Invest Guide January 2026

As India heads into the Union Budget 2026, the expectations across industry, investors, and policy observers are unusually aligned. After a decade of heavy lifting through GST, digital public infrastructure, corporate tax cuts, PLI schemes, and capex-led fiscal strategy, the country now enters a phase where execution, simplification, and friction-removal matter more than sweeping structural reforms.

India GDP Growth Trend (%)

The macro backdrop entering FY27 is stable and supportive. India posted 7.8% real GDP growth in Q1 FY26, the fastest pace in seven quarters, while the RBI projects full-year growth at 6.8%, comfortably above most major economies. Inflation has eased into the target band, helped by lower food prices and GST rate reductions across a wide product basket. Meanwhile, public capex continues to anchor growth momentum, with central government capital spending running above 3% of GDP in FY25–26.

India Inflation trend

Against this environment, Budget 2026 is widely expected to function as a delivery-oriented budget one that sharpens tax administration, eases liquidity constraints, improves household affordability, and unlocks MSME productivity. Rather than delivering “big-bang announcements,” this Budget may focus on cleaning up frictions that limit India's economic acceleration.

Healthcare & Insurance - Direct Benefits to Households

One of the most visible themes in the Budget Expectations report is the need to improve access to affordable healthcare, especially in Tier-2 and Tier-3 regions. India currently lacks a clear regulatory framework for refurbished and pre-owned medical devices. Hospitals and diagnostic centres, particularly in smaller cities, depend on imported refurbished equipment to maintain affordability, but the absence of rules around minimum residual shelf-life, certified refurbishment standards, import licensing accountability, and safety oversight creates uncertainty and restricts access. A dedicated policy, something the industry has strongly advocated, could dramatically reduce acquisition costs for diagnostic centres and expand access to modern medical technology for underserved communities.

Insurance is another crucial consumer facing area demanding reform. Following reforms recommended

• Higher deductions under Section 80D for health and term insurance premiums
• A new, exclusive tax deduction category dedicated to insurance premiums
• Zero-rating of commissions and full input tax credit on distribution costs
• Simplified GST structure for pure protection insurance products

The intent behind these measures is clear

• Strengthen financial protection for households
• Reduce premium affordability pressures
• Expand insurance penetration, especially in rural and low-income segments where coverage remains limited

If the Union Budget adopts even some of these proposals, the impact could be meaningful

• Lower out-of-pocket medical expenses
• Wider insurance coverage across demographics
• Easier access to digital-first, cost-efficient insurance solutions

Digital Public Infrastructure & AI - From Access to Capability

India’s digital revolution driven by platforms such as UPI, Aadhaar, Bhashini, and DigiLocker has played a transformative role in financial inclusion and public service delivery. The next stage of this evolution hinges on two policy directions

Vernacular digital access

Initiatives like Digital India Bhashini, supporting 22 Indian languages, have proven that multilingual interfaces significantly broaden participation in digital ecosystems. Extending multilingual access across telemedicine, insurance onboarding, digital payments, government schemes, and skill platforms could deepen inclusion across non-metro markets.

AI learning and workforce readiness

Project-based AI education in schools and universities, shifting students from conceptual understanding to applied learning. With India emerging as a global talent hub for analytics, engineering R&D, and software services, building AI capability is essential to protect future competitiveness.

These reforms may not capture headlines, but they strengthen India’s long-term human capital and create an innovation-ready workforce aligned with global demand trends.

MSMEs - Transitioning From Survival to Scale

India’s MSMEs contribute roughly 30% to GDP, 35% to manufacturing, 45% to exports, and employ more than 100 million people. Despite the rollout of numerous schemes from RAMP to Lean, ZED and Udyam structural issues persist. The industry’s expectations from Budget 2026 revolve around three major priorities.

Cash-flow-based lending & faster resolution

Using GST data, e-invoices, utility bills, and TReDS records for underwriting can shift MSMEs from collateral-heavy lending to behaviour-based credit. Additionally, aligning restructuring thresholds with the Insolvency and Bankruptcy Code (IBC) can reduce delays and improve NPA outcomes.

District-level MSME transformation cells

Purpose: Track key performance indicators (KPIs) for MSMEs at the district level.

