HIGHLIGHTS OF BUDGET 2023

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HIGHLIGHTS OF BUDGET 2023

Union Budget 2026, presented by Finance Minister Nirmala Sitharaman in February 2026, continues the policy trajectory set since 2023 — but with sharper calibration on personal tax simplification, MSME payment discipline, and infrastructure spending. The new income-tax regime is now firmly the default for FY 2026-27. The Section 87A rebate keeps effective tax nil at lower income bands. MSME suppliers and their buyers must both track Section 43B(h) deadlines. Here is the practical digest, section by section, for AY 2027-28.

New Tax Regime Slabs for FY 2026-27: The Default You Did Not Choose

The new tax regime under Section 115BAC of the Income-tax Act, 1961 has been the default regime since FY 2023-24. You do not elect it — you must actively opt out into the old regime. If your employer has not received a written declaration from you before the first salary disbursement, they are already applying the new regime.

The slab structure runs from nil at the lowest income band through 5%, 10%, 15%, 20%, and up to 30% at the top. The exact slab break-points for AY 2027-28 are as notified in the Finance Act enacted for FY 2026-27. Confirm the current rates on the Income Tax Department's e-filing portal (incometax.gov.in) before computing advance tax or finalising your employer declaration — do not rely on prior-year memory.

Section 87A Rebate: Effective Zero Tax at Lower Income Bands

Section 87A provides a rebate against the computed tax liability under the new regime. For FY 2026-27, the rebate as notified keeps income below the rebate threshold effectively tax-free — you owe no outflow even though the slab technically computes a number. Paired with the standard deduction of Rs. 75,000 available to salaried employees and pensioners under the new regime, the zero-tax band for a regular salary earner is wider than the headline slab alone suggests.

Standard deduction in the new regime does not require any proof or separate claim. It is deducted automatically from gross salary before slab computation. Your employer will reflect it in Form 16 Part B.

Surcharge Cap at 25%: A Often-Missed Advantage

Under the new regime, the surcharge on income-tax is capped at 25% even for the highest income brackets. The old regime carries a surcharge of up to 37% on income above Rs. 5 crore. For a partner, promoter, or senior employee with taxable income north of Rs. 1 crore and limited deductions, this cap can neutralise the loss of HRA, Section 80C, and home-loan interest deductions. Do the arithmetic before assuming the old regime wins simply because it has more deductions.

Leave Encashment at Retirement: Rs. 25 Lakh Exemption

Non-government employees who retire or resign can claim exemption on leave encashment of up to Rs. 25 lakh under Section 10(10AA). This limit was revised upward in earlier budgets and has not been disturbed. If you are structuring a severance or retirement package, ensure the leave encashment component is documented against actual leave records — it is among the first items scrutinised in a Section 143(3) assessment. Excess over Rs. 25 lakh is taxable as salary.

Worked Example: New Regime vs Old Regime for a Salaried Manager

Consider Rahul, a mid-level manager with gross salary of Rs. 12,00,000 in FY 2026-27. He pays Rs. 60,000 in LIC premiums, Rs. 1,50,000 into ELSS (Section 80C), and Rs. 25,000 in mediclaim (Section 80D). His employer contributes Rs. 60,000 to the National Pension System (NPS) on his behalf under Section 80CCD(2).

Under the new regime:

Section 80CCD(2) — the employer's NPS contribution — is deductible even in the new regime. Rahul's own LIC and ELSS payments are not. His effective base for slab computation is Rs. 10,65,000.

Under the old regime:

Rahul's old-regime base is lower — but old-regime slab rates kick in at 20% and 30% earlier, and he loses the surcharge advantage. For income at this level, the crossover point depends almost entirely on HRA and home-loan interest. If Rahul does not rent (or owns a home with no outstanding loan), the new regime frequently produces equal or lower tax. Use the AY 2027-28 tax calculator on incometax.gov.in before fixing the regime; the portal shows both computations side by side after you enter your income and deduction data.

MSME Budget 2026 — Section 43B(h): The 45-Day Rule That Hits Your P&L

Section 43B(h), inserted by Finance Act 2023, disallows the deduction of any expenditure for goods or services sourced from a Micro or Small Enterprise if the payment is not made within 45 days of the date of acceptance of those goods or services. Where there is no written agreement, the limit under the MSMED Act, 2006 is 15 days.

