As Finance Minister Nirmala Sitharaman prepares to present her ninth budget on February 1, 2026, stakeholders across India's financial sector have articulated several key expectations that could shape the country's economic trajectory. The anticipated budget comes at a crucial time when the government aims to maintain growth momentum while managing fiscal discipline.

Capital Expenditure and Fiscal Support

The financial sector's primary expectation centers on a substantial increase in government capital expenditure. Industry bodies, particularly the Confederation of Indian Industry, have recommended a 12% hike to sustain momentum in high-growth sectors.

The capex push is expected to target infrastructure, manufacturing, and green finance sectors that generate significant multiplier effects on the economy. This strategy aims to act as a bridge until private investment fully rebounds, with manufacturing currently showing growth of 7.60%.

Regulatory Reforms and Compliance Simplification

Building on the success of previous Jan Vishwas initiatives, the financial sector anticipates further regulatory reforms in the upcoming budget. The Jan Vishwas Act 2023 decriminalised over 180 minor offences across 42 central laws, while Jan Vishwas 2.0 in the 2025-26 Budget addressed more than 100 additional provisions.

For 2026-27, expectations include a potential Jan Vishwas 3.0 focusing on deeper decriminalisation in taxation and environmental sectors. NITI Aayog's October 2025 report proposed comprehensive reforms for income tax offences:

These reforms aim to reduce the current judicial backlog of over 50 million cases while boosting MSME participation and foreign investments. The government has already rationalised over 20,000 compliance requirements since 2014 through the Reducing Compliance Burden framework.

Foreign Direct Investment Liberalisation

The sector expects continued FDI norm liberalisation following recent progress in the insurance sector, where the automatic route cap increased from 74% to 100% in the 2025-26 Budget, with the condition that premiums be invested domestically.

Anticipated FDI reforms for 2026-27 include:

• Defence sector: Potential easing of current restrictions
• E-commerce: Possible 100% FDI allowance in multi-brand retail
• Space sector: Relaxed investment conditions
• Aviation and pharmaceuticals: Reduced regulatory constraints

Public-Private Partnership Dispute Resolution

Recognising that PPP disputes commonly delay projects, the financial sector expects enhanced dispute resolution mechanisms. Proposed solutions include one-time settlement schemes for customs disputes, modelled on the Sabka Vishwas 2019 framework, and rationalised Safe Harbour rules for transfer pricing.

Additionally, codified rules for permanent establishment and profit attribution in international tax could reduce litigation for foreign investors participating in PPPs.

GIFT City IFSC Incentives

As India's only International Financial Services Centre, GIFT City requires continued support as early IFSC units approach the end of their 10-year tax holidays. Currently, post-holiday taxation involves MAT at a concessional rate of 9% (plus surcharge and cess) for units deriving income solely in convertible foreign exchange, compared to the standard MAT rate of 15% of book profit elsewhere in India.

The financial sector expects:

These expectations reflect the financial sector's focus on maintaining India's growth trajectory while enhancing the country's position as a global financial hub. The upcoming budget will reveal how many of these expectations translate into concrete policy measures.

Tax professionals are unanimously calling for reforms to India's income tax structure ahead of Budget 2026, with particular focus on raising the 30% income tax slab threshold to counter inflation's impact on middle-class purchasing power. The current system, experts argue, fails to account for rising living costs that push taxpayers into higher brackets without corresponding increases in real wealth.

Current Tax Structure Challenges

Tax experts highlight fundamental issues with India's existing tax framework, particularly the 30% slab that currently applies to income above ₹24.00 lakh. Anil Harish, Partner at DM Harish & Co, points out that low slabs push even first-time earners, including young engineering graduates, into the top bracket prematurely. This creates a perception of taxation as a burden rather than a contribution to national development.

The core problem lies in the system's failure to account for inflation, which erodes purchasing power and creates inherent unfairness. As nominal wages increase to keep pace with rising costs, taxpayers find themselves in higher tax brackets without experiencing genuine wealth gains—a phenomenon known as "bracket creep."

Proposed Solutions and Expert Recommendations

Akhil Chandna, Partner and Global People Solutions Leader at Grant Thornton Bharat, proposes raising the 30% tax threshold to ₹35.00 lakh. This adjustment acknowledges that nominal wage growth has been consistently outpaced by living expenses, particularly in urban areas where housing, healthcare, and education costs continue to rise.

Experts suggest implementing annual adjustments linked to the Consumer Price Index (CPI) with comprehensive reviews every five years to maintain equity and ensure the tax system remains relevant to economic realities.

Economic Impact and Benefits

SR Patnaik, Partner (Head - Taxation) at Cyril Amarchand Mangaldas, explains that while the government might forgo some direct tax income initially, the increased disposable funds for the middle class would boost consumption and generate additional GST revenue. This approach could also help ease inflationary pressures by stimulating economic activity.

The proposed changes would yield several economic benefits:

• Enhanced Consumption: More disposable income would drive demand for goods like automobiles and electronics
• Improved Tax Compliance: Reduced incentives for evasion and increased transparency
• Business Growth: Increased consumer spending would aid business expansion
• Investment Boost: Higher savings rates would support capital formation

Demographic-Specific Advantages

The proposed tax structure changes would provide targeted relief across different demographic groups. Salaried employees would benefit from reduced Tax Deducted at Source (TDS), leading to higher monthly take-home pay for essentials and investments. This adjustment would also prevent bonuses from being heavily taxed, providing crucial relief for urban expenses like healthcare and education.

For self-employed individuals, a higher threshold would create a capital buffer for business reinvestment without losing significant portions of profits to taxation. Retirees would benefit as their fixed incomes gain better protection against rising healthcare costs, helping their savings last longer.

Alternative Reform Mechanisms

Beyond direct slab increases, experts propose complementary mechanisms for inflation adjustment. Ritika Nayyar, Partner at Singhania & Co, suggests reinstating inflation indexation for tax slabs, similar to past capital gains computations, enabling automatic annual updates based on price trends.

Additional reform suggestions include:

• Expanding deductions for provident funds, health insurance, and education expenses
• Updating the outdated ₹2.00 lakh cap on home loan interest deductions
• Enhancing standard deductions for salaried employees
• Increasing Section 87A rebates for lower-income taxpayers
• Implementing digital compliance tools to simplify tax processes

Implementation Framework

Experts emphasize the importance of maintaining stability in tax law while ensuring adaptability to economic changes. The proposed framework includes automatic inflation-linked reviews every 3-5 years, preventing the need for frequent legislative overhauls while ensuring ongoing relevance to economic conditions.

The consensus among tax professionals highlights the urgent need for structural reforms that treat taxpayers respectfully while aligning policy with broader economic goals of boosted savings and consumption. These changes would represent a pivotal step toward inflation-proofing India's tax system while providing meaningful relief to the middle class.