As Finance Minister Nirmala Sitharaman prepares for her ninth Budget on February 1, 2026, the narrative has shifted from pure infrastructure “capex” to a consumption-led strategy. With global growth slowing and urban demand showing fatigue, the government is expected to prioritize putting more money into the hands of the middle class and MSMEs.
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1. The Income Tax “Surprise”: What to Expect?
Building on the 2025 reforms (which exempted income up to ₹12.75 Lakh for salaried individuals), Budget 2026 is likely to address “inflation-linked” relief.
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Extension of Deductions: There is a strong push to bring back popular “Old Regime” deductions (like 80C for life insurance/PPF or 80D for health insurance) into the New Tax Regime to make it more attractive.
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Housing Relief: Experts suggest a hike in the Section 24(b) interest deduction limit for home loans (currently at ₹2 Lakh) to revive the sluggish urban real estate market.
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Standard Deduction: A potential increase from the current ₹75,000 to ₹1,00,000 to combat rising essential commodity prices.
2. Why the Big Bet on “Consumption”?
Goldman Sachs predicts a 7.7% surge in consumption growth for India in 2026, but notes that urban recovery “has more legs” only if policy supports lower-income households.
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The Strategy: By rationalizing tax slabs and easing TDS/TCS norms, the government wants to boost “disposable income.“
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The Goal: Increase domestic demand to buffer the economy against global trade disruptions and a 25% US tariff threat on trade partners.
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3. Sector-Specific Outlook: Railways & MSMEs
The Budget is expected to balance household relief with strategic industrial support.
| Sector | Key Expectation for Budget 2026 |
| Railways | Modernization over Expansion: ICRA expects a 5% increase in outlay, focusing on Kavach 4.0 (safety) and de-congesting high-traffic corridors rather than new electrification. |
| MSMEs | Credit Ease: PHDCCI has proposed a 2% interest subvention on new loans and doubling MUDRA loan limits (e.g., Shishu category from ₹50k to ₹1 Lakh). |
| Green Transition | Incentives for E100-ready infrastructure and Sustainable Aviation Fuel (SAF) to meet 2030 climate goals. |
4. Industry Demands: Stability Over Stimulus
Major consulting firms like EY and NASSCOM are urging the government to prioritize Tax Certainty.
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Data Centers: Clearer pathways for investment and simplified treaty-related taxation.
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Litigation: Reducing “tax terrorism” through further decriminalization of minor income tax non-compliances.
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ESOPs: Startups are seeking a “single point of tax” (only at the time of sale) to help retain talent without the current double-taxation burden.
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