Devang Mehta, Deputy Managing Director & CIO – Equity NDPMS at Spark Capital Private Wealth Management, projects substantial increases in both railway and defence capital expenditure allocations in the upcoming Budget 2026-27. His outlook is driven by ongoing infrastructure modernization initiatives, national security imperatives, and the government's continued emphasis on self-reliance across critical sectors.

Railway Infrastructure Investment Surge

Mehta's projections indicate railway capital expenditure could reach significant new heights in the upcoming budget cycle. The anticipated growth reflects the government's sustained commitment to modernizing India's railway infrastructure and expanding connectivity across the nation.

Defence Spending Expansion

Defence capital expenditure is expected to witness substantial growth, primarily attributed to escalating geopolitical pressures and enhanced national security requirements, particularly along border regions. This increase aligns with the government's strategic focus on strengthening defence capabilities and achieving greater self-reliance in defence manufacturing.

Fiscal Deficit Management Strategy

Mehta emphasizes that the government's approach to narrowing the fiscal deficit remains a critical factor in the Union Budget. Effective deficit management is essential for maintaining macroeconomic stability and sustaining investor confidence. Lower deficit levels reduce government borrowing requirements, preventing the "crowding out" of private sector investment and freeing up resources for productive capital expenditure initiatives. The government has consistently maintained its commitment to fiscal consolidation, targeting 4.40% of GDP for FY26.

Earnings Season Outlook

The December-quarter earnings season is widely anticipated to establish a robust foundation for subsequent quarters and broader market performance. Mehta expresses optimism that the current earnings season represents an inflection point following a period of market consolidation and valuation adjustments in 2025. The earnings momentum is expected to be supported by strong domestic demand, government policy initiatives, and broad-based growth across key sectors.

Market Fundamentals and Investment Climate

The sustained domestic institutional investor support reflects a structural transformation in the Indian capital market, making it less susceptible to foreign market shocks and more responsive to domestic capital flows. This shift provides enhanced stability and resilience to the market ecosystem, supporting long-term investment strategies and capital allocation decisions across infrastructure and defence sectors.

A common misconception about India's new tax regime is that it eliminates all deductions, but this assumption proves incorrect when examining home loan interest provisions. Section 24(b) of the Income Tax Act continues to provide relief for taxpayers with rented properties, though with significant restrictions compared to the previous regime.

Section 24(b) Deduction Mechanism

Under the new tax regime, taxpayers who have let out their properties can still claim interest paid on home loans under the "Income from House Property" head through Section 24(b). However, this benefit applies exclusively to rented properties and remains unavailable for self-occupied homes.

The deduction framework operates differently from the old regime's more flexible structure. While taxpayers can claim interest deductions, the treatment of any resulting losses has become more restrictive.

Income vs Interest Payment Scenarios

The practical application of Section 24(b) depends heavily on the relationship between rental income and interest payments:

When rental income falls short of interest payments, the resulting loss under "Income from House Property" cannot be freely adjusted against salary or other income sources, unlike the old regime. Additionally, such losses typically cannot be carried forward, significantly reducing the provision's effectiveness.

Documentation and Compliance Requirements

Taxpayers claiming this deduction must provide comprehensive documentation during ITR filing, including:

• Lender name and complete details
• Loan account number
• Loan sanction date
• Total interest paid during the assessment year
• Supporting proof and certificates

Inaccurate or incomplete information can result in ITR rejection or notices from the Income Tax Department, making proper documentation crucial for successful claims.

Practical Limitations and Considerations

The new regime's approach to house property losses creates practical challenges for taxpayers. When interest payments exceed rental income, the excess amount's treatment depends on specific assessment year rules and Central Board of Direct Taxes clarifications. While some years may allow limited set-off or carry-forward provisions, these typically don't extend across different income heads.

This restriction makes the deduction considerably less beneficial than under the old regime, where losses could be more freely adjusted against other income sources. Taxpayers should avoid assuming blanket entitlements and should consult official guidance or tax professionals before relying on this provision for tax planning purposes.