Industry leaders are advocating for the return of targeted tax incentives and comprehensive compliance reforms as Budget 2026 approaches, according to KPMG in India's Pre-Budget Survey 2026. The survey captures critical industry sentiment ahead of both the budget announcement and the rollout of the New Income Tax Act, scheduled to take effect from April 1, 2026.

Survey Methodology and Scope

The comprehensive survey, conducted by KPMG in India during January 2026, gathered insights from more than 100 senior executives and C-suite leaders representing diverse sectors including financial services, technology, pharmaceuticals, healthcare, and consumer markets. This broad industry representation provides a comprehensive view of corporate expectations for the upcoming budget.

Tax Incentive Expectations

Industry sentiment strongly favors the revival of manufacturing-linked tax benefits, with specific preferences for targeted approaches:

The data indicates a clear industry preference for focused, sector-specific incentives rather than universal tax benefits, reflecting a more strategic approach to fiscal policy expectations.

Compliance and Administrative Reforms

While respondents acknowledged the New Income Tax Act as a positive step toward simplification, several areas requiring further rationalization emerged from the survey:

Top Three Priority Areas for Streamlining:

• TDS and TCS compliance procedures
• Assessment and litigation processes
• Capital gains tax regime

These findings suggest that despite legislative progress, practical implementation challenges remain significant concerns for industry stakeholders.

International Financial Services and Personal Taxation

The survey reveals substantial demand for clarity in International Financial Services Centre (IFSC) operations, with 51% of respondents calling for safe harbour provisions to ensure long-term certainty for IFSC-related arrangements.

Personal taxation emerged as a critical focus area, with 73% of respondents supporting significant increases in standard deduction for salaried individuals, indicating widespread concern about individual tax burden levels.

Dispute Resolution and GST Challenges

Current dispute resolution mechanisms face significant criticism from industry participants:

The GST Invoice Management System challenges particularly stand out, with 82% of respondents supporting comprehensive framework review and enhanced reconciliation capabilities to address mismatches and credit note rejections that increase GST liabilities.

Industry Leadership Perspective

Sunil Badala, Partner and National Head of Tax at KPMG in India, emphasized that while recent changes in income-tax slabs and GST rates have supported consumption through improved disposable incomes, stakeholders continue expecting further reforms. He highlighted that strengthening dispute resolution mechanisms, revising safe harbour rules, and improving the GST invoice system remain key expectations from Budget 2026, particularly as the new Income Tax Act implementation approaches.

Finance Minister Nirmala Sitharaman is preparing to present the Union Budget for financial year 2026-27 on February 1, with market experts anticipating a defence-centric approach. The upcoming budget is expected to place strong emphasis on emerging priority sectors that can drive long-term growth and strategic resilience, particularly building on the Centre's formation of a dedicated committee to nurture allied defence capabilities.

Previous Budget Allocation Sets Foundation

The Union Budget for FY 2025-26 established a strong foundation for defence sector growth with significant financial commitment:

Expert Expectations for Budget 2026

Pranay Aggarwal, Director and CEO of Stoxkart, outlined key areas where the defence sector's growth could be accelerated through stronger budget support. The focus areas include expanding Positive Indigenisation Lists, strengthening defence industrial corridors with better fiscal incentives and infrastructure, and simplifying licensing and export procedures. Additionally, increased allocations for research and development, innovation, and technology transfer are anticipated, alongside targeted export incentives and credit support to help scale defence exports towards long-term targets.

Ravi Singh, Chief Research Officer at Master Capital Services Ltd., expects continued government support focused on indigenisation. The budget may reinforce this approach through higher capital allocation, stronger preference for domestic procurement, and policies that encourage exports. Measures that speed up procurement timelines or provide long-term visibility on orders would be particularly beneficial for the sector.

Sectoral Focus and Growth Opportunities

Defence electronics and aerospace are expected to benefit most from the upcoming budget measures. Modern defence systems rely heavily on electronics including radars, communication systems, sensors, and missiles, making this a high-priority area. The aerospace sector should gain from ongoing aircraft, helicopter, and engine programs.

Export-related support mechanisms are anticipated to play an important role, including:

• Easier financing options for defence companies
• Government-backed deals for overseas markets
• Incentives for international sales
• Streamlined export procedures

These measures would help Indian defence companies scale up operations and compete globally while building domestic capability and gradually expanding India's footprint in defence exports.

Companies Positioned for Long-term Growth

According to industry experts, companies with strong order visibility, execution capability, and policy tailwinds appear best positioned for long-term growth. Leading players in aerospace, defence electronics, and naval shipbuilding that benefit from indigenisation, exports, and long-term strategic procurement are expected to see significant advantages.

Specific companies identified for potential higher growth include:

Experts emphasize focusing on companies with execution capability and alignment with the government's indigenisation roadmap rather than chasing short-term budget reactions. The key lies in identifying organizations that can capitalize on long-term policy support and strategic procurement initiatives.