Union Budget 2026: Markets seek tax reforms to rebuild retail investor confidence

Retail Investors Show Unwavering Commitment to Indian Markets

Retail investors in India have demonstrated remarkable resilience in the face of numerous challenges, including the pandemic, global rate shocks, and geopolitical turmoil. Their sustained engagement reflects a growing belief that Indian capital markets are maturing into a credible platform for long-term wealth creation.

Tax Structure Challenges in Global Context

India's capital market taxation faces significant competitiveness issues when viewed globally. The Securities Transaction Tax (STT) represents a key concern, as India remains among the few major equity markets imposing transaction-level taxes on every trade.

• Market: STT Policy
• United States: No transaction tax
• Japan: No transaction tax
• Singapore: No transaction tax
• Hong Kong: No transaction tax
• Europe: Limited adoption, volumes migrated

STT creates a fundamental issue as it applies regardless of profitability, effectively becoming a tax on market participation itself. Recent years have seen STT increases to relatively high levels, making relief a priority for market sentiment improvement.

Commodity and Capital Gains Tax Concerns

The Commodities Transaction Tax (CTT), introduced in 2013 on non-agricultural commodities, has significantly impacted trading volumes. This undermines the objective of building deeper, more efficient commodity markets essential for supporting industrial users and infrastructure development.

• United States: Taxes long-term gains with holding period incentives and inflation adjustments
• European countries: Light taxation or exemptions under specific conditions
• Singapore and Hong Kong: No capital gains taxation

The primary concern centers on predictability rather than rates, particularly for foreign portfolio investors facing interpretational challenges and treaty uncertainties.

Retail Investor Market Participation

Current market structure shows substantial retail investor involvement:

• Ownership Category: Market Share
• Direct retail holdings: 10%
• Mutual fund holdings: 10%
• Total retail ownership: 20%

This represents a structural shift requiring careful nurturing. The SIP culture has transformed Indian markets, with monthly inflows providing steady counterbalance to volatile global flows.

Infrastructure and Fiscal Policy Recommendations

The economy requires momentum through decisive government capital expenditure expansion, particularly in defence. Political instability across South Asia emphasizes India's position as the region's only stable democracy, necessitating higher national security investment.

• Expenditure Type: Current Share
• Revenue expenditure: Nearly 80%
• Capital expenditure: Approximately 20%

Maintaining fiscal discipline below 5% while increasing capex requires sharp revenue expenditure curtailment. With inflation at relatively low levels, conditions appear favorable for launching an ambitious multi-year National Infrastructure Plan.

Market Development Priorities

Over 500 companies have raised capital through India's IPO markets in the last two years, reflecting growing entrepreneurial momentum. This demonstrates how private ambition meets public participation, with retail investors playing increasingly important roles.

Historic Union Budgets

India's Union Budget represents far more than a financial document—it serves as a comprehensive blueprint for the country's economic growth and signals policy direction to citizens, investors, and businesses.

The Foundation: Wealth Tax Introduction (1957)

The Union Budget of 1957-58 marked a significant milestone in India's fiscal policy when Finance Minister TT Krishnamachari introduced the wealth tax for the first time in the country's history.

• Policy Details: Information Finance Minister: TT Krishnamachari Budget Year: 1957-58 Key Innovation: First-time wealth tax introduction Objective: Reduce inequality and broaden tax base Duration: Remained until abolished in 2015

Crisis Management: The Black Budget (1973)

The 1973 Budget, presented by Yashwantrao Chavan, earned the infamous moniker 'Black Budget' due to the severe economic challenges India faced at the time.

• Crisis Indicators: Details Finance Minister: Yashwantrao Chavan Fiscal Deficit: ₹ 550 crore Key Challenges: Rising oil prices, food shortages Economic Context: Major economic crisis period

Reform Catalyst: Carrot and Stick Budget (1986)

Presented on 28 February 1986 by VP Singh under the Congress government, this budget marked the first significant step toward abolishing the License Raj system in India.

• Reform Highlights: Implementation Finance Minister: VP Singh Presentation Date: 28 February 1986 Key Target: Tax evaders, black marketers, smugglers Major Innovation: MODVAT (Modified Value Added Tax) credit Objective: Reduce cascading tax impact on consumers

Economic Transformation: Manmohan Singh's Epochal Budget (1991)

Widely regarded as one of the most important budgets in India's history, the 1991 Union Budget presented by Dr Manmohan Singh fundamentally transformed the Indian economy.

Tax Revolution: P Chidambaram's Dream Budget (1997)

P Chidambaram's 1997 budget earned the title 'Dream Budget' for its comprehensive overhaul of India's tax system.

• Tax Reforms: Changes Finance Minister: P Chidambaram Key Focus: Tax system simplification Income Tax: Reduced rates Corporate Tax: Reduced rates Objective: Boost investment and modernize fiscal policies

Modern Impact: Nirmala Sitharaman's Tax Reforms (2025)

Union Finance Minister Nirmala Sitharaman's 2025 Budget stands as a landmark achievement in addressing India's consumption challenges.

• Tax Relief Measures: Benefits Zero Tax Limit: Up to ₹ 12 lakh annual income Salaried Employee Limit: Up to ₹ 12.75 lakh (with standard deduction) Standard Deduction: Increased to ₹ 75,000 Target Beneficiaries: Middle-class taxpayers Economic Impact: Boosted consumption through increased disposable income

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