Union Budget 2026 Expectations: What Taxpayers Want This Year

Shobha Jagtiani, partner at D. M. Harish & Co., notes that top-earning individuals face an effective tax rate of around 42 per cent, while companies, depending on their chosen regime, pay significantly lower taxes. Manufacturing companies pay around 18 per cent plus surcharge, companies under the new regime roughly 20 per cent plus surcharge, and companies following the old regime about 30 per cent plus surcharge. She believes there is “no justification for such a steep mismatch,” particularly when professionals such as lawyers, surgeons, designers, actors, musicians, architects, and other skilled individuals cannot easily form corporations to structure their income.

These careers are built on decades of expertise, yet their ability to build long-term assets is curtailed by high tax outgo. Jagtiani feels the Budget must address this imbalance.

She also points to the complexities in Sections 45(4) and 9B concerning taxation when partnerships distribute assets upon retirement or dissolution. The current rules place the liability on the firm, even when the firm lacks liquidity. A more reasonable approach, she says, would shift this liability to retiring or continuing partners instead of burdening the firm.

Another area needing clarity is the taxation framework for charitable trusts. Many trustees who try to reorganise or wind up older charitable trusts often find themselves caught in long, technical procedures. Even those who genuinely want to set up new trusts—whether for running schools, supporting hospitals, or funding social welfare work- frequently feel held back by the layers of paperwork and approvals involved. There is a growing expectation that this Budget will ease these hurdles and make the framework far more welcoming for genuine philanthropic efforts.

Startups, ESOP Holders, And Global Talent Seek Relief

Startups and their employees have a clear wishlist too. Ritika Nayyar, partner at Singhania & Co., highlights that ESOPs face what many employees consider double taxation, once at exercise and again at the time of sale. She suggests that ESOPs should be taxed only when sold, as capital gains, which would make them truly rewarding for talent.

Nayyar also notes that employees working across borders struggle with unclear rules concerning valuation, timing of taxability, and foreign tax credit availability. According to her, clearer norms would smoothen compliance and support companies looking to hire global talent.

There is also a request to reconsider the Rs 10-crore cap introduced in 2023 under Sections 54 and 54F for reinvestment of capital gains. Many believe it restricts legitimate reinvestment, especially for HNIs and generational family businesses.

On the tax deducted at source (TDS) front, Nayyar adds that allowing tax credits or relief at the time of deduction, rather than only during return filing, would ease cash flow pressure on non-residents and reduce compliance hassles. Rationalising withholding tax provisions, she feels, would also reduce litigation and bring consistency.

Industry Wants Stability, Incentives, And A Global Push

Corporates are hoping for a Budget that supports growth during a period of global uncertainty.

SR Patnaik, partner and head of taxation at Cyril Amarchand Mangaldas, points out that although Budget 2025 introduced some reliefs, the new tax regime still does not allow deductions. As a result, individuals who save through instruments eligible under Section 80C or through home loans feel disadvantaged because savers and non-savers are treated alike. Many now expect deductions to be extended to the new regime.

He adds that sunrise sectors such as renewable energy, AI, technology, EVs, and R&D require targeted incentives to spur innovation and investment. Export-driven industries are also struggling because of reduced US orders following the additional tariffs introduced during the Trump administration. These companies want the government to widen free trade agreements and open new markets, and they hope the Budget will outline a clear roadmap.

A Landmark Budget Before A New Tax Law Takes Effect

Since the Income Tax Act, 2025, will replace a heavily amended law, tax specialists believe Budget 2026 will shape India’s tax landscape for years to come.

Vivek Jalan, partner at Tax Connect Advisory Services, points out that although the Central Board of Direct Taxes (CBDT) says the new law mirrors the old one, certain provisions impose tighter restrictions. For example, the rectification window for TDS returns has been reduced from six years to two. Jalan feels that reinstating the six-year window would reduce compliance pressure during the transition to the new Act.

He also notes that the faceless assessment regime continues to show arithmetical inconsistencies. Allowing taxpayers to review draft orders before finalisation, he says, would significantly lower the risk of disputes.

In the customs domain, Jalan highlights that tens of thousands of cases remain stuck at various levels. Other tax frameworks have benefited from dispute settlement schemes, and industry players are now hoping for a similar mechanism for customs.

Under GST 2.0, several industries are once again grappling with the inverted duty structure, a problem that has shadowed sectors such as textiles, packaging, and pharmaceuticals for years. Vivek Jalan points out that companies are seeing more of their working capital get tied up because refunds on input services and capital goods still do not come through under the current rules. According to him, businesses have been urging the government to amend Section 54 so that these refunds are allowed, as the absence of such relief is creating avoidable cash-flow strain for manufacturers.

As the Budget approaches, a common thread runs through the expectations of individuals and businesses alike. People want a tax system that is easier to understand, fair in its treatment, and supportive of long-term investment and growth. Budget 2026 may well set the tone for how the country adapts to the new tax law next year, and the extent to which taxpayers feel confident about the road ahead will depend on how many of these long-standing demands the government chooses to address.