Union Budget 2026: One Tax Decision That Could Make Or Break Manufacturing

Global trade conditions are becoming more uncertain. Any increase in import tariffs directly affects Indian exporters, particularly those operating on low margins.

As Union Budget 2026 approaches, the manufacturing sector is looking for clarity and consistency.

Source : Freepik

Show Quick Read

Key points generated by AI, verified by newsroom

By Sneha Padhiar

India’s manufacturing sector has seen steady progress in recent years. Government initiatives and better infrastructure have helped, but new global challenges are now emerging. Changes in global trade policies and possible tariff hikes, especially by the US, are increasing cost pressure on Indian manufacturers. In such a situation, corporate tax policy becomes extremely important.

Global Tariff Shifts and the New Competitive Reality

Global trade conditions are becoming more uncertain. Any increase in import tariffs directly affects Indian exporters, particularly those operating on low margins. Sectors such as textiles, auto components, electronics, and chemicals are already facing strong price competition. Many competing countries are offering tax benefits to support their manufacturers, and India needs to stay competitive.

Section 115BAB: A Helpful Step for Manufacturing

The 15 per cent concessional corporate tax rate under Section 115BAB was a positive step for the manufacturing sector. It encouraged companies to set up new manufacturing units in India. For many businesses, especially capital-intensive ones, the lower tax rate made projects financially viable. However, due to time limits and strict conditions, many manufacturers could not fully benefit from it.

Why extension of 115BAB is important

Manufacturing projects require long-term planning. Approvals, funding, and setting up operations usually take several years. When tax benefits are available only for a limited period, companies hesitate to commit large investments. Extending the concessional tax rate would give businesses the confidence to plan long-term manufacturing projects in India.

Rising Tariffs Can Be Managed Through Tax Support

Indian manufacturers have no control over global tariff decisions. What they can rely on is domestic tax support. Lower corporate tax helps businesses absorb higher export costs and protect their margins. This support is crucial to remain competitive in international markets.

Manufacturing Needs Strong Cash Flows

Manufacturing is a capital-heavy activity. Lower tax outgo means more cash is available within the business. This helps companies invest in new machinery, technology, and expansion. It also improves their ability to handle economic slowdowns.

Role of MSMEs in Manufacturing

Large manufacturing units depend heavily on MSMEs for components and services. If MSMEs remain financially stressed, the entire supply chain gets affected. Providing tax benefits in a phased or extended manner can support MSMEs as well. This will strengthen manufacturing clusters and improve overall compliance.

Budget 2026: What the Industry Expects

As Union Budget 2026 approaches, the manufacturing sector is looking for clarity and consistency. Sudden policy changes create uncertainty for businesses. Key expectations include:

• Extension of the 15 per cent concessional corporate tax rate
• Relaxation of strict eligibility conditions
• Better alignment of tax benefits with export-oriented manufacturing

These measures can significantly support the sector during global trade uncertainty.

Manufacturing plays a key role in India’s economic growth and employment generation. In the current global environment, domestic tax policies must provide stability. Extending the concessional corporate tax rate u/s. 115BAB will help Indian manufacturers remain competitive. Budget 2026 has an opportunity to support long-term manufacturing growth through practical tax measures.

(The author is Partner at Bhuta Shah & Co LLP and a veteran tax expert)

[Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP News Network Pvt Ltd.]

Real Estate Sector Budget 2026 | India’s Affordable Housing Push Faces A Reality Check

Taxpayers Budget 2026 Expectations | Old Vs New Tax Regime: Will The Confusion Finally End?