Union Budget 2026-27 is expected to push the next phase of the government’s overhaul of the goods and services tax (GST) to boost consumption, ease cash-flow pressures for businesses and strengthen export competitiveness, tax experts and economists said.
The Budget will come against the backdrop of the rollout of “GST 2.0” reforms in September 2025, which marked the most significant reset of India’s indirect tax regime since the levy was introduced in 2017.
The overhaul streamlined the rate structure from four slabs to three as the government did away with the 12% and 28% slabs. It also introduced a steep 40% GST for luxury and sin goods.
“The GST 2.0 reforms mark a pivotal shift in India’s indirect taxation system,” said Dr Rumki Majumdar, economist at Deloitte.
Majumdar said the changes, combined with recent income tax cuts, were expected to lift disposable incomes and stimulate private consumption in FY2026, particularly in urban and semi-urban markets.
“These measures are expected to stimulate private consumption by improving purchasing power, lowering prices across key consumer categories and encouraging higher spending in urban and semi-urban markets,” she said.
Rate rationalisation and structural fixes
Tax advisers expect Budget 2026-27 to operationalise the next stage of GST 2.0, building on the simplification announced by the government last year.
Mahesh Jaising, partner at Deloitte, said the reform agenda rests on three pillars of structural correction, rate rationalisation and ease of living.
He said the government is expected to move towards a simplified two-slab GST structure, supplemented by a special rate for select categories, following the decision at the 56th meeting of the GST Council to cut rates on about 375 products.
The industry also expects the structural reforms to focus on correcting inverted duty structures, where taxes on inputs exceed those on final products, leading to blocked input tax credits and liquidity stress for manufacturers.
Working capital and refunds
A major expectation from industry is a set of measures to unlock working capital under GST without hurting fiscal revenues.
Jaising said the measures could include extending inverted duty structure refund formulas to services and capital goods, which are currently excluded, disproportionately affecting MSMEs.
“While large businesses generally remain insulated from IDS due to the presence of multiple products with higher tax rates, MSMEs and smaller manufacturers face significant liquidity constraints when refunds on higher-taxed inputs and capital goods are denied,” he noted.
Exporters are also seeking permission to claim input tax credit refunds on capital goods and to use accumulated credits for reverse charge payments, steps that would reduce cash outflows while remaining revenue-neutral.
Budget proposals also include granting 90% provisional refunds for exporters and businesses hit by inverted duty structures, as well as shortening processing timelines.
Industry has renewed calls to remove restrictions on claiming input tax credit on certain employee-related expenses to improve liquidity.
Export liberalisation
Several GST-related changes aimed at easing export taxation are expected to find place in the Budget.
While exports are meant to be zero-rated, interpretational issues and proxy levies have often resulted in unintended tax costs.
“These constraints increase operational costs, reduce price competitiveness and hinder export-led growth, weakening India’s trade balance and limiting the sector’s contribution to GDP,” Jaising said.
At its last meeting, the GST Council announced the removal of the controversial “intermediary” provision. The Budget is expected to formalise this through legislative amendments.
Consulting firm KPMG said it also expects the deletion of Section 13(8)(b) of the IGST Act, which would shift the place of supply for intermediary services to the recipient’s location.
“This change would align India’s GST framework with global tax principles, reduce litigation in cross-border transactions, and provide much-needed clarity for service exporters,” the firm said.
KPMG also expects possible amendments to ease GST treatment of post-sale discounts, remove minimum thresholds for export refund claims, and introduce risk-based provisional refunds for inverted duty cases, putting them on par with zero-rated supplies.
Administrative simplification
From an ease-of-doing-business perspective, experts expect administrative reforms under GST, including the possible introduction of Large Taxpayer Units to streamline compliance, audits and refunds for businesses operating across multiple states.
There are also calls to consolidate audit practices between central and state tax authorities to curb parallel proceedings and standardise procedures.
Simplification of GST registration, including auto-approval for low-risk applicants and easier onboarding for e-commerce sellers, is another area likely to see action.