Budget 2026: What’s Good and Bad About the Latest Union Budget
Budget 2026 sets out growth priorities but disappoints many with limited tax relief, leaving middle‑class taxpayers and markets underwhelmed.
Budget 2026: What’s Good and Bad
For months ahead of its presentation on 1 February 2026, Budget 2026 was awaited by Indian households and businesses against a backdrop of persistent cost pressures. Rising prices of food and fuel, coupled with global economic uncertainty, had eroded purchasing power and made everyday essentials more expensive, squeezing household budgets and dampening consumer confidence.
Many economists and citizens alike had hoped the Union Budget would offer measures such as meaningful tax relief, targeted subsidies or incentives aimed at curbing inflationary pressure, boosting disposable incomes and generating fresh impetus for growth. Instead, a significant section of the public and markets described the outcome as a disappointment, arguing that it fell short of addressing the urgent concerns of ordinary consumers and investors.
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In its broad framing and announcements, Budget 2026 has struck many observers as underwhelming and timid. Expectations of bold, transformative measures for the middle and lower income segments were high, but the Finance Ministry’s speech delivered few headlines‑making reliefs for these groups. Critics noted a lack of clarity in allocations for key programmes and schemes, and a stronger emphasis on continuity and cautious policymaking, rather than a decisive shift in direction. While continuity can signal policy stability, several analysts and opposition figures argued that the budget did not rise to the moment in confronting stagnating demand and structural constraints in the economy.
One of the most widely discussed omissions in Budget 2026 was the absence of changes to income tax slabs or direct tax cuts for individuals. Under the new tax regime, income up to a specified threshold remains structured across multiple brackets without a meaningful reduction in tax burden for the median taxpayer, leaving many middle‑class households with little immediate financial relief. While the government has proposed a new Income Tax Act effective from April 2026 expected to simplify and rationalise the system, this structural change did not translate into immediate, tangible savings for millions.
The budget’s reception in financial markets highlighted this sentiment. On the same day the Finance Minister presented the budget, India’s key benchmark indices — the BSE Sensex and NSE Nifty 50 — registered notable declines. This reaction was driven in part by the government’s decision to increase the Securities Transaction Tax (STT) on equity derivatives such as futures and options, with the rate on futures rising from 0.02 per cent to 0.05 per cent and on options to 0.15 per cent. Markets interpreted the higher trading costs as a deterrent to speculative activity but also a disincentive to liquidity, pushing both benchmarks lower and signalling investor disappointment.
Despite some targeted adjustments to tax‑collected‑at‑source (TCS) and tax‑deducted‑at‑source (TDS) provisions that were intended to ease compliance and improve cash flows for businesses and individuals, many commentators noted that Budget 2026 offered procedural relief rather than broad reductions in the cost of living or taxation.
The Finance Minister’s announcements included caps and reductions in specific TCS rates — such as lowering the rate on overseas education and medical remittances under the Liberalised Remittance Scheme to 2 per cent, and capping TCS on overseas tour packages at 2 per cent — as well as measures to streamline TDS on certain services and extend the window for filing revised income tax returns. These changes aim to reduce administrative friction and help taxpayers manage working capital, but they do not translate into sweeping cuts in tax rates or significant disposable income enhancements for ordinary consumers.
In her Budget 2026 speech, Finance Minister Nirmala Sitharaman reaffirmed a central fiscal decision that drew particular attention: the Centre will retain the states’ share of central taxes at 41 per cent for the next five years (2026–31). Under the recommendations of the 16th Finance Commission, this vertical share — the proportion of the total divisible pool of central taxes allotted to the states — remains unchanged from the previous period. Alongside this, the government announced that ₹1.4 lakh crore will be allocated in Finance Commission grants in 2026–27 to support rural and urban local bodies and to provide for contingencies such as disaster management.
