Budget 2026 Expectations Highlights: Budget plans mega AI boost with incentives to attract global tech giants

Dr. Sabine Kapasi, CEO of Enira Consulting Pvt Ltd, Founder of ROPAN Healthcare Private Limited and a UN advisor, said the Union Budget 2026 is expected to place strong emphasis on strengthening healthcare infrastructure, with plans to expand hospitals and medical colleges across Tier 1 and Tier 2 cities.

She said a proposed “PLI 2.0” could mark a strategic shift by moving away from molecule-focused pharmaceutical incentives towards boosting domestic manufacturing of medical devices and equipment, with benefits linked to research, development and innovation.

Dr. Kapasi also pointed to growing expectations around greater integration of AYUSH into mainstream healthcare, which could position India as a leading destination for medical tourism. She added that making nationwide screening programmes for sickle cell anaemia and breast cancer a permanent part of the public health system would significantly strengthen preventive care and improve long-term health outcomes.

In addition, she said increased investment in national AI programmes for healthcare delivery and medical education would help future-proof the workforce and enhance the global competitiveness of India’s health ecosystem.

Rajan Arora, Digital, Trust & Transformation at Forvis Mazars India, said that with the Union Budget 2026 approaching, discussions across the technology and business ecosystem are intensifying, as digital technology continues to play a central role in India’s economic growth. He noted that digitalisation is reshaping how companies modernise, collaborate and stay competitive in an increasingly digital global economy.

While India has made strong progress towards becoming a digital-first nation, Arora pointed out that the next major opportunity lies in accelerating technology adoption among MSMEs, where uptake still trails that of larger enterprises. He said targeted policy support—such as focused tax incentives, improved access to cloud infrastructure and expanded skilling programmes—could enable MSMEs to drive deeper digital transformation and generate employment.

Arora also highlighted growing expectations around Budget support for emerging areas such as artificial intelligence, cybersecurity and data governance. Aligning tax policies with initiatives like the India AI Mission and the Digital Personal Data Protection Act (DPDPA), he said, could enhance investor confidence while promoting responsible and ethical innovation.

On taxation, he said simplifying GST structures and import duties on hardware and software would ease cost pressures on startups and technology firms, freeing up capital for innovation and research. He added that incentives for sustainable technologies, including energy-efficient data centres, could support long-term, environmentally responsible growth.

Overall, Arora said Budget 2026 has the potential to shape India’s digital ambitions in a more inclusive and sustainable manner, turning digital transformation into a durable engine of economic growth.

As India moves into the next phase of defence modernisation, Budget 2026 will play a crucial role in strengthening indigenous manufacturing and advancing technology-driven self-reliance, said Ankur Shah, Managing Director of Krishna Defence and Allied Industries Limited.

Shah said sustained policy focus under Make in India and Atmanirbhar Bharat has helped build domestic defence capabilities, but stressed that the coming year must focus on sharper execution. He noted that higher capital allocation for defence manufacturing, quicker procurement processes and greater visibility on long-term order pipelines would be vital to encourage deeper private sector participation.

He also highlighted the need for stronger support for MSMEs within the defence ecosystem, particularly in areas such as precision manufacturing, testing infrastructure and R&D-led innovation. According to Shah, shifting global supply chains offer India a strong opportunity to emerge as a reliable defence manufacturing and export hub.

Shah added that a Union Budget reinforcing export incentives, indigenisation goals and industry–academia collaboration would help Indian defence manufacturers scale sustainably while contributing meaningfully to national security.

"As India approaches Union Budget 2026, tax policy must move decisively beyond revenue mobilisation towards certainty, administrative discipline and institutional credibility. With robust tax collections and direct taxes contributing over half of total receipts in recent years, fiscal space now exists to prioritise predictability, dispute reduction and quality of administration.

The forthcoming implementation of the Income-tax Act, 2025 from 1 April 2026 marks a significant structural reset of India’s direct tax framework. The reform agenda is clearly oriented towards a principle-based, self-contained and predictable code. However, the success of this transition will depend less on drafting and more on disciplined administration and restrained exercise of powers," said Gaurav Jain, Partner – Direct Tax, Forvis Mazars in India.