This is not a penalty — it is a timing mismatch that defers your deduction. But a deferred deduction is real tax cash you must pay now and recover only when you pay the vendor.

Who Counts as a Micro or Small Enterprise?

Under the MSMED Act (as amended), the thresholds are:

• Micro: Plant and machinery investment ≤ Rs. 1 crore and annual turnover ≤ Rs. 5 crore
• Small: Investment ≤ Rs. 10 crore and annual turnover ≤ Rs. 50 crore

The classification lives on the Udyam Registration portal (udyamregistration.gov.in). As a buyer, you must verify each vendor's Udyam Registration Number and their category — Micro or Small — at the point of the purchase order, not after the bill is overdue. Medium enterprises are not covered by Section 43B(h).

How the 45-Day Clock Runs

1. Vendor delivers goods on 1 June 2026
2. Date of acceptance recorded: 1 June 2026
3. Payment deadline under 43B(h): 16 July 2026 (the 45th day)
4. If you pay on 10 September 2026 — still within FY 2026-27 — the deduction is allowed in FY 2026-27
5. If you pay on 5 April 2027 — in the next financial year — the deduction is disallowed in FY 2026-27 and allowed only in FY 2027-28

Worked Example: The Cost of One Late Payment

Your company purchases packaging material worth Rs. 8,00,000 from a Micro Enterprise on 1 June 2026. The finance team overlooks the 45-day rule; payment is made on 20 April 2027.

• FY 2026-27 books: Rs. 8,00,000 debited to purchases; creditor outstanding
• AY 2027-28 tax return: Rs. 8,00,000 added back under 43B(h) — taxable income overstated by Rs. 8,00,000
• Additional tax at 30% + 4% cess = approximately Rs. 2,49,600 paid early
• FY 2027-28: payment made; Rs. 8,00,000 allowed as deduction — you recover the tax only then

If your business has Rs. 50 lakh in outstanding MSME payables past 45 days at 31 March, the add-back is Rs. 50 lakh — generating approximately Rs. 15,60,000 in accelerated tax for AY 2027-28. Run your creditor ageing report filtered by MSME status no later than 28 February each year so you have a month to clear or contest balances before the financial year closes.

Practical Steps for Finance Teams

1. Tag every vendor in your ERP against their Udyam Registration number and category
2. Set a system alert when any Micro/Small creditor balance crosses 35 days post-acceptance — giving you a 10-day clearance window
3. Get written delivery acceptance confirmations (signed GRN) to establish the start date clearly
4. If a dispute holds up payment, document the dispute formally — courts and tax tribunals have taken the view that a bona fide dispute may delay the 43B(h) clock, but you need evidence

Presumptive Taxation Under Sections 44AD and 44ADA

The elevated thresholds introduced in Budget 2023 continue for FY 2026-27:

• Section 44AD (eligible businesses): gross turnover up to Rs. 3 crore, provided no more than 5% of total receipts are in cash
• Section 44ADA (specified professionals — CAs, doctors, lawyers, architects, engineers, etc.): gross receipts up to Rs. 75 lakh, same 5% cash condition

Under presumptive taxation, profit is deemed at 8% of turnover (6% for digital receipts under 44AD) or 50% of gross receipts under 44ADA. No books of accounts, no tax audit, and you file ITR-4.

The 5% cash condition is a year-end trap. A consultant earning Rs. 70 lakh across the year, with Rs. 3.8 lakh received in cash, is at 5.4% — above the 5% limit. The higher Rs. 75 lakh threshold vanishes; the eligible limit reverts to Rs. 50 lakh, and if actual receipts exceed that, a tax audit under Section 44AB is triggered. Monitor cash receipts monthly, not annually.

Capital Expenditure Budget: What It Means for Contractors, Suppliers, and PLI Beneficiaries

Union Budget 2026 maintains capital expenditure at a record level, with allocation concentrated in railways, national highways, urban metro projects, and BharatNet digital infrastructure. The PM Gati Shakti National Master Plan continues to coordinate multi-modal logistics by integrating data across roads, rail, ports, and inland waterways in a single GIS layer.