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However, this decision sparked unease among several state governments. Many had hoped for a higher share of the divisible tax pool, arguing that states now shoulder greater responsibilities — from healthcare and education to welfare programmes and infrastructure delivery — and face rising costs due to inflation and demographic pressures. Critics contend that, in nominal terms, states’ effective share in centrally collected revenue has shrunk because a growing portion of central receipts comes from cesses and surcharges that are not shared with states. When the Centre retains a larger portion of tax revenues, states can feel financially constrained and more dependent on transfers from Delhi. Such constraints have real‑world implications: cash‑strapped state budgets may delay or scale back spending on essential services like schools, hospitals, roads and sanitation, directly affecting ordinary citizens’ quality of life.
Budget 2026: Infrastructure and Reforms Offer Promise, But Relief Remains Limited
Amid the criticism, Budget 2026 did contain several initiatives that signal constructive policy thinking, even if they fell short of the bold relief many had hoped for. Perhaps most prominent was a record increase in capital expenditure — the government raised its public capex outlay to ₹12.2 lakh crore for FY 2026–27, up from around ₹11.2 lakh crore previously. This sustained focus on infrastructure spending reveals the government’s strategy of using public investment to support growth, improve connectivity and stimulate jobs across sectors. Such allocations can bolster economic activity beyond major metros, particularly in tier‑2 and tier‑3 cities, and create order‑book visibility for construction and heavy engineering firms in the near term.
Budget 2026 also reiterated support for strategic and future‑growth sectors that policymakers view as critical for long‑term competitiveness. The India Semiconductor Mission 2.0 was launched with an enhanced allocation of ₹40,000 crore, aiming to deepen domestic semiconductor manufacturing, reduce import dependence, and strengthen technology supply chains in a space where global demand remains intense and geopolitically sensitive. Plans were also articulated for developing dedicated corridors for rare earth minerals — inputs vital for electronics, electric vehicles, and clean energy technologies — in states such as Odisha, Kerala, Andhra Pradesh and Tamil Nadu.
For the small and medium enterprise (SME) segment, which is central to employment and inclusive growth, the budget set up a ₹10,000 crore SME Growth Fund. The intent is to provide capital and ecosystem support to smaller firms, helping them scale and compete, particularly in sectors with export potential or labour intensity. Coupled with targeted measures to modernise clusters, support logistics competitiveness, and improve access to credit, these steps acknowledge the importance of MSMEs to the broader economy, even if they do not constitute a sweeping tax relief or sector‑wide stimulus package.
Budget 2026 also introduced large connectivity and growth projects, such as seven new high‑speed rail corridors designed to link major economic centres and reduce travel times, alongside plans for additional waterways and freight routes. These long‑term projects, together with the expanded infrastructure risk guarantee fund to attract greater private sector participation, are aimed at reinforcing logistical efficiency and spatial development across regions.
Beyond headline allocations, the finance minister announced several procedural and compliance‑focused reforms. These included extensions of timelines for filing revised income‑tax returns and rationalised TDS/TCS structures that offer flexibility to taxpayers, particularly individuals and small businesses. While these measures do not equate to broad rate reductions, they have been interpreted as pragmatic steps toward easing administrative burdens and enhancing taxpayer experience.
Taken together, these initiatives form the “good” in Budget 2026. Yet, beneath these positives lies a broader pattern that left many observers unconvinced. For a large swathe of ordinary citizens, particularly middle and lower‑middle‑class taxpayers, the budget offered little immediate financial relief. The absence of meaningful changes to income tax structures, combined with rising everyday costs, left many feeling that their struggles were not directly addressed. Investors and capital markets reacted sharply to the budget’s trading cost changes, while startups voiced frustration at the lack of major tax incentives, targeted funding windows or fresh capital‑market reforms that could support early‑stage scaling in a tight credit environment.
Senior citizens, facing rising living and healthcare costs, found no significant enhancements in pension schemes or age‑specific support. And though the government introduced some women‑focused measures — including support for self‑help group enterprises and girls’ hostels aimed at making education and work more accessible — critics argue these fall short of robust, direct commitments to job creation, income security, and everyday cost‑of‑living relief for women across income brackets.
In sum, Budget 2026’s blend of strategic spending and procedural tweaks did not resonate equally with all segments of the public. For many households, businesses and communities, the absence of transformative tax relief and immediate cost‑of‑living support has translated into disappointment and a sense that the budget’s promise of growth did not equate to tangible relief at the ground level.
