On 1 February 2026, Union Budget 2026, Finance Manager Nirmala Sitharaman presented a nuanced shift in how taxes are structured. This budget strikes a balance between long-term structural fairness and revenue mobilisation for the investors, while offering procedural relief in other areas. The Budget 2026 didn’t change the income tax slabs, but it did subtly reshape the way investors and taxpayers shall interact with the system, with most changes effective from 1 April 2026.
Below, we break down the Union Budget 2026 Impact on Taxation!
Budget 2026 Impact on Taxation
Keep going to know more about the Union Budget 2026 impacts on taxation!
Personal Income Tax
The budget 2026 kept income tax slabs unchanged. This retains the structure of the new regime where a zero tax rate applies up to ₹4 lakh, and the top marginal rate is 30% above ₹24 lakh. There is also a standard deduction of ₹75,000 and a rebate of ₹60,000 under section 87A that keeps tax zero up to a ₹12 lakh taxable income for salaried individuals.
Investment Transaction Taxes
The government has increased certain investment transaction taxes, that is, STT on financial derivatives such as futures and options premiums. These are important cost components for active traders and buy-and-hold investors.
Securities Transaction Tax (STT) Hike on Derivatives
The government raised the Securities Transaction Tax (STT) for derivatives. The STT on futures derivatives is increased to 0.05%, which was earlier 0.02%, and the STT on options premiums and exercise transactions is raised to 0.15% from 0.1% and 0.125%, respectively, effective from 1 April 2026.
Impact on Trading Costs & Liquidity
The increase in STT in derivatives is aimed at reducing excessive speculation. But in practice, it raises entry and exit friction for millions of futures/options participants. Derivatives turnover in India is among the world’s highest on a relative basis, and even small percentage moves in tax rates can aggregate into additional cost basis points that affect overall risk premiums and liquidity. Meanwhile, spot equity transactions remain at existing STT rates, keeping cash market trading costs largely unchanged.
Capital Gains Tax
Budget 2026 also changed the tax treatment of specific investment returns:
- Share buybacks: The proceeds are taxable as capital gains from now onwards, for all shareholders, which aligns buybacks with general capital gains treatments. Additionally, to prevent tax arbitrage, corporate promoters are subject to 22% tax, and non-corporate promoters are subject to 30% tax.
- Sovereign Gold Bonds (SGBs): The capital gains exemption at redemption on maturity will continue for bonds that are subscribed at the time of original issuance. The secondary market sellers can no longer use tax-free redemption benefits unless they are the original issuer. This reduces the tax attractiveness of trading SGBs compared to long-term holding.
Tax Collected at Source (TCS) & TDS Changes
The Budget applies meaningful rationalisation to Tax Collected at Source (TCS):
- TCS on overseas tours is reduced to a flat 2%, which was earlier from 5% and 20%, with no minimum threshold limit.
- TCS on education and medical remittances is reduced to 2% from 5%, as per the Liberalised Remittance Scheme (LRS).
Changes in Tax Deducted at Source (TDS) rules:
- The Budget removes the need for a separate TAN in NRI property sales, and TDS will be now deducted or deposited using PAN.
- TDS will not apply to interest income from motor accident claims.
- TDS on manpower supply services will be applicable at a rate of 1–2%.
Corporate Tax Reforms Affecting Investors and Businesses
Budget 2026 continues the path of corporate tax simplification, which was started in 2019, with retained lower base rates and rationalised exemptions. The Minimum Alternate Tax (MAT) is cut to 14% from 15% and will be treated as the final tax. Additionally, the MAT credit will not accumulate beyond 31 March 2026, and the accumulated credits can be set off under the revised framework.
Other Notable Tax Changes with Investor Impact
Here are some other important tax changes that might impact the investors:
- Customs duty on dutiable goods brought into India for personal use is decreased from 20% to 10%, which reduces the tax burden on such imports by half.
- A rule-based automated mechanism will enable small taxpayers to secure a lower or NIL TDS certificate without submitting an application to the Assessing Officer.
- Depositories will now be allowed to accept Form 15G/15H from investors and distribute it to multiple companies on their behalf, removing the need for multiple submissions and duplication.
- A one-time six-month window has been launched to allow small taxpayers and NRIs to declare and regularise their foreign assets.