With the Union Budget approaching, India is at a critical stage in strengthening its medical tourism ecosystem, said Pankaj Chandna, Co-Founder of Vaidam Health. He noted that policy reforms are increasingly recognising medical value travel as a structured, system-driven growth opportunity rather than a fragmented service.

Chandna said sustained investments in healthcare infrastructure, wider adoption of digital health, and improved access for international patients have laid a strong foundation. He added that the next phase of growth will depend on clearer policy direction, faster and simpler medical visa processes, and well-defined cross-border care pathways that reduce uncertainty for patients and their families.

Highlighting the global potential, Chandna said medical tourism is a multi-billion-dollar industry and India is well placed to strengthen its leadership with its skilled clinicians, advanced hospital networks and strong value proposition built on affordability, outcomes and patient experience. He said international patients are increasingly seeking transparency, continuity of care and seamless coordination across treatment, travel and recovery.

According to Chandna, deeper digital health integration, better insurance alignment and support for accredited patient facilitation platforms will be key to building global trust. Looking ahead to 2026, he said that with the right policy support, India can expand medical tourism beyond major metros into emerging healthcare hubs, creating a more inclusive and resilient ecosystem.

Manoj Dhanotiya of Micro Mitti, said, "Budget 2026 must give India a first mover advantage in the five trillion dollar global tokenized real estate economy by establishing a clear regulatory and tax framework for blockchain based ownership."

"With over 70 percent of Indian household wealth locked in illiquid property, tokenization reforms can finally make real estate accessible, transparent, and investable for the common Indian. A simplified capital gains structure, standardized rules for fractional ownership, and a national digital land record system can transform real estate from a traditional asset into India’s next technology powered wealth engine," he added.

Dhaval Ajmera, Director – Corporate Affairs, Ajmera Group: The real estate sector has emerged as one of the major contributors to economic growth. In order to keep the momentum rolling and further pick up the pace, we expect the ministry to announce policy reforms and remedial measures in the upcoming budget that will benefit the buyers and developers alike. Most importantly, the sector expects to waive the cap currently placed on home loans and introduce tax benefits on the interest paid by buyers, irrespective of the ticket size. This will, in turn, be a mega-booster for the economy and will have a great run in the Indian real estate ecosystem.

Equally significant is the need to truly accelerate India's transition to Net Zero. In relation to this, we urge the Ministry to introduce an Interest Subvention Scheme - specifically for Green-Rated Real Estate Debt. While developers are keen to build sustainable, IGBC/LEED-certified projects, the sky-high cost of capital remains a major barrier. As a remedial measure, a government-backed subvention of 200-300 basis points on Green Bonds would directly reduce the borrowing costs, making green projects financially viable rather than just aspirational.

Last but not least, we look forward to a rationalisation of GST on residential projects and redefine the terminology of affordable housing from price-oriented to measurability, as this will be the last mile help in formalizing the Housing for All dream of the honourable PM.

Dinesh Kanabar, Chairman & CEO, Dhruva Advisors India:

1. A Budget with Limited Scope for Direct Tax Amendments

The Union Budget to be presented on 1 February 2026 comes at a rather unique juncture in India’s tax history. The new Income Tax Act, 2025 is scheduled to come into force from 1 April 2026. This legislation was the outcome of an extensive consultative process, including the constitution of a Parliamentary Committee, wide stakeholder representations, and detailed deliberations before the Bill was finally enacted. In this backdrop, one would ordinarily expect that this Budget would carry no substantive proposals on direct taxes, particularly amendments to a law that has not yet come into effect. Any tinkering with the framework at this stage would undermine the very purpose of introducing a clean-slate legislation.

That said, there is now a growing and widely shared recognition that India’s tax challenges do not lie in the architecture of the law, but in its administration and implementation. Despite several progressive reforms over the last few years—faceless assessments, electronic interfaces, reduced physical interaction, and digitised processes—tax disputes continue to proliferate, and concerns around tax administration remain unabated. If one steps back and reflects on what the Budget could realistically and meaningfully address, the policy expectations can broadly be classified into four baskets.