KPIs to monitor

• i. Digital adoption
• ii. ZED (Zero Defect, Zero Effect) / Lean certification
• iii. Export readiness
• iv. Credit access

Incentive mechanism

• States achieving milestones could receive outcome-linked grants
• Ensures accountability and reduces scheme-based fragmentation

Strengthening formal value chains

Expectation calls for anchor led supplier development frameworks, enabling MSMEs to move up value chains through certifications, financing, and stable procurement relationships. If implemented effectively, these measures could shorten the order-to cash cycle, reduce informal borrowing, and accelerate MSME integration into domestic and global supply chains.

GST 2.0 - Liquidity, Simplification & Export Clarity

The 56th GST Council Meeting initiated one of India’s most significant indirect tax transitions simplifying the GST structure from four slabs to two, and cutting rates on nearly 375 products. Budget 2026 is expected to operationalise GST 2.0 across three critical dimensions.

Unlocking working capital

• Challenge: MSMEs face significant liquidity strain due to blocked Input Tax Credit (ITC).
• Industry expectations / proposed measures
  • Extend the inverted duty structure (IDS) refund formulas to services and capital goods
  • Allow ITC refunds on capital goods for exporters
  • Permit ITC utilisation for reverse-charge payments
  • Implement automated, faster refund mechanisms, including 90% provisional refunds
  • Remove ITC restrictions on genuine employee-related expenses, especially for service-led industries

Export-friendly taxation for services

The Budget is expected to formalise the removal of the troubled “intermediary” provision, which has historically taxed many export-oriented service transactions at 18%.

Furthermore, revisiting performance-based proxy rules could ensure that services like testing, design, R&D, and product development performed in India for global clients are treated as exports, not domestic services.

This is especially critical for semiconductor design, ER&D, OSAT, biotech, and SaaS verticals.

Administrative ease

Key expectations include

• Creation of Large Taxpayer Units (LTUs) for multi-state enterprises
• A merged, streamlined GST audit framework
• Risk-based GST registration with auto-approval for low-risk applicants
• Improved administrative consistency will directly reduce compliance costs for businesses

Infrastructure & Commercial Real Estate - Strengthening Capital Formation

India’s commercial real estate ecosystem, office assets, logistics parks, and REIT-backed portfolios, continues to attract strong domestic and global capital. However, certain tax ambiguities constrain investments.

Clarifying development rights (JDAs)

The industry seeks explicit classification of development rights transferred from landowners to developers as Schedule III (neither goods nor services), eliminating litigation and uncertainty.

ITC on commercial buildings for leasing

Current GST rules block ITC on goods and services used to construct commercial assets built on one's own account, even if these assets are intended for leasing. Allowing ITC would lower capital costs and improve project viability for office and retail infrastructure.

Such reforms would meaningfully enhance India’s position as an attractive hub for global real estate and infrastructure investors.

Income Tax Act 2025 - Smooth Transition & Incentive Calibration

With the new Income Tax Act becoming effective from April 1, 2026, this Budget serves as a bridge between the legacy framework and the new tax environment.

Industry expectations include

• Simplifying TDS/TCS rates and removing redundancies where digital trails are already strong.
• Strengthening R&D incentives across manufacturing and services, including for clean energy, AI, semiconductors, and climate-tech.
• Greater clarity on employment-linked deductions and cross-border ESOP taxation.
• The goal is to align the tax system with India’s strategic priorities: innovation, job creation, competitiveness, and ease of compliance.

Conclusion: A Budget to Raise the Quality of Growth

Budget 2026 will likely not be remembered for dramatic gestures. Instead, it may be viewed as the Budget that quietly raised India’s economic efficiency. By expanding healthcare access, lowering insurance costs, easing GST working capital pressures, empowering MSMEs, clarifying indirect tax frameworks, and anchoring the transition to the new Income Tax Act, the Budget could significantly improve India’s ease of doing business and household economics. For investors this Budget matters not for its headlines but for its ability to reinforce long-term policy predictability, strengthen capital formation, and embed productivity across sectors. It is, in essence, a Budget focused on delivery, and that is precisely what India needs at this stage of its growth journey.