Union Budget 2026 highlights: Key announcements by FM Nirmala Sitharaman

Union Budget 2026: 16th Finance Commission Report

Finance Minister Nirmala Sitharaman laid the 16th Finance Commission report while presenting Union Budget 2026.

The report outlines the formula for tax revenue devolution between the Centre and states for 2026–2031.

Cesses and surcharges levied by the Centre are excluded from the divisible pool.

Government’s focus on Union Budget 2026

Balancing fiscal consolidation with reform-led growth.

Strengthening Centre-state financial coordination.

Continuing steps toward sustainable development.

Union Budget 2026: Finance Minister proposes 'rare earth corridors' for mineral-rich states

The FM proposed 'rare earth corridors' for mineral-rich states, including Odisha, Kerala, Andhra Pradesh, and Tamil Nadu.

These corridors aim to promote mining, processing, research, and manufacturing of rare earth elements.

She highlighted that the Scheme for Rare Earth Permanent Magnets was launched in November 2025.

The scheme has a financial outlay of Rs 7,280 crore and plans to establish 6,000 Metric Tons per Annum (MTPA) of integrated Rare Earth Permanent Magnet (REPM) manufacturing, enhancing India’s self-reliance and global market positioning.

Biopharma Shakti Programme gets Rs 10,000-crore allocation 

FM Sitharaman announced the Biopharma Shakti programme to boost India’s biopharma sector, with an allocation of Rs 10,000 crore over five years.

The initiative targets non-communicable diseases like diabetes and aims to develop India as a global biopharma manufacturing hub.

The programme will focus on building an ecosystem for biopharma and biosimilars, fostering innovation and strategic growth in the sector.

Strengthening regional economies, industrial clusters

The Finance Minister proposed scaling up manufacturing in strategic and frontier sectors.

Emphasis will be placed on developing city economic regions to strengthen regional economies and industrial clusters.

Economic outlook and policy direction

FM Sitharaman noted that India’s economic trajectory over the past 12 years has been marked by stability, fiscal discipline, sustained growth, and moderate inflation.

She stressed the government’s commitment to action over ambivalence, reform over rhetoric, and Atmanirbharta (self-reliance) as a guiding principle.

Going forward, India will focus on balancing ambition with inclusion, fostering growth while ensuring equitable development.

Municipal bonds 

FM Nirmala Sitharaman proposed incentives of Rs 100 crore for single bond issuance by municipal corporations with borrowings of more than Rs 1,000 crore.

The move aims to strengthen municipal financing and support urban infrastructure development.

Public sector financial institutions

The Finance Minister announced the restructuring of REC Ltd (formerly Rural Electrification Corporation) and Power Finance Corporation (PFC).

These steps are part of the government’s plan to strengthen public sector financial institutions.

Banking for 'Viksit Bharat'

Sitharaman proposed the setting up of a high-level committee on ‘Banking for Viksit Bharat’.

She highlighted that India’s banking sector has a strong balance sheet and is experiencing a historic high profitability.

Foreign exchange management

The Finance Minister proposed a review of foreign exchange management rules related to non-debt instruments.

The move is aimed at streamlining regulations and improving the ease of investment.

Poverty reduction

Sitharaman noted that close to 25 crore people have come out of multidimensional poverty under government initiatives. This reflects progress in inclusive development and social welfare measures, she stated.

Seven high-speed rail corridors as growth connectors between cities 

Mumbai to Pune
Pune to Hyderabad
Hyderabad to Bengaluru
Hyderabad to Chennai 
Chennai to Bengaluru
Delhi to Varanasi
Varanasi to Siliguri

Investment and capital market reforms

Individual Persons Resident Outside India (PROIs) will be allowed to invest in equity instruments of listed Indian companies through the Portfolio Investment Scheme (PIS).

Tax on share buybacks will be treated as capital gains for all shareholders, though promoters will pay an additional buyback tax.

Exemption from Minimum Alternate Tax (MAT) granted to non-residents paying tax on a presumptive basis.

MAT proposed to be made a final tax, simplifying compliance.

Set-off of available MAT credit allowed up to one-fourth of tax liability under the new tax regime.

Tax reliefs 

Interest awarded by Motor Accident Claims Tribunals to natural persons will be exempt from Income Tax, with no TDS applicable.

Time limit for revising income tax returns extended from December 31 to March 31 on payment of a nominal fee.

Individuals filing ITR-1 and ITR-2 can continue filing returns till July 31, while non-audit business cases and trusts get time till August 31.

Taxpayers will be allowed to update returns even after reassessment proceedings, with an additional 10 per cent tax over the applicable rate.

One-time six-month foreign asset disclosure scheme proposed for small taxpayers with assets below a specified threshold.

Immunity from prosecution, with retrospective effect from October 1, 2024, for non-disclosure of non-immovable foreign assets valued below ₹20 lakh.

TDS and TCS rationalisation

Tax Collected at Source (TCS) on overseas tour packages reduced to 2 per cent, down from 5 per cent and 20 per cent, without any threshold condition.

TCS for education and medical expenses under the Liberalised Remittance Scheme (LRS) reduced from 5 per cent to 2 per cent.

TDS on supply of manpower services to be levied at either 1 per cent or 2 per cent.

TDS on sale of immovable property by non-residents to be deducted and deposited using the resident buyer’s PAN instead of TAN.

Rule-based automated system to enable small taxpayers to obtain lower or nil TDS certificates.

Depositories to be permitted to accept Form 15G and 15H from taxpayers holding securities across multiple companies.

Compliance and decriminalisation measures

Non-production of books of account and delays in TDS payments decriminalised.

Framework for immunity from penalty and prosecution extended from under-reporting to cases of misreporting.

Honest taxpayers opting to settle disputes can close cases by paying an additional amount in lieu of penalties.

Customs and trade facilitation

Basic Customs Duty (BCD) is exempted on 17 drugs and medicines used in cancer treatment.

Single, interconnected digital window to be introduced for cargo clearance approvals.

Customs Integrated System (CIS) to be rolled out over the next two years to streamline customs processes.

Institutional and accounting reforms

A Joint Committee of the Ministry of Corporate Affairs and the Central Board of Direct Taxes (CBDT) to be constituted to align Income Computation and Disclosure Standards (ICDS) with Indian Accounting Standards (IndAS).

Education infrastructure push

Five University Townships to be developed near major industrial and logistics corridors, aimed at strengthening industry–academia linkages and improving employability.

Boost for Girls in STEM Education

A girls’ hostel to be set up in higher education STEM institutions in every district to support increased participation of women in science and technology fields.

Scientific research and space infrastructure

Four Telescope Infrastructure facilities to be set up or upgraded to strengthen India’s capabilities in astronomy and scientific research.