For contractors and government suppliers, this CAPEX signal translates into sustained procurement. Practical implications:

• GeM portal (gem.gov.in): Central government procurement runs primarily through Government e-Marketplace. Keep your GeM registration current, your Udyam certificate uploaded, and your bank and GST details verified — inactive GeM profiles cause payment delays on live contracts
• PLI disbursements: The Production Linked Incentive schemes across 14 sectors are entering the milestone-fulfilment phase. If you are an approved PLI beneficiary, cross-check your actual production data against the claim thresholds in your approval letter and file your annual PLI claim before the notified deadline — late claims are not entertained retroactively
• TReDS for working capital: Government project payments are slow. The Trade Receivables Discounting System platforms (M1xchange, RXIL, Invoicemart) allow MSME contractors to discount government receivables within 1–3 business days. If you are a registered MSME with government receivables outstanding more than 30 days, TReDS liquidity costs less than the interest on an overdraft

FAME-III and the EV Budget 2026: Who Gets the Subsidy and How

The Faster Adoption and Manufacturing of Electric Vehicles scheme enters Phase III under Budget 2026. FAME-III provides demand-side incentives for electric two-wheelers (e-2W), electric three-wheelers (e-3W), and electric buses (e-buses). The subsidy is embedded in the ex-factory price — the OEM claims it from the Ministry of Heavy Industries and passes it to you as a reduced purchase price. You do not file a separate claim.

Concessional customs duty on capital goods for lithium-ion cell manufacturing has been extended further, reducing the landed cost of imported machinery for domestic gigafactory projects. Viability gap funding for battery energy storage systems (BESS) continues alongside the Green Hydrogen Mission outlay.

For fleet buyers and logistics companies considering EV transition:

1. Check the approved vehicle list on the MHI website before signing purchase orders — only vehicles on the list carry the FAME-III price benefit
2. Combine FAME-III price reduction with GST input tax credit on commercial EVs — the effective net cost can be significantly below the sticker price
3. Treat the FAME-III subsidy as a reduction in asset cost for depreciation purposes (not as income). The Written Down Value for tax depreciation under the Income-tax Act is computed on the net cost post-subsidy

Capital Gains Framework for AY 2027-28: Key Rates and Traps

Capital gains taxation was restructured comprehensively in earlier Finance Acts. For AY 2027-28, the applicable rates are as notified — do not apply FY 2022-23 rates to your current ITR. Key reference points:

• LTCG on listed equity and equity-oriented mutual funds: taxed at the rate notified for assets held more than 12 months, with an annual exemption threshold as notified. Gains within the exemption threshold are nil. Gains above are taxed at the applicable rate without indexation
• STCG on listed equity (Section 111A): for assets held 12 months or less, the rate as notified applies (revised in recent Finance Acts from the earlier 15%)
• Debt mutual funds: income is taxable as per your applicable slab rate (indexation benefit removed from April 2023 for new purchases)
• Residential property — Sections 54 and 54F: the rollover exemption for reinvestment in one residential house continues. The Rs. 10 crore cost cap on the new property (introduced in Finance Act 2023) means that gains on sale of a property where the new house costs more than Rs. 10 crore are partially taxable even with reinvestment. The timeline remains: purchase one year before or two years after the sale date; or construct within three years

Always reconcile your AIS (Annual Information Statement) data — specifically the "SFT" entries from registrars and mutual funds — against your own transaction records before entering figures in Schedule CG. Mismatches trigger automated notices under Section 143(1)(a).

Compliance Infrastructure: MCA V3, GST E-Invoicing, AIS/TIS, and Faceless Proceedings

MCA V3 and Annual Filing

The MCA V3 portal (mca.gov.in) is the stable platform for all company and LLP filings. Late filing fees on MCA accumulate at Rs. 100 per day per form with no upper cap for most forms. A company that files its Form AOC-4 (financial statements) 150 days late pays Rs. 15,000 in late fees on that single form alone — avoidable entirely by calendaring the due date (60 days from AGM for public companies, 30 days for private companies).

GST E-Invoicing via IRP

E-invoicing is mandatory for businesses with aggregate turnover above Rs. 5 crore (as per the current notification). An invoice not generated through the Invoice Registration Portal (IRP at einvoice1.gst.gov.in) is invalid for Input Tax Credit purposes for your customer. If you are at or near the threshold, verify your FY 2025-26 aggregate turnover across all GSTINs — the threshold is entity-wide, not GSTIN-wise.

