Union Budget 2026 Expectations: A Roadmap for Corporate Tax Rationalization and Economic Competitiveness

As the Indian economy braces for the Union Budget 2026, the corporate landscape is keenly observing fiscal indicators that could fortify the nation's growth trajectory. In an era defined by volatile geopolitical shifts, the realignment of global supply chains, and persistent trade uncertainties, the role of a stable and incentivizing tax policy cannot be overstated.

The industrial sector is currently navigating a complex matrix of cost pressures and cross-border trade fluctuations. However, positive developments, such as the concluding discussions surrounding the India-EU Free Trade Agreement—one of the most significant trade deals in recent history—offer a glimmer of optimism. To capitalize on these opportunities and shield the domestic economy from external shocks, there is an urgent requirement for fiscal interventions that enhance cost competitiveness and provide a predictable roadmap for long-term strategic planning.

The following analysis outlines the critical expectations from the corporate sector, focusing on manufacturing incentives, dividend taxation, the rationalization of rates for non-corporate entities, and the easing of liquidity burdens for start-ups.

1. Bolstering Manufacturing: Extending the Sunset Clause under Section 115BAB

One of the most pivotal demands from the industry revolves around the continuity of the concessional tax regime for new manufacturing entities.

The Current Framework

Section 115BAB of the Income-tax Act, 1961 [corresponding to section 201(1) of ITA 2025], introduced a transformative tax structure for new domestic manufacturing companies. Entities incorporated on or after October 1, 2019, that commence production by a specified deadline, are granted the option to be taxed at a highly competitive effective rate of 17.16% (comprising a 15% basic tax rate, a 10% surcharge, and a 4% cess).

This regime comes with specific caveats:

  • The assessee must forego various deductions and incentives typically available under the Act.
  • Crucially, companies opting for this regime are exempt from Minimum Alternate Tax (MAT), significantly reducing their compliance burden and cash flow impact.

The Need for Extension to 2029

Under the existing provisions, the window for commencing manufacture or production was set to close on March 31, 2024. However, the industrial reality necessitates a longer horizon.