Union Budget 2025: Promises vs Reality – And What Business Owners Should Expect from Budget 2026

As we stand just days away from Finance Minister Nirmala Sitharaman's ninth consecutive Union Budget presentation on February 1, 2026, it's the right time to take stock: What did Budget 2025 promise? What actually materialized? And critically for business owners—what should you expect and prepare for in the coming fiscal year?

After three decades of advising businesses through economic cycles, we at KBR & Co. have learned that budgets are best understood not through political rhetoric but through ground-level economic performance. This analysis cuts through the noise to give you the facts that matter for your business decisions.

The Big Picture: India's Economic Performance FY 2025-26

Let's start with what actually happened rather than what was promised.

GDP Growth: India Outperformed Expectations

When Budget 2025 was presented in February 2025, most economists projected India's GDP growth for FY 2025-26 would moderate to around 6.5-6.8%. The reality has been significantly better:

The Reserve Bank of India revised its full-year growth forecast upward from 6.8% to 7.3%. The IMF followed suit, raising India's FY26 projection to 7.3%, citing "better-than-expected outturn in the third quarter and strong momentum in the fourth quarter."

Inflation: The Goldilocks Moment

Perhaps the most significant economic achievement of FY 2025-26 has been inflation control:

• September 2025: CPI inflation fell to 1.54% – an eight-year low
• October 2025: Inflation moderated further to 2.05%
• Full year average: Around 2.6%, well below the RBI's 4% target

RBI Governor Sanjay Malhotra called this a "rare goldilocks period" of high growth and exceptionally low inflation. For business owners, this translated to:

• Stable input costs
• Predictable pricing environment
• Lower borrowing costs (RBI cut repo rate by 25 bps to 5.25% in December)
• Improved consumer purchasing power

Fiscal Discipline Maintained

The government stayed on track with fiscal consolidation:

• FY 2024-25 Revised Estimate: Fiscal deficit 4.8% of GDP
• FY 2025-26 Budget Estimate: Fiscal deficit 4.4% of GDP
• Actual trajectory: On course to meet the target

Budget 2025: What Was Promised

Let me recap the key announcements from Budget 2025 (presented February 1, 2025) that directly impact businesses and individuals:

1. Income Tax Relief for Individuals

The Headline Promise: "No income tax up to ₹12 lakh"

What it actually meant:

• Standard deduction increased from ₹50,000 to ₹75,000 (for salaried)
• Rebate under Section 87A increased from ₹25,000 to ₹60,000
• New tax slabs under the new regime:
  • ₹0-4 lakh: Nil
  • ₹4-8 lakh: 5%
  • ₹8-12 lakh: 10%
  • ₹12-16 lakh: 15%
  • ₹16-20 lakh: 20%
  • ₹20-24 lakh: 25%
  • Above ₹24 lakh: 30%

Ground Reality for Businesses: This put ₹25,000-35,000 additional disposable income in the hands of middle-class employees, boosting consumer demand. If you're in retail, hospitality, or consumer goods, you've likely felt this in your second-half sales.

2. New Income Tax Bill Announced

Budget 2025 promised to introduce a simplified Income Tax Bill to replace the 1961 Act.

Promise:

• Reduce sections from 819 to 536
• Replace "previous year" and "assessment year" with "tax year"
• Simplify language and reduce complexity by 60%

Reality Check: The bill was indeed tabled in Parliament in the subsequent budget session. Implementation is progressive, with full transition expected by FY 2026-27. As of January 2026, most provisions remain under the old act, though the new framework is being phased in.

3. MSME Credit Enhancement

Promise: Enhance credit guarantee cover from ₹5 crore to ₹10 crore for MSMEs

Reality: Implemented. The National Credit Guarantee Trustee Company (NCGTC) operationalized this enhancement from April 2025. However, ground-level feedback from our MSME clients indicates:

• Positive: Higher guarantee cover available
• Challenge: Bank credit disbursement remains cautious; many banks still require collateral beyond guarantee
• Utilization: Pickup has been gradual; best results seen in manufacturing and export-oriented MSMEs

4. Customs Duty Changes

Key Changes Announced:

• BCD on certain electronic components reduced to promote electronics manufacturing
• Duty exemptions for 6 life-saving medicines (reduced to 5% concessional duty)
• Focus on "Make in India" with raw material import duty reductions

Reality: These came into effect from April-May 2025. Impact:

• Electronics sector: Positive for manufacturers; component costs reduced
• Pharma: Beneficial for formulation companies
• Overall: Inverted duty structures partially corrected

