Budget 2026 from an Investor's Lens: What Changed, What Didn't, and What It Means for Your Money

Hi,

So Finance Minister Sitharaman wrapped up her 9th consecutive Budget speech on February 1st, and if you were watching the Sensex in real-time while she spoke, you saw something interesting. The index nosedived nearly 3,000 points intraday before recovering to close down ~1,547 points. That's a 2% fall on Budget day.

The market, as they say, voted with its feet.

But here's the thing — markets react to the short-term. Investors should react to the long-term. And when you zoom out and actually read the fine print of Budget 2026, the picture is more nuanced than a single red candle on a chart. There are things to worry about, things to welcome, and a bunch of things that just... didn't happen.

Let's begin.

The Big Picture: What Kind of Budget Was This?

Budget 2026-27 wasn't a populist giveaway. It wasn't a radical reformist shake-up either. It was, frankly, a "stay the course" budget — fiscal consolidation continues (deficit at 4.3% of GDP), capex goes up to ₹12.2 lakh crore (~11% YoY growth), and the government is clearly betting on manufacturing, infrastructure, and long-term structural plays.

For investors, this translates to: no dramatic windfalls, but no major policy shocks either. Well, except for one.

The STT hike.

The STT Bomb: Trading Just Got a Lot More Expensive

This was the headline killer for markets. And rightfully so.

Here's what changed:

• STT on Futures: raised to 0.05% from 0.02% — that's a 150% increase
• STT on Options premium: raised to 0.15% from 0.10%
• STT on exercised options: raised to 0.15% from 0.125%

Now, if you're a long-term SIP investor, you might shrug at this. Fair enough. STT on delivery-based equity transactions hasn't changed. Your mutual fund SIPs aren't directly hit.

But if you trade F&O — and let's be honest, a LOT of retail investors in India do — this hurts. The Income Tax department justified it by pointing out that F&O volumes in India are now more than 500 times the GDP. That's a staggering number and suggests the government sees speculative trading as a systemic concern, not just a revenue opportunity.

Who gets hit hardest?

HNI and institutional traders running arbitrage strategies, high-frequency desks, and hedging positions in F&O. The increased cost directly eats into their alpha. For arbitrage mutual funds specifically, estimates suggest net returns could drop by ~0.20% to 0.40% annualised. That might sound small, but for a product that typically delivers ~6-7% pre-tax, losing 40 bps is meaningful.

Brokerage stocks got hammered on Budget day — MCX fell ~18%, Groww's parent company (Billionbrains) dropped ~13%, and IIFL Capital Services fell ~10%. The market was quite clear about who it thinks loses here.

Taxes: The Status Quo Budget (Mostly)

If you were hoping for income tax slab changes, well, you're going to be disappointed. No changes to tax slabs under either the new or old regime for FY 2026-27.

The new regime slabs remain:

The ₹60,000 rebate under Section 87A continues, meaning effective zero tax up to ₹12.75L (including standard deduction of ₹75K). But — and this is important — the IT department clarified that this rebate does NOT apply to capital gains. So if you have LTCG or STCG from equity mutual funds or shares, you're paying tax on those regardless of your total income level.

Capital Gains: No Relief, No Change

This is probably the biggest non-event of the budget from an investor's standpoint.

• LTCG on equity/equity MFs: Still 12.5% above ₹1.25L annual exemption
• STCG on equity/equity MFs: Still 20%
• No indexation benefit restored for debt mutual funds

AMFI had lobbied hard for raising the LTCG exemption from ₹1.25L to ₹2L. Didn't happen. They also pushed for tax-free LTCG on equity funds held over 5 years. Didn't happen. And the big one — restoring indexation for debt mutual funds held over 36 months — also didn't happen.

For the middle class investor running SIPs and holding a mix of equity and debt funds, this means the taxation landscape is exactly where it was last year. No worse, but no better.

The budget's message on capital gains is clear: we'll take what we raised in 2024, and we're not giving any of it back.

