Collectively, the post-Budget indirect tax landscape reflects a pathway towards focusing on operational improvements. (AI image)
By Smritikona DuttaIndia’s Union Budget 2026–27 signals a steady but deliberate shift toward the Government’s three stated ‘kartavyas’ of accelerating economic growth, building human capability, and widening access to amenities and resources. The administration has stated that the threefold approach can be achieved through an investment friendly, technology driven and compliance simplified growth. At a time of severe global disruptions, the government’s ability to keep the fiscal deficit below 4.5% of GDP stands out as an appreciable display of fiscal discipline, crucial for maintaining investor trust and protecting sovereign ratings.This discipline is even more notable considering the strain on revenue collections due to wider income tax slabs announced last year, the rollout of GST 2.0, and multiple free-trade agreements, while expected to boost export competitiveness, are likely to weigh on the Government’s revenue streams over the coming years. Within this context, the Budget maintains its momentum on infrastructure creation while addressing structural and systemic rigidities that have long constrained ease of doing business.
The record capital outlay for railways encompassing high-speed passenger and freight corridors and introduction of India Semiconductor Mission (ISM) 2.0 alongwith enhanced allocations towards the Electronics Components Manufacturing Scheme.
The aforesaid steps collectively lay the groundwork for long-term industrial and logistical capacity. Certain additional measures such as tax clarity for data centre operations and deductions linked to rare earth mineral extraction reinforce the Government’s intent to encourage domestic manufacturing in strategically important sectors.The GST side saw a lighter set of direct announcements, consistent with the post-GST Council tradition of treating GST reforms as a collaborative inter-governmental process rather than a Budget-exclusive domain. Still, much awaited legislative changes have been brought in through the omission of intermediary service provisions and alignment of post-sale discounts, easing longstanding compliance concerns for manufacturers and service exporters. Provisional refunds under the inverted duty structure mechanism should offer some relief to MSMEs facing liquidity pressures. However, the industry’s broader expectation of including capital goods and input services within the inverted duty refund framework still remains.Customs related measures such as rollout of customs integrated system for all customs processes, increase in personal duty-free baggage limits and exemption on certain health care drugs/medicines would help in reducing tax burden on individual consumers. On a business side, additional benefits for authorised economic operators, the extension of advance ruling validity, simpler warehousing procedures and removal of the 10 lakh cap on courier exports collectively reduce interpretative ambiguity and are likely to lower classification related disputes. These moves help simplify duty planning and facilitate smoother cross border trade. A request for redressal of many legacy disputes through an amnesty style scheme was widely expected. Yet, the absence of any such mechanism indicates the government’s cautious stance on revenue foregone. Instead, emphasis seems to be on preventing new disputes through digital consistency and a clarified tax regime. Among the impactful announcements is the relief extended to Special Economic Zones. Although SEZ exports remain substantial, manufacturers have struggled with under-utilised capacity and limited domestic sales flexibility. The decision to allow eligible SEZ manufacturing units to sell a limited portion of their output into the domestic market at concessional duty rates marks a major shift. Under the earlier regime, such sales were treated as imports and taxed at full output duty levels. The new relaxation is expected to ease inventory accumulation challenges being presently faced by manufacturing SEZ’s due to geopolitical tariffs. Collectively, the post-Budget indirect tax landscape reflects a pathway towards focusing on operational improvements, supply chain facilitation and targeted competitiveness enhancement rather than across the board tax relief. The policy direction being unmistakable: a gradual, technology driven, investment aligned tax regime that balances fiscal stability with long term efficiency. (Smritikona Dutta is Tax Partner, EY India. Inputs from Annubhav Kapoor, Senior Tax Professional, EY India)
