Control Organisation (CDSCO), while also announcing a Biopharma Shakti scheme with ₹10,000-crore outlay over the next five years.

“The announcement of Biopharma Shakti is a decisive step towards strengthening India’s pharmaceutical and biopharma ecosystem more structurally,” said Yogesh Mudras, the Managing Director of Informa Markets in India.

For the pharma sector, this initiative goes beyond funding, according to Mudras, as he claimed that it creates a long-term framework to support research, scale up advanced manufacturing, and drive innovation across biologics, biosimilars, vaccines and complex therapies.

Meanwhile, Biplab Lenin, Partner at Cyril Amarchand Mangaldas, said that the proposed ₹10,000 crore investment over the next five years, alongside faster clinical trial approvals and the expansion to 1,000 trial sites, has the potential to significantly strengthen India’s bio-pharma and biosimilars ecosystem, particularly in addressing the growing burden of diabetes and cancer.

“With effective implementation, the initiative can improve access to advanced therapies and further reinforce India’s position as a trusted and reliable global healthcare partner,” he said.

In order to support rare earth minerals, the Union Budget has dedicated Rare Earth corridors to be formed for Odisha, Kerala, Andhra Pradesh and Tamil Nadu, finance minister Nirmala Sitharaman said in her Budget 2026 speech.

The announcement follows the Union cabinet’s approval in November 2025 of a ₹7,280-crore fund to support the domestic production of rare-earth magnets. The fund will back the establishment of five manufacturing plants and provide sales-linked incentives for every kilogramme of magnets sold.

India has one of the world’s largest rare-earth deposits, estimated at about 6.9 million tonnes.

Presenting her ninth consecutive Budget on Sunday, FM Nirmala Sitharaman proposed to hike the Securities Transaction Tax (STT) on futures and options (F&O) trading.

Here's an overview of the proposed changes:

— Futures: STT hiked to 0.05% from 0.02%

— Options premium: An increase in STT to 0.15% from 0.1%

— Exercise of options: STT increased to 0.15% from 0.125%

“This is a ‘Compliance-First’ budget. The sharp hike in STT and the buyback tax realignment are clear deterrents against retail derivative frenzies and promoter-led arbitrage,” said Rohit Jain, Managing Partner at Singhania & Co.

However, he added, that the silver lining lies in the FEMA (NDI) review and the increased NRI investment headroom, which will likely simplify inbound capital structures.

Here's an analysis from Bank of Baroda about the borrowing and bond market after the Budget announcement:

— Gross market borrowing pegged at ₹17.2 lakh crore, slightly higher than market expectations.

— Net borrowings remain stable, offering comfort to bond markets.

— Yield curve may witness a flattening bias due to higher short- and long-term issuances.

India's capital expenditure continues to increase. As announced by the FM Sitharaman, the government will spend ₹12.2 trillion in 2026-27, as against the 2025-26 budget estimate of ₹11.2 trillion.

This is the “highest-ever capital expenditure and works out to be 4.4% of GDP,” according to Sitharaman, adding that this hike is aimed at continuing the momentum in infrastructure development and supporting economic growth.

“The continued expansion of public capital expenditure reinforces the government’s long term commitment to infrastructure-led growth. The proposed Infrastructure Risk Guarantee Fund is particularly significant, as prudentially calibrated credit guarantees can materially de-risk the construction phase for lenders and crowd in private capital. Equally, the accelerated monetisation of CPSE real estate assets through dedicated REITs signals a more mature, institutional approach to asset recycling. Together, these measures strengthen confidence across the infrastructure and real estate value chain,” said Madhura Samant, Managing Partner at Elarra Law Offices.

Union Finance Minister Nirmala Sitharaman on Sunday declared that the Self-Reliant India Fund would receive an additional ₹2,000 crore in fiscal year 2026-27 to expedite the growth of micro, small, and medium enterprises (MSMEs).

Experts have continued to flag issues in the sector which restricted its growth. “Credit access and receipt of timely payments have been major challenges for MSMEs over the years, with an estimated ₹8.1 lakh crore locked in delayed payments, blocking working capital,” said Pushan Sharma, the Director of Crisil Intelligence on MSME sector.

To address these liquidity concerns, the budget has introduced several measures to enhance traction on the Trade Receivables Discounting System (TReDS) platform.

“Making TReDS a mandatory settlement platform for all Central Public Sector Enterprises is expected to improve MSME liquidity. Since its launch, TReDS has financed more than ₹5 lakh crore receivables, with fiscal 2025 volumes reaching ₹233,000 crore, a 69% on-year increase. Further, TReDS’ role as an asset-backed securities conduit will facilitate easier access to funding for MSMEs,” he said.

He further added that enabling invoice discounting through the Credit Guarantee Fund Trust for Micro and Small Enterprises is a crucial step to further strengthen the TReDS ecosystem.

Proposed changes:

— Sale of alcoholic beverages for human consumption: TCS rates on alcoholic drinks will be increased from 1% to 2%.

— Sale of tendu leaves: This product will attract a TCS rate of 2% if the change is approved, down from the earlier rate of 5% during its sale.

— Sale of scrap: The Budget 2026 proposes to hike the TCS rate on the sale of scrap to 2%, from the current 1% figure.

— Sale of minerals (coal, lignite, or iron ore): TCS rate on the sale of these products has been proposed to be hiked from 1% to 2%.

Finance Minister Nirmala Sitharaman also announced a reduction in the TCS rate for education and medical purposes from 5% to 2% in the Union Budget 2026, providing major relief for students and families.

“The move is a clear positive for Indian students aspiring to study abroad. By removing TCS entirely on education loans under Section 80E, raising the self-funded exemption threshold from ₹7 lakh to ₹10 lakh, and reducing TCS on higher self-funded remittances to 2%, the government has eased the upfront financial pressure families face during admissions and visa stages,” said Saurabh Arora, Founder and CEO at University Living.

Combined with policy support for NEP-aligned ‘Start in India, Transfer Abroad’ pathways, students can potentially reduce overall education costs by 20-40%, he added.