Mutual Funds: The Ripple Effects

Let me break this down for mutual fund investors specifically, because the impacts are indirect but real.

1. Equity Funds — Broadly Neutral

No direct tax changes. The government's capex push (₹12.2 lakh crore), manufacturing missions (biopharma, semiconductors, rare earths), and infra spending are all structurally positive for the companies these funds invest in.

2. Arbitrage Funds — Mildly Negative

The STT hike on futures directly increases costs for arbitrage strategies. These funds rely on pricing differences between cash and futures markets. With futures STT going from 0.02% to 0.05%, the cost of executing these trades has gone up significantly. Expect a 20-40 bps drag on returns.

3. Debt Funds — Disappointment Continues

The industry had hoped for indexation to come back for debt funds held over 3 years. It didn't. Debt fund gains continue to be taxed at your slab rate regardless of holding period. If you're in the 30% bracket, this makes debt funds less tax-efficient than direct bond investments in some cases.

4. Interest Expense Deduction — Gone for MF Dividends

A small but notable change: you can no longer deduct interest expenditure against dividend income from mutual funds. If you were borrowing to invest in dividend-paying mutual fund schemes (an HNI strategy), the math just changed. This was buried in the fine print but it's worth noting.

Buyback Taxation: A Win for Minority Shareholders

Now here's something that's actually positive — and it matters quite a bit for HNIs and investors in mid-cap/small-cap companies that frequently do buybacks.

The change: Share buyback proceeds will now be taxed as capital gains in the hands of the shareholder, instead of as dividend income.

Why does this matter?

Earlier, buybacks were taxed almost like dividends, which meant if you're in the 30% slab, you paid 30% on the entire buyback consideration. Now, it's treated as capital gains — STCG at 20% or LTCG at 12.5%. That's a meaningful reduction for individual shareholders.

The catch: Promoters face an additional buyback tax — 22% for corporate promoters and 30% for non-corporate promoters. The government is essentially saying: buybacks are fine for returning cash to shareholders, but we don't want promoters using it as a tax-avoidance route.

This is, infact, a welcome change. It makes the taxation of corporate actions more transparent and aligns India's buyback tax treatment closer to global norms. For minority shareholders, this is a straight win.

Sovereign Gold Bonds: The Tax-Free Dream Is Over (Sort Of)

This one caught a lot of investors off guard. Especially those who'd been buying SGBs on the stock exchange.

What changed: From April 1, 2026, capital gains tax exemption on SGBs is available only to original subscribers who hold the bonds continuously until maturity. If you bought SGBs from the secondary market (stock exchange), you no longer get tax-free capital gains at redemption.

With gold prices touching record highs recently, SGBs were trading at 10-15% premiums on exchanges precisely because of that tax-free redemption feature. Budget 2026 just pulled the rug from under that premium.

Implications for investors:

• If you hold SGBs bought from the secondary market, your gains will now be taxed — STCG at slab rate (up to ~39% for the highest bracket!) or LTCG at 12.5%
• Premature redemptions are also not eligible for exemption anymore
• Experts expect SGB premiums on exchanges to correct sharply

For HNIs who were stacking SGBs from the secondary market as a tax-efficient gold play — this is a significant shift. The government wants SGBs to be a long-term savings instrument, not a trading tool for tax arbitrage. Fair enough, arguably, but it does change the portfolio math.

The MAT Overhaul: What Corporates (and Their Investors) Should Know

This one's more relevant for folks analysing corporate earnings and valuations.

Key changes:

• MAT (Minimum Alternate Tax) is now proposed as a final tax — no more carry-forward of MAT credit after April 1, 2026
• MAT rate reduced from 15% to 14%
• Non-resident taxpayers are now exempt from MAT

The first point is big. Companies that had accumulated large MAT credits over the years (capital-intensive, old-economy firms especially) will need to absorb this. The reduction to 14% partially offsets the pain, but the removal of credit carry-forward is a clear push toward the simplified new tax regime.

For investors analysing companies, check if any of your holdings had significant MAT credit assets on their balance sheets. Those are effectively being written down over time now.