Using AIS and TIS Before Filing ITR

Before filing your AY 2027-28 return, download your AIS from the e-filing portal (incometax.gov.in → Services → Annual Information Statement). Cross-reference every entry — dividends, interest, mutual fund redemptions, property purchase SFT data, salary TDS — against your own records. Submit online feedback on incorrect or duplicate entries before filing. Entries left unchallenged are treated as accepted; if your return disagrees with AIS data without a feedback trail, expect a Section 143(1)(a) mismatch notice within 30 days of processing.

Faceless Assessment Under Section 144B

All scrutiny assessments, limited scrutiny, and faceless appeals proceed without any face-to-face interaction. Notices arrive in the e-Proceedings tab of your portal login. Deadlines in faceless proceedings are strict — a missed response date often results in an ex-parte order. If you receive a notice, respond within the stipulated time even if only to request an extension. Ensure your authorised representative's credentials are active, your DSC is not expired, and your registered email and mobile number on the portal are current.

Common Mistakes to Avoid in FY 2026-27

1. Locking the tax regime without running the comparison. The new regime is automatic, but not always optimal. Salaried employees must submit their regime declaration to their employer before the first payroll — typically by 15 April. After that, your employer's TDS computation is fixed for the year. Use the tax calculator on incometax.gov.in with your actual deduction data before you decide.

2. Missing the 43B(h) ageing review before 31 March. Finance teams run debtors ageing routinely but rarely run creditor ageing filtered by MSME classification. The disallowance accumulates silently and surfaces at tax audit. Set a February deadline for the review.

3. Breaching the 5% cash threshold in presumptive taxation. A single large cash receipt from a walk-in customer can push your cash percentage above 5%, collapsing the elevated threshold for the whole year and potentially triggering a mandatory audit.

4. Treating FAME-III subsidy as taxable income. The subsidy is a capital receipt reducing asset cost, not a revenue receipt. Capitalise the vehicle at net cost; compute depreciation on that net figure.

5. Missing TDS on property purchase above Rs. 50 lakh. If you buy immovable property (other than agricultural land) for Rs. 50 lakh or more, you must deduct 1% TDS and remit it via Form 26QB within 30 days from the end of the month of deduction. Missing this attracts interest under Section 201(1A) plus a late filing fee of Rs. 200 per day under Section 234E — on a Rs. 80 lakh purchase delayed by 90 days, the Section 234E fee alone is Rs. 18,000.

6. Filing ITR without feedback on AIS mismatches. An unchallenged AIS entry that contradicts your return is the easiest trigger for a mismatch notice. Always resolve AIS discrepancies before filing, not after.

7. Operating on an outdated Udyam Registration category. If your enterprise has crossed the Micro/Small investment or turnover threshold, update your Udyam category. Your buyers may be relying on your registered classification for their 43B(h) compliance tracking — an incorrect category creates downstream liability.

Key Takeaways

• New regime is the default for FY 2026-27: run a documented comparison against the old regime — especially if you have HRA, a home loan, and consistent Section 80C investments — before your employer closes the declaration window in April 2026.
• Employer NPS contribution under Section 80CCD(2) is deductible even under the new regime; ensure your employer is structured to maximise this, as it is the most tax-efficient component available in the new regime.
• Section 43B(h) is a cash-flow risk disguised as a compliance provision: any unpaid Micro or Small Enterprise bill outstanding beyond 45 days from acceptance date as at 31 March gets added back to your taxable income — pay early or document a formal dispute.
• Presumptive taxation thresholds at Rs. 3 crore (Section 44AD) and Rs. 75 lakh (Section 44ADA) remain in force, but the 5% cash-receipt cap is the hidden condition that most small businesses fail to monitor month-to-month.
• FAME-III subsidies are embedded in OEM pricing on approved models — verify model eligibility with the Ministry of Heavy Industries approved list before committing to a fleet purchase; treat the net cost (post-subsidy) as your depreciable base.
• Capital gains rates have been restructured across multiple Finance Acts; always confirm current LTCG and STCG rates for the specific asset class in Schedule CG of the ITR form for AY 2027-28 rather than relying on pre-2024 rates.
• AIS/TIS review before filing is non-negotiable for AY 2027-28 — submitting feedback on incorrect entries is the single most effective way to avoid automated mismatch notices after processing.