5. Agriculture Focus

Key Announcements:

• PM Dhan-Dhaanya Krishi Yojana: Covering 100 low-productivity districts
• Pulses Mission: 6-year mission for Tur, Urad, Masoor self-reliance
• KCC Enhancement: Loans up to ₹5 lakh with enhanced credit

Ground Reality:

• Programs rolled out from Kharif 2025
• Wheat procurement for FY26 reached 29.7 million tonnes (highest in 4 years, up 13.5% YoY)
• Agricultural GVA grew 3.8% in FY25, rebounding from previous year's slowdown

Promises vs Reality: The Honest Assessment

What Business Owners Should Know: Sector-Specific Reality

For Hospitality & Services (KBR & Co. Client Focus)

Promise: Boost in domestic tourism and consumer spending from tax relief

Reality Check: Positive momentum, but uneven

• 5-star hotels in metros saw 18-22% revenue growth in H2 FY25-26
• Mid-segment hotels (₹2,500-5,000/night) outperformed with 25% growth
• Challenges: Operating costs up 8-10% (wages, utilities, F&B inputs)
• GST on hotel services remains unchanged at 12% (for <₹7,500) and 18% (for ≥₹7,500)

For Pharmaceutical Companies

Promise: Customs duty relief on life-saving drugs and API inputs

Reality: Mixed results

• Formulation companies benefited from lower import duties on specific APIs
• Domestic API manufacturers faced pressure from cheaper imports (inverted duty structure persists in some segments)
• PLI scheme for pharma extended, benefiting large players more than SMEs

For Logistics & Transport

Promise: Infrastructure capex to boost logistics efficiency

Reality: Strong momentum

• Road capex exceeded targets; 13,800+ km highways constructed in FY25
• GST e-way bill compliance improved, reducing transit delays
• Challenge: Fuel costs remain volatile; diesel prices fluctuated 12% in FY25
• 3PL and cold chain segments saw 20%+ growth

For Startups & Tech

Promise: Extension of startup tax holiday to 2030

Reality: Implemented but with conditions

• Tax holiday extended for eligible startups (incorporated by April 1, 2030)
• Eligibility criteria remain strict: turnover <₹100 crore, 10-year limit
• Angel tax provisions relaxed for registered startups
• Challenge: Funding winter continued through 2025; VC investments down 35%

For NBFCs

Promise: Regulatory rationalization and support for last-mile credit

Reality: Progress but regulatory burden increased

• Scale-Based Regulation (SBR) framework implemented by RBI (October 2025)
• Larger NBFCs face tighter capital and governance norms
• Positive: Digital lending guidelines brought clarity; reduced predatory practices
• Challenge: Cost of compliance up 15-20% for mid-sized NBFCs

Budget 2026: What to Expect (And What Business Owners Should Prepare For)

With Budget 2026 just 3 days away, here's what to realistically expect based on pre-budget consultations, government priorities, and economic indicators:

High Probability Expectations (70-80% Chance)

1. Income Tax Tweaks (Not Overhaul)

Don't expect dramatic changes. Budget 2026 is unlikely to be a "populist" budget given solid economic fundamentals.

Likely changes:

• Standard deduction may increase from ₹75,000 to ₹1 lakh
• Possible minor tweaking of new regime tax slabs (e.g., 15% bracket may widen)
• Old regime will continue but with reduced benefits to encourage migration to new regime

For business owners: Marginal benefit. The bigger opportunity is in corporate tax optimization, not personal tax.

2. TDS/TCS Rationalization

Expect:

• Consolidation of TDS rates (currently 20+ different rates)
• Possible move to 2-3 standard rates (e.g., 1%, 5%, 10%)
• Higher TDS thresholds to reduce compliance burden on small transactions
• Faster TDS refund mechanisms (currently a pain point)

For business owners: This will simplify cash flow management if implemented well.

3. GST 2.0 Reforms

The GST Council introduced rate rationalization in mid-2025. Budget 2026 will likely:

• Further simplify ITC (Input Tax Credit) rules
• Reduce compliance burden for small businesses
• Possible amnesty scheme for Section 74 cases (disputed demands)

4. Focus on Manufacturing & Infrastructure

Expect:

• Continuation of PLI (Production Linked Incentive) schemes
• Capital expenditure allocation maintained at ₹11+ lakh crore
• Possible reintroduction of lower corporate tax for new manufacturing units (similar to Section 115BAB)

5. AI, Robotics & Deep Tech Push

Budget 2026 is expected to significantly boost allocations for:

• AI research and development
• Robotics manufacturing
• Deep tech Fund of Funds
• Centre of Excellence expansions

This aligns with global competitiveness goals and India's positioning as a technology leader.