NRI Investment: Doors Open Wider

A welcome change for NRIs and Persons Resident Outside India (PROIs):

• Individual investment limit in listed Indian companies through Portfolio Investment Scheme (PIS): doubled from 5% to 10%
• Overall aggregate limit per company: raised to 24%
• NRIs under presumptive taxation: exempt from MAT
• TCS on overseas education, medical remittances: reduced to 2%

This is quietly important for wealth creation. Higher NRI participation in Indian equities means more capital flowing into domestic markets. And the TCS reduction directly improves cash flows for NRI families.

The Wealth Creation Lens: Where Does This Leave You?

Alright, so let's put it together. If you're a middle-class investor, an upper middle-class professional, or an HNI — what should you actually do with all this?

For Middle-Class Investors (Income ₹10L-₹25L)

The budget doesn't change your playbook much. Your SIPs continue at the same tax rates. No new deductions, no new breaks. The good news? No new burdens either.

Action: Continue your equity SIPs. The government's capex and manufacturing push is structurally positive for equity markets over 3-5 years. Don't chase F&O trading — the government is making it increasingly expensive for a reason. Most retail F&O traders lose money anyway.

For Upper Middle-Class Investors (Income ₹25L-₹1Cr)

The lack of tax slab changes is a missed opportunity, but the buyback tax reform is positive if you hold stocks in companies that do buybacks. The SGB rule change means you need to rethink your gold allocation strategy.

Action: Relook at your debt allocation. Without indexation, debt funds are less tax-efficient. Consider a mix of direct bonds, SDLs (State Development Loans), and tax-free bonds for your fixed-income sleeve. For gold, shift to gold ETFs/mutual funds if you were relying on secondary market SGBs.

For HNIs (Income >₹1Cr)

This budget has the most moving parts for you. Higher STT hurts if you're active in F&O or have exposure through arbitrage funds. The buyback reform is positive. SGB rule change needs portfolio restructuring. And the interest deduction removal for MF dividends closes one more planning loophole.

Action: Work with your wealth advisor to model the post-tax impact of STT changes on your derivatives and arbitrage positions. Evaluate whether PMS or AIF structures offer better cost-efficiency than direct F&O for hedging. The NRI investment limit increase could be relevant if you're managing family portfolios with overseas members.

The Bigger Signal: Discipline Over Speculation

If there's one theme that runs through this Budget from an investment standpoint, it's this: the government wants you to invest, not trade.

Higher STT on F&O? Discourages speculation. SGB exemption only for original subscribers holding to maturity? Rewards patience. Buyback taxed as capital gains? Simplifies and makes corporate actions transparent. No short-term LTCG relief? Pushes long-term holding.

Whether you agree with each individual move or not, the direction is consistent. And for genuine wealth creation — the boring, compounding, SIP-every-month kind — this direction isn't necessarily bad. It just means the shortcuts are getting more expensive.

The ₹12.2 lakh crore capex, the semiconductor and biopharma missions, the infrastructure push — these are multi-year investment themes that will flow through to corporate earnings eventually. Markets may not celebrate today, but the foundation for wealth creation over the next 5-10 years is being laid.

Well, that's that. Not the most exciting Budget for investors, but not a destructive one either. The real action, as always, will be in the execution.

See you around, becoming an Intelligent Investor!

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Ready to Navigate Post-Budget Investment Decisions?

i2Finserv specializes in mutual funds, insurance, and AIFs for NRIs and foreign nationals. Based in Faridabad, Delhi NCR, serving global clients. Whether you need help restructuring your portfolio after these Budget changes or want personalised advice on tax-efficient investing, we're here to help.

Disclaimer 1: All above views are purely for educational purposes and are not to be taken as investment advice. Investment or trades taken of any kind based on this are solely the person's risk and I bear no liability. Please consult a financial advisor before making any investments. All investments are subject to market risks.

Disclaimer 2: The views presented above are mine and not of any organization(s) I work with / studying at / am employed at