Union Budget 2026–27 takes a pragmatic approach to strengthening India’s financial ecosystem by addressing three linked gaps: household liquidity, growth capital for small businesses and depth in equity markets.
While the measures may appear incremental in isolation, together they signal a shift towards reducing friction in personal finance and building a more balanced capital structure for enterprises.
Rationalisation of tax collected at source (TCS) under the Liberalised Remittance Scheme (LRS) eases cash-flow pressure for households with overseas expenses. The Budget cuts TCS on education, medical treatment and tour packages from 5 per cent to 2 per cent. Since TCS is an advance deposit, the earlier regime often strained finances. Earlier, 5 per cent above the ₹7 lakh threshold was locked until refunds. Now, a ₹20 lakh remittance attracts ₹26,000 instead of ₹65,000, leaving ₹39,000 more, reducing short-term borrowing and highlighting the importance of tax timing.
The more structural intervention in Budget 2026 is the proposed ₹10,000 crore SME growth fund. India has made steady progress on MSME financing through credit guarantees, digital lending platforms and public schemes, but equity participation has remained limited. Venture-style equity is common in start-ups, yet MSMEs still rely heavily on leverage to fund growth.
The growth fund seeks to introduce equity participation into this segment, enabling investment in technology, capacity expansion and market access without balance-sheet stress, subject to transparent criteria, governance and alignment with the SME stock exchange framework.
The Budget also expands equity participation by allowing Persons Resident Outside India (PROIs) to invest in listed Indian companies through the Portfolio Investment Scheme. The individual investment limit has been raised from 5 per cent to 10 per cent, while the aggregate cap for all PROIs has been increased from 10 per cent to 24 per cent.
While this does not directly fund businesses, it deepens liquidity and participation in India’s listed equity markets. Stronger public markets improve price discovery and capital formation, complementing efforts to build equity financing at the enterprise level.
Taken together, these measures aim to unlock capital where it matters most across household cash flows, growing enterprises and capital markets that enable wider participation.
As a next step, a stronger push on Digital Public Infrastructure 2.0 would amplify these gains. Greater investment in platforms such as DigiLocker, Account Aggregators and seamless video KYC can further reduce friction, lower compliance costs and make it easier to do business digitally. That is where the next phase of formalisation and financial inclusion will be won.
Adhil Shetty is CEO of BankBazaar.com