- The government also tightened Cryptocurrency reporting penalties: ₹200/day for failure to furnish transaction statements, and a ₹50,000 penalty for providing inaccurate particulars or failure to correct errors.
- The foreign cloud companies setting up India-based data centres and serving domestic users will receive a tax holiday till 2047 to enhance domestic digital infrastructure, job creation, and technology adoption.
Impact of Taxation Effects on Different Investor Groups
Check out how the above-discussed taxes changes in the budget 2026 affect different investor groups!
Retail Equity Investors
Retail investors will find income tax slabs unchanged, which maintains predictability. The Capital gains treatment on buybacks and limits on SGB exemptions encourage hold-to-maturity strategies. However, no relief for dividends or mutual funds means post-tax returns on such products remain status quo.
Traders & Derivatives Players
The derivatives traders are the most impacted segment, with higher STT raising costs across futures and options markets. This, combined with unchanged STT for cash equities, might allow hedging strategies to be recalibrated with new cost bases factored in.
NRIs & Foreign Investors
The higher limits on foreign portfolio investment (FPI) in Indian equities, raising individual limits from 5% to 10% and overall caps from 10% to 24%, enhance foreign participation headroom. This, combined with easing compliance on property TDS and asset disclosures, Budget 2026 strengthens India’s investor-friendly narrative.
Fixed-Income & Debt Investors
There are no such structural tax changes that have directly hit the fixed-income instruments. However, indirect effects like SGB exemption limits and interest deduction rules may shift risk allocations marginally. The crypto investors continue under the existing regime, with India maintaining a 30% tax on crypto gains and 1% TDS on transactions.
Market Reaction to Taxation Changes
The market reacted dramatically on Budget day, with major indices like Sensex and NIFTY recording significant declines, which was a reflection of immediate concerns over the derivatives cost push from STT hikes. The analysts noted that this was the largest single-day drawdown in 7 years, tied partly to fiscal measures.
In the longer term, the market participants and fund managers also focused on the balance between compliance ease and costs. Additionally, many see the structural reforms, like the new Income Tax Act and system rationalisation, as positive for reducing litigation and uncertainty.
How Investors Should Reposition Post-Budget
- Re-calculate the trading cost assumptions in derivatives after the STT increases to 0.05% on futures and 0.15% on options, effective 1 April 2026.
- Review the treatment of share buybacks, which shall be taxed as capital gains, especially for investors holding companies with active repurchase programs.
- Re-evaluate the holding strategy in Sovereign Gold Bonds (SGBs), as capital gains exemption at maturity applies only to original issuance.
- Consider procedural relief measures such as automated lower/NIL TDS certificates and centralised Form 15G/15H submission, which may improve cash efficiency for income-oriented investors.
- Track the opportunities arising from the tax holiday for cloud data centres until 2047, which may influence capital flows into digital infrastructure and related equities.
Final Takeaway
The Union Budget 2026 does not overhaul taxation, but stabilises personal tax regimes, raises certain transactional costs, and rationalises withholding mechanisms. The investors might take this as predictable slabs, higher costs in derivatives, clearer capital gains treatment, and stronger compliance pathways. Even though the effects are subtle, they’re material, especially for traders, NRIs, and FPI strategy architects.
FAQ‘s
No, the income tax slabs remain unchanged under both old and new regimes, with effective tax exemption up to ₹12 lakh under the new regime and a ₹75,000 standard deduction and rebate under Section 87A for salaried individuals.
The STT on futures is now 0.05%, from 0.02%, and options is 0.15%, raising marginal costs on derivatives trades and reducing short-term and high-frequency strategy arbitrage profits.
Yes, the proceeds from share buybacks will be taxed as capital gains for all shareholders, aligning tax treatment with general investment returns, reducing past arbitrage.
Under the Liberalised Remittance Scheme, TCS for education and medical remittances has been cut from 5% to 2%, improving upfront liquidity for families.
The new Income Tax Act, effective 1 April 2026, is expected to simplify provisions, reduce ambiguity, and rationalise compliance processes, keeping rates stable.
Yes, NRIs shall benefit from eased property TDS procedures and higher investment limits, while a foreign asset disclosure window reduces compliance risk.
The Corporate MAT is fixed as final tax at 14%, accumulated credits can be set off, and certain excise and customs incentives are extended, aiding investment valuations.
