India Union Budget 2025-26: ₹11.11 Lakh Crore Capex & New Tax Slabs Explained

The Big Picture: Fiscal Targets Finance Minister Sitharaman Is Betting On

Finance Minister Nirmala Sitharaman presented the Union Budget 2025-26 on February 1, 2025, anchoring it around a fiscal deficit target of 4.4% of GDP for FY26 — down from the revised 4.8% estimate for FY25. Total expenditure is pegged at ₹50.65 lakh crore, while total receipts (excluding borrowings) are projected at ₹34.96 lakh crore. Net tax revenues flowing to the Centre are estimated at ₹28.37 lakh crore, implying a nominal GDP growth assumption of roughly 10.1% for the year.

The gross market borrowing programme is set at ₹14.82 lakh crore, marginally higher than last year, but bond markets took comfort in the deficit consolidation path. The 10-year benchmark yield dropped about 6 basis points on budget day, closing near 6.68% — a signal that the Street trusted the arithmetic. The government's revenue expenditure is budgeted at ₹39.44 lakh crore, keeping the revenue deficit at 1.5% of GDP, which leaves room for the capital spending blitz that defines this budget's character.

Income Tax Slab Overhaul: What the New Regime Looks Like in FY26

The headline personal finance change is a significant restructuring of the new tax regime slabs, making it substantially more attractive for middle-class earners. The nil-tax threshold has been raised to ₹12 lakh per annum (effectively ₹12.75 lakh for salaried individuals after the revised standard deduction of ₹75,000). Here is how the revised slab structure compares to the FY25 structure:

The structural change is not in the rates but in the full tax rebate under Section 87A, which now wipes out all tax liability up to ₹12 lakh of income. For a salaried individual earning exactly ₹12.75 lakh, the effective tax outgo under the new regime drops to zero — compared to roughly ₹80,000 in FY25. The old regime, with its patchwork of deductions under 80C, 80D, and HRA exemptions, remains available but the government's intent to phase it out over the medium term is increasingly transparent. Tax professionals at Deloitte India and EY India estimate that roughly 2.5 crore salaried taxpayers will now find the new regime unambiguously superior.

₹11.11 Lakh Crore Capex: Where the Government Is Writing the Cheques

Capital expenditure at ₹11.11 lakh crore represents 3.1% of GDP and is the single largest infrastructure spending commitment in India's budget history. This is a 10.1% jump over the FY25 revised estimate of ₹10.18 lakh crore. Four sectors absorb the bulk of it:

• Railways: ₹2.52 lakh crore — the highest-ever rail allocation, covering 4,000 km of new track, station redevelopment under the Amrit Bharat scheme, and continued rolling stock procurement from RVNL, IRFC, and the Vande Bharat manufacturing pipeline at Titagarh Rail Systems and BEML.
• Roads and Highways: ₹2.87 lakh crore — covering National Highway Authority of India (NHAI) projects, the Bharatmala Phase-II rationalisation, and state highway grants. L&T, KNR Constructions, and PNC Infratech are among the direct order beneficiaries.
• Defence Capital Outlay: ₹1.72 lakh crore — with a continued push toward indigenisation; Hindustan Aeronautics (HAL), Bharat Electronics (BEL), and Mazagon Dock are positioned to capture a significant share of the procurement pipeline over the next 24 months.
• Green Energy and Renewables: ₹20,000 crore — including a dedicated Nuclear Energy Mission targeting 100 GW of nuclear capacity by 2047, offshore wind viability gap funding, and PM Surya Ghar rooftop solar expansion to 1 crore households. NTPC Renewable Energy, Waaree Energies, and Suzlon Energy are the primary listed proxies.

States also get ₹1.5 lakh crore in 50-year interest-free capital loans, conditional on capex deployment, which effectively pushes total public infrastructure investment well above the headline central figure.