Medium Probability (40-60% Chance)

1. Old Tax Regime Continuity

The old regime (with deductions under 80C, HRA, etc.) will likely continue for 2-3 more years despite losing relevance. 28% of taxpayers still filed under the old regime in AY 2024-25.

2. Foreign Tax Credit at TDS Stage

Currently, foreign tax credit can only be claimed at self-assessment stage. Budget may allow claiming at TDS deduction stage, improving cash flow for companies with overseas operations.

3. Customs Duty Rationalization

Current 8 tariff slabs may be reduced to 4 slabs to simplify imports and improve ease of doing business.

4. Affordable Housing Threshold Increase

Possible increase in affordable housing threshold limits to boost semi-urban real estate.

Lower Probability (20-40% Chance) – But Watch For

1. Wealth Tax or Inheritance Tax

This has been floated in policy circles. While unlikely in Budget 2026, groundwork may be laid for future implementation. High net worth individuals should monitor.

2. Cryptocurrency Regulation Framework

After volatile global crypto markets in 2025, Budget may introduce comprehensive regulation. TDS on crypto transactions already exists; more stringent KYC and reporting norms possible.

3. Climate/Carbon Taxes

With COP commitments, India may introduce carbon-related taxation or incentives. Watch for announcements on green energy credits or emission-linked levies.

Key Economic Indicators to Watch Pre-Budget

As you prepare for Budget 2026, keep an eye on:

1. Q3 FY26 GDP data (due late January): If growth maintains above 7.5%, expect growth-focused budget. If it moderates to 6-6.5%, expect stimulus measures.
2. January inflation numbers: Currently at historic lows, but food inflation could spike if supply disruptions occur.
3. Global trade tensions: US tariff policies under the new administration could impact India's export-oriented Budget measures.
4. RBI monetary policy (next meeting February): If RBI continues rate cuts, Budget may focus on capital expenditure over consumption stimulus.

Actionable Advice for Business Owners: What to Do Now

Immediate Actions (Before February 1)

1. Complete Your Tax Planning

• Don't wait for Budget 2026 hoping for new deductions. Major changes are unlikely.
• Maximize current year deductions under Section 80C, 80D, NPS, etc. (if using old regime)
• Finalize advance tax payments for Q4 (due March 15, 2026)

2. Cash Flow Management

• With year-end approaching, reconcile receivables and payables
• Ensure GSTR-3B compliance is current (March filings are scrutinized heavily)
• Check TDS deposits and 26AS matching

3. Capex Decisions

• If planning equipment purchases, finalize before March 31 to claim FY26 depreciation
• For companies under presumptive taxation, ensure you meet turnover/receipt conditions

4. MSME Registrations

• If you qualify, ensure Udyam registration is current
• New MSME classification (effective since FY26): Micro (turnover up to ₹5 crore), Small (up to ₹50 crore), Medium (up to ₹250 crore)

Post-Budget Actions (February-March 2026)

1. Immediate Budget Analysis

• Watch for impact on your specific sector
• Understand effective dates (some provisions apply from April 1, others from notified dates)
• Schedule a consultation with your CA within 7-10 days of Budget for personalized impact assessment

2. Update Business Plans

• Revise FY 2026-27 budgets based on new tax/duty structures
• Adjust pricing models if input costs change due to customs duty modifications
• Evaluate benefit of any new incentive schemes announced

3. Compliance Readiness

• New Income Tax Bill provisions may require system updates
• GST changes typically require ERP/accounting software modifications
• Ensure your team is trained on any new compliance requirements

The Bottom Line: Pragmatic Optimism for FY 2026-27

Budget 2025 made bold promises, and remarkably, India's economy delivered even better on growth and inflation control. The combination of 7.3% GDP growth with 2% inflation is rare globally – only China and India among major economies achieved this in 2025.

For Budget 2026, temper expectations of dramatic announcements. This is likely a consolidation budget – cementing the gains of 2025 while making incremental improvements in ease of doing business, manufacturing support, and technology investment.

Three decades of advisory experience has taught us that businesses thrive not by chasing budget sops but by:

1. Maintaining strong compliance hygiene
2. Managing cash flows conservatively
3. Investing in productivity improvements
4. Staying agile to policy changes

Budget 2026 will set the tone for FY 2026-27, but your business outcomes will be determined by execution in this favorable macro environment.