The Union Budget 2026-27 represents a continuation of India's comprehensive reform trajectory, with the government preparing to accelerate deregulation initiatives across various sectors. Policymakers are developing a budget framework that prioritizes the simplification of business operations, positioning deregulation and decriminalisation as the cornerstone themes for the fiscal year 2027.

Key Reform Areas Under Consideration

The budget preparation process focuses on streamlining business registration and approval procedures for both companies and individuals. The Finance Ministry is currently reviewing proposals submitted by multiple ministries and departments, all aimed at simplifying existing regulatory frameworks and operational procedures.

Compliance and Oversight Transformation

A significant aspect of the proposed reforms involves restructuring the current inspection regime. Routine inspections, which businesses have consistently identified as a major compliance burden, are expected to be substantially reduced. The government plans to replace traditional inspection methods with risk-based, technology-driven oversight mechanisms that focus resources on areas of genuine concern rather than blanket compliance checks.

The decriminalisation initiative aims to restrict criminal action to serious offences only, while most procedural lapses would be addressed through alternative mechanisms. This approach reflects the government's broader strategy to create a more business-friendly environment while maintaining necessary regulatory oversight.

Budget Presentation Timeline

Finance Minister Nirmala Sitharaman is scheduled to conduct consultations with state finance ministers in the coming days to gather comprehensive inputs for the Union Budget preparation. These consultations form a crucial part of the budget-making process, ensuring coordination between central and state-level fiscal policies.

The Union Budget for 2026-27 is expected to be tabled on February 1, 2026, according to officials familiar with the budget preparation process. This date maintains the government's established practice of presenting the Union Budget on February 1 annually, a schedule implemented since 2017 regardless of which day of the week it falls on.

Historical Context and Parliamentary Procedures

The February 1, 2026 presentation date will require a Sunday sitting of Parliament, making it a rare weekend session for the annual financial statement. Parliament has historically convened on Sundays only under limited circumstances, with previous instances occurring during special situations in 2020 and 2012.

The broader reform agenda for fiscal year 2027 is designed to span multiple sectors, with the primary objective of enhancing productivity and improving overall economic efficiency. This comprehensive approach reflects the government's commitment to creating a more streamlined regulatory environment that supports business growth while maintaining appropriate oversight mechanisms.

Tax policy experts have presented comprehensive recommendations for Budget 2026 to enhance India's mergers and acquisitions environment, particularly with the Income-tax Act, 2025 scheduled for implementation from April 1, 2026. The suggestions aim to address existing regulatory gaps and improve the ease of doing business for M&A transactions.

Fast-Track Demerger Tax Neutrality

A primary recommendation involves extending tax neutrality to fast-track demergers under Section 233 of the Companies Act, 2013. Currently, the Income-tax Act, 2025 provides tax neutrality only to NCLT-approved demergers under Sections 230 to 232, excluding fast-track demergers that enable small or closely held companies to undertake demergers without court approval.

The finance ministry's rationale for excluding fast-track demergers centers on concerns about potential valuation manipulation without court oversight. However, experts argue this approach contradicts the ease of doing business agenda, forcing genuine taxpayers to choose between transaction efficiency and tax benefits.

Contingent Consideration Clarity

Experts emphasize the need for clear taxation guidelines on earn-out, profit-linked, or contingent consideration arrangements that have become increasingly common in M&A transactions. These arrangements tie part of the sale consideration to achieving specific profitability or financial milestones.

The current legal framework lacks clarity on:

• Taxability of contingent payments
• Timing of taxation for such arrangements
• Treatment of milestone-based considerations

Foreign Company Merger Anomalies

The recommendations address existing inconsistencies in foreign company merger taxation. While foreign companies enjoy capital gains tax exemptions on direct or indirect share transfers during mergers with other foreign companies, shareholders of the amalgamating company face potential capital gains liability on share swaps.

This creates an anomaly compared to domestic mergers, which provide exemptions at both company and shareholder levels.

Capital Gains Tax Rate Concerns

The recent capital gains tax regime rationalization introduced higher long-term capital gains tax rates, which experts suggest adversely impacts investor returns and exit efficiency. The increased rates potentially drive investors toward jurisdictions with more favorable tax regimes.

Key concerns include:

• Reduced post-tax returns for investors
• Decreased competitiveness with other investment destinations
• Impact on foreign capital attraction

Experts recommend reducing capital gains tax rates, suggesting restoration of the earlier 10.00% rate to improve India's competitive position in attracting foreign investment.

Strategic Implementation Timeline

With the Income-tax Act, 2025 set for April 1, 2026 implementation, Budget 2026 represents the final opportunity to incorporate these amendments before the new framework takes effect. The recommendations aim to position India as a preferred destination for cross-border M&A activities while maintaining regulatory integrity and supporting corporate growth objectives.