The upcoming Union Budget, scheduled for presentation on February 1, 2026, is expected to incorporate a nominal GDP growth assumption ranging between 10.00% and 10.50% for the fiscal year 2027, according to findings from a Business Standard poll of economists.

Economic Growth Projections

The projected nominal GDP growth range represents a key economic parameter that will underpin the government's fiscal planning for FY27. This assumption serves as the foundation for calculating revenue projections, expenditure allocations, and overall budgetary framework.

Budget Planning Framework

The nominal GDP growth assumption plays a critical role in shaping the Union Budget's overall structure. Government revenue estimates, including tax collections and non-tax revenues, are typically calculated based on these growth projections. Similarly, expenditure planning across various ministries and sectors relies on these economic forecasts.

The economist poll findings suggest a consensus among market experts regarding India's economic trajectory for FY27. This growth range will influence policy decisions and resource allocation strategies that the government will outline in the upcoming budget presentation.

Fiscal Implications

The projected growth range between 10.00% and 10.50% will determine the government's approach to fiscal deficit management and debt sustainability measures. These assumptions directly impact the calculation of fiscal ratios and compliance with fiscal responsibility targets established under various economic frameworks.

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.