2. First Basket: Easier Compliance and Rationalisation of Withholding Taxes

One of the most pressing areas requiring attention is simplification of compliance, particularly in the area of tax deduction at source (TDS). TDS is not a tax on the deductor’s income; rather, the deductor acts as an agent of the State, facilitating tax collection. Yet, the current regime prescribes multiple rates across numerous sections, creating significant interpretational challenges. Litigation frequently arises around the applicable rate, classification of payments, and procedural lapses—often without any underlying revenue loss. There is a strong case for rationalising TDS rates into two or three broad buckets, for example: One rate for salary income One uniform rate for most non-salary payments A separate, higher rate for exceptional categories such as lottery winnings or similar windfall incomes Such rationalisation would dramatically reduce compliance complexity. Large taxpayers today maintain sizeable teams merely to manage withholding tax compliance and litigation risk. Simplifying TDS rates would lower compliance costs, reduce disputes, and free up productive resources, without materially impacting revenue collection.

3. Second Basket: Tax Policy Levers to Support Growth and High-Technology Manufacturing

India has articulated a clear ambition to position itself as a global hub for high-technology manufacturing, including artificial intelligence, semiconductors, and advanced electronics. These sectors are capital-intensive and R&D-heavy, requiring sustained investment in research and innovation. At present, however, India offers no meaningful tax incentive for research and development expenditure. This stands in contrast to many competing jurisdictions that actively use tax policy to attract cutting-edge innovation. The Budget presents an opportunity to re-examine whether targeted R&D incentives—designed carefully to avoid misuse—can be reintroduced or recalibrated, particularly for sunrise sectors critical to India’s long-term competitiveness. This assumes added significance in light of the evolving global mobility landscape. A number of highly skilled Indian professionals, particularly in science and technology, may consider returning to India due to constraints around work visas such as the H-1B in the United States. Creating a robust domestic ecosystem for research and innovation, supported by sensible tax incentives, could help India productively absorb this talent.

4. Third Basket: Addressing the Mounting Burden of Tax Litigation

Tax litigation remains one of the most serious structural challenges facing India’s tax system. Estimates suggest that, at the current pace of disposal, it would take five to six years to clear the existing backlog. The consequences are adverse on both sides: The Revenue is deprived of its dues, beyond the standard 20% pre-deposit, for several years.

Taxpayers carry prolonged contingent liabilities, affecting cash flows, balance sheets, and business decisions—even in cases where additions may ultimately not survive. India’s experience with tax dispute resolution schemes has been largely positive. Schemes introduced in the past, including those rolled out in 2020 and revisited in 2024, witnessed significant participation and resulted in meaningful revenue mobilisation and dispute reduction. There is a strong case for re-imagining a comprehensive dispute resolution framework, both for direct taxes and for indirect taxes—particularly customs—where litigation has accumulated over decades. A well-designed scheme can unclog the appellate system, provide certainty to taxpayers, and deliver immediate fiscal benefits to the exchequer.

5. Fourth Basket: Tax Administration and Respect for Taxpayer Sentiment

Finally, and perhaps most importantly, the Budget must reinforce the principle that tax administration should be facilitative, not adversarial. Concerns around indiscriminate issuance of notices, mechanical reopening of assessments, and lack of accountability continue to affect taxpayer confidence. While faceless processes have reduced some friction, they have also introduced new challenges relating to responsiveness, proportionality, and application of mind. What is required is not another layer of legislation, but administrative sensitivity—an approach that recognises that taxpayers are partners in nation-building and that certainty, fairness, and predictability are integral to ease of doing business.

