Budget: Prudent as usual, but Sensex falls on STT hike

New Delhi: The defining feature of the Union Budget 2026-27 is continuity. Finance Minister Nirmala Sitharaman’s main message was simple: we will continue to do what we have been doing over the last few years—that is, maintaining fiscal consolidation while funding infrastructure.

In her Budget speech, she described the journey to the target of a debt-to-GDP ratio of 50±1 per cent by 2030-31. “In line with this, the debt-to-GDP ratio is estimated to be 55.6 percent of GDP in BE [Budgetary Estimate] 2026-27, compared to 56.1 percent of GDP in RE [Revised Estimate] 2025-26.” Additionally, she stated that she has been able to fulfill her pledge, made in 2021-22, to reduce the fiscal deficit to below 4.5 per cent of GDP by 2025-26. So, “the fiscal deficit in BE 2026-27 is estimated to be 4.3 percent of GDP.” Besides, there has also been an improvement in the quality of the fiscal deficit. The effective capital expenditure, Rs 1,714,523 crore, is estimated to exceed the fiscal deficit, Rs 1,695,768 crore; this is unprecedented.

Public capital expenditure has been increased to Rs 12.2 lakh crore. The effective capital capex includes this and grants-in-aid for the creation of capital assets to states. There were many sectoral announcements: a Rs 10,000-crore scheme for container manufacturing; the Rs 10,000-crore Biopharma SHAKTI (Strategy for Healthcare Advancement through Knowledge, Technology and Innovation) scheme; a dedicated Rs 10,000-crore SME Growth Fund for future champions; Self-Reliant India Fund (additional Rs 2,000 crore for micro enterprises); Rs 20,000 crore for five years for Carbon Capture Utilization and Storage (CCUS) technologies; Rs 5,000 crore over five years per city economic regions (CER); a pilot scheme for up-skilling 10,000 guides in 20 tourist sites.

There wasn’t much in direct or indirect taxes for the Finance Minister to change. There was a big reduction in income tax rates in the last Budget; before Diwali last year, the goods and services tax regime was also revamped. Most of the changes she announced were intended to make lives better for taxpayers.

Now, interest awarded by the Motor Accident Claims Tribunal will be exempt from income tax. Tax collected at source (TCS) on the Liberalized Remittance Scheme (LRS) for education and medical purposes has been slashed from 5 per cent to 2 per cent. The TCS rate on the sale of overseas tour packages has also been cut. TDS provisions for manpower supply have been simplified. Software development services, IT enabled services, knowledge process outsourcing services, and contract R&D services relating to software development have been clubbed under a single category of Information Technology Services with a common safe harbour margin of 15.5 per cent. The threshold for availing safe harbour for IT services has been enhanced from Rs 300 crore to Rs 2,000 crore. Any foreign company that provides cloud services to customers globally by using data centre services from India will be provided tax holiday till 2047. There is also exemption from income tax for 5 years to any non-resident who provides capital goods, equipment or tooling, to any toll manufacturer in a bonded zone. There will be an exemption to the global (non-India-sourced) income of a non-resident expert, for a stay period of five years under the notified schemes. There is also an exemption from Minimum Alternate Tax to all non-residents who pay tax on a presumptive basis.

But fiscal consolidation, continued high infra spending, sectoral schemes, and enhanced ease of living measures could not cushion the impact of the increase in securities transaction tax (STT) to 0.05 per cent from 0.02 per cent. The news of the STT hike led the Sensex to fall by 1,546.84 points.