Nifty Sectoral Scoreboard: Winners and Losers on Budget Day

The Nifty 50 opened down roughly 0.6% on budget morning, digested the announcements, and closed marginally positive — but the sector-level dispersion was sharp. Infrastructure and defence indices on NSE surged 3.1% and 2.8% respectively by the end of the February 3 session (the first full trading day post-budget). Nifty PSU Bank gained 1.9%, driven by expanded MSME credit guarantee headroom. The Nifty Auto index added 1.4% on EV incentive clarity.

On the other side, the Nifty FMCG index fell 1.2% — the consumption-stimulus play was absent, and rural income enhancement through PM Kisan was seen as too incremental to move the dial on near-term volume growth for companies like HUL or ITC. Nifty IT dipped 0.8%; the budget offered nothing directly sector-specific, and global macro concerns continued to dominate the narrative for TCS, Infosys, and Wipro. Nifty Pharma was broadly flat.

Key Schemes: PM Kisan, MSME Credit, PLI Extensions, and EV Push

PM Kisan Samman Nidhi sees its annual payout raised from ₹6,000 to ₹9,000 per farmer, benefiting approximately 9.4 crore farm households. This injects an incremental ₹28,200 crore annually into rural pockets — meaningful for two-wheeler demand and agri-input companies but unlikely to shift the macro consumption needle dramatically in the near term.

For MSMEs, the credit guarantee scheme coverage has been doubled to ₹10 crore per enterprise, with the corpus of the Credit Guarantee Fund Trust expanded. The government also introduced a revised definition of MSMEs by raising turnover and investment thresholds — a move that pulls more businesses into the formal credit ecosystem. Lenders like SIDBI, Bank of Baroda, and several small-finance banks are expected to see elevated MSME disbursement volumes through H2 FY26.

The Production-Linked Incentive (PLI) scheme gets selective extensions, particularly in electronics, specialty chemicals, and pharma APIs. Dixon Technologies and Kaynes Technology stand to benefit from the electronics PLI extension; Laurus Labs and Divi's Laboratories are cited in analyst notes as API PLI beneficiaries.

On EVs, customs duty exemptions on 35 additional capital goods used in battery manufacturing are now in effect, and the government has broadened the FAME-III framework eligibility to include three-wheelers and certain commercial EVs. Ola Electric, Ather Energy (ahead of its IPO at the time of writing), and Tata Motors' EV division are the primary listed or near-listed names to watch.

Frequently Asked Questions

What is India's fiscal deficit target for FY2026?

The Union Budget 2025-26 sets India's fiscal deficit target at 4.4% of GDP for FY26, down from the FY25 revised estimate of 4.8%. In absolute terms, the deficit is budgeted at approximately ₹15.69 lakh crore. The government's medium-term consolidation path aims to bring the deficit below 4.5% by FY26 and continue narrowing it thereafter, contingent on nominal GDP growth staying near the 10% mark.

New Tax Regime vs Old Regime in FY2026: Which Is Better?

For most salaried individuals earning up to ₹15–16 lakh per year who do not have a large home loan interest deduction or significant 80C investments, the new tax regime is now clearly superior in FY26, thanks to the zero-tax threshold of ₹12 lakh and the ₹75,000 standard deduction. High earners above ₹24 lakh with substantial HRA, 80C, and 80D deductions may still find the old regime competitive — the break-even point varies by individual deduction profile. Tools from ClearTax and HDFC Bank's tax calculator can help compute the precise crossover.

Which Stocks Benefit Most from Union Budget 2026?

The clearest direct beneficiaries are concentrated in infrastructure, defence, and railways. Names analysts consistently flag include Larsen & Toubro (L&T) for roads and defence; HAL, BEL, and Mazagon Dock for defence procurement; IRFC, RVNL, and Titagarh Rail Systems for the railway capex push; Waaree Energies and Suzlon for renewables; and Dixon Technologies for PLI-extended electronics manufacturing. On the financing side, PSU banks with large MSME books — including State Bank of India and Bank of Baroda — are positioned to grow fee and loan income as credit guarantee headroom expands.

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