6. Concluding Thought

In sum, expectations from this Budget are not about rewriting tax law, but about making the system work better. Easier compliance, targeted policy incentives, effective dispute resolution, and humane administration can together go a long way in restoring confidence, reducing litigation, and supporting India’s growth aspirations. The moment calls for administrative reform over tax policy changes and that is where the real opportunity lies

Vaibhav Gupta, Partner, Dhruva Advisors India: From an M&A taxation perspective, in cross border share swaps, many times employee stock options are also swapped. While share swaps done by way of tax neutral mergers enjoy a tax exemption, stock options do not enjoy similar exemption, which raises issues around taxability for employees on the swap, espeacially, when the options are already vested. Providing clarity on such swaps and bringing them at par with share swaps will add more certainty for cross border M&A transactions.

Mergers and demergers usually carried out through the High Court and then NCLT approval route have enjoyed the same tax neutrality. However, under the new law, fast track mergers are tax neutral, but a similar benefit is not available for fast track demergers. While this may not be intended, the language of the law has cast a shadow on the tax neutrality of fast track demergers. It is important to clarify this appropriately to ensure that the Government’s objective of simplifying and deregulating internal corporate reorganisations is not marred by undesirable tax exposure.

Around 40 percent of both urban and rural local body grants under the Fifteenth Finance Commission (15th FC) – which runs until March 31, 2026 – are yet to be released, while a significant portion of health-related grants also remains pending due to capacity constraints at the Panchayati Raj Institution (PRI) level, senior government sources said. The Centre is closely reviewing pending claims with line ministries and states, as several of these grants are still held up over eligibility and compliance conditions built into the Finance Commission framework. Read more

Ahead of the Budget, Industry body Assocham has urged the government to provide incentives for hydrogen-based direct reduced iron (DRI) and concessional green finance to help the steel sector transition to low-carbon production.

Finance Minister Nirmala Sitharaman is expected to table the Union Budget for the Financial Year 2026-27 in Parliament on February 1, 2025.

In its pre-Budget recommendations for the domestic steel sector, the chamber also suggested incentives for waste-heat recovery systems and the establishment of renewable captive power plants to curb emissions.

The industry body noted that decarbonisation presents both a challenge and a competitive opportunity, asserting that these measures can accelerate sustainable production.

Assocham further pitched for incentivising scrap collection and recycling, noting that strengthening domestic recycling infrastructure through skilling is essential to reduce the country's dependence on imports.

Despite a higher than Budgeted nominal GDP--in absolute terms--a likely shortfall in tax revenue and divestment receipts may prompt the Central government to scale back on total expenditure to meet the full year’s fiscal deficit target of 4.4 percent of the GDP, economists say.

A senior government official echoes the same view. "The government will stick to 4.4 percent (of GDP) target of fiscal deficit this year, even though some expenditure will have to be managed," the person told Moneycontrol. Read more

The Cabinet Committee on Political Affairs (CCPA) has agreed to propose January 28 as the date for the start of the budget session of Parliament and February 1 as the date for the presentation of the Union Budget, sources said on Wednesday, noting that a final decision on dates is yet to be taken.

The budget session is the first session of Parliament in a calendar year and begins with an address by the President to the joint sitting of the two Houses of Parliament.

The Union Budget has been presented on February 1 for several years. This year, February 1 is a Sunday, and there is a strong likelihood that the government will not change the date of the Union Budget presentation, as a mark of predictability in financial processes.

Andhra Pradesh Chief Minister N Chandrababu Naidu met Union Home Minister Amit Shah here on Wednesday, seeking central support for the state in the upcoming Union Budget, sources said.

The Union Budget is likely to be presented in Parliament on February 1. Naidu, who heads the Telugu Desam Party (TDP), is a key NDA ally.

The budget for the financial year 2026-27 is likely to prioritise artificial intelligence and data centres, as the government is keen to attract "far more" global investment in the AI-ecosystem, sources have told Moneycontrol.

"There is an immense opportunity in India for investors. We saw that in 2025, with the announcement of $15 billion investment by Google for its AI hub (data centre and fibre-optic network) in Andhra Pradesh," a senior government official told Moneycontrol.

The industry has sought a conditional tax holidays for some data-centre developers, with eligibility tied to capacity thresholds, employment and green energy targets, according to sources. Read more