Union Budget 2026: Tax Reform Expectations to Power Consumption and Growth

What Budget 2026 could mean for India’s retail and consumer goods sector

The Union Budget 2026–27, coming close on the heels of the GST 2.0 overhaul and ahead of the rollout of the new Income-tax Act from April 2026, is expected to strike a careful balance between fiscal prudence and economic stimulus. With consumer demand showing early signs of moderation and private investment remaining cautious, the government is likely to lean towards targeted measures that support spending, restore confidence, and provide greater tax certainty.

For India’s retail and consumer goods sector, these policy measures assume even greater significance. While opportunities arising from global supply-chain shifts and US tariff dynamics offer India a competitive edge, they also bring risks of margin pressure and rising input costs. A supportive domestic tax and policy framework could help offset these challenges.

Retail and Consumer Goods: A Growth Engine in Transition

India’s retail and consumer goods sectors are undergoing a profound transformation, reshaping shopping patterns, consumption behaviour, and lifestyle choices. Retail contributes over 10% of India’s GDP and nearly 8% of employment and is projected to grow from US$ 952 billion in 2024 to US$ 1.6 trillion by 2030.

India’s expanding consumer base, rapid economic growth, and a young, tech-enabled workforce continue to make the country an attractive destination for foreign direct investment. FMCG, the fourth-largest sector in the Indian economy, had a market size of US$ 121.8 billion in 2023 and is expected to reach US$ 615.87 billion by 2027, making it a key contributor to GDP growth.

Also Read: How Omnichannel Retail Is Changing the Way India Buys Kitchen Appliances

GST 2.0: Supporting Affordability and Demand

Under the GST 2.0 framework, rationalisation and simplification of tax rates across several everyday goods and services have improved affordability for households. Lower effective tax incidence on essential and mass-consumption items has helped sustain demand while limiting fiscal strain, providing a stable platform for consumption-led growth in the retail and consumer goods ecosystem.

Key Tax Policy Expectations from Union Budget 2026

Against this backdrop, the following tax policy measures could meaningfully support the sector:

• Rationalisation of withholding tax and TCS provisions
  Streamlining withholding tax and TCS rules would reduce complexity, enhance compliance efficiency, and ease the administrative burden on businesses.

• Reduction in tax litigation and faster dispute resolution
  Given the large backlog of income-tax disputes, measures to streamline appellate processes, fast-track disposal of cases, and accelerate Advance Pricing Agreements (APAs) would significantly improve certainty and investor confidence.

• Incentives for manufacturing and services
  Reintroduction of a lower tax rate for newly established domestic manufacturing companies, and potentially extending similar benefits to service-sector start-ups, would reinforce the “Make in India” vision.

• Alignment of capital gains holding periods
  Aligning the 36-month holding period for slump sale transactions with the 24-month period applicable to listed and unlisted securities would create consistency and reduce interpretational disputes.

• Extension of loss set-off provisions
  Allowing accumulated losses and unabsorbed depreciation to be set off by service and trading entities, including DPIIT-registered start-ups, would provide critical relief to emerging and scaling businesses.

• Introduction of group tax consolidation
  A group taxation or consolidation mechanism—aligned with global best practices—could significantly reduce compliance costs, simplify tax administration, and lower litigation for corporate groups.

• Clarity on Significant Economic Presence (SEP)
  Providing detailed guidance on SEP obligations for non-residents, including circumstances triggering disclosure, would reduce uncertainty and improve cross-border compliance.

Looking Ahead

By prioritising clarity, innovation, and sustainability, Union Budget 2026 has the potential to boost consumer confidence, attract long-term investment, and position the retail and consumer goods sector as a key driver of India’s economic transformation. As the government finalises its Budget priorities, it faces a familiar challenge, maintaining fiscal discipline while offering businesses and consumers much-needed breathing room.

With a comprehensive overhaul of India’s direct tax framework imminent, Budget 2026 could lay the foundation for a tax system that is simpler, more stable, and easier to navigate- supporting growth, compliance, and global competitiveness in the years ahead.