Union Budget 2026: Business Challenges, Employer Expectations, and Policy Priorities Share ✕ Updated on: 23rd Jan 2026 8 mins read Blog Payroll Union Budget 2026 arrives at a time when Indian employers face one of the most complex economic environments in recent memory. Inflation remains stubborn, global supply chains continue to shift, and talent costs keep climbing. For HR professionals and CHROs, this budget represents more than fiscal policy. It shapes hiring budgets, compliance requirements, and workforce planning for the entire year ahead. I’ve spoken with dozens of HR leaders across manufacturing, IT, and MSME sectors over the past few months. Their concerns share a common thread. They want relief from compliance complexity, meaningful tax reforms, and genuine support for job creation. The expectations are high. And the stakes for getting this budget right have never been greater. Key Business Challenges Ahead of Union Budget 2026 Indian businesses enter 2026 carrying significant burdens. The economic pressures of the past two years have not eased. And for employers making workforce decisions, the uncertainty compounds every choice. Economic Pressures Impacting Employers Before Union Budget 2026 Inflation in India hovered around 5.5% through late 2025, according to RBI data. That number directly impacts employer costs. Raw materials cost more. Office rentals in metro cities have increased 12-15% year on year. And employees expect salary adjustments that match rising living expenses. Credit access remains tight for mid-sized companies. Banks have maintained cautious lending practices. Working capital loans come with higher interest rates than they did three years ago. For businesses planning expansion or new hires, this creates a real barrier. We’re seeing companies delay hiring decisions by quarters, not weeks. The cost of capital is changing how fast businesses can grow. Rajesh Kumar, CHRO, Manufacturing Consortium of India Key economic challenges include: Persistent inflation affecting operational and salary budgets Higher borrowing costs limiting expansion plans Global demand fluctuations impacting export-focused industries Currency volatility adding unpredictability to import costs Workforce and Compliance Hurdles Talent costs have risen faster than many HR budgets anticipated. The average salary hike across Indian industries in 2025 was 9.5%, according to Aon’s annual survey. For specialized roles in technology and data analytics, companies paid premiums of 25-30% above market rates. Compliance burden remains a persistent frustration. Indian businesses face multiple labor codes, varying state regulations, and frequent amendment cycles. A single mid-sized company with operations across three states might file over 120 compliance returns annually. That’s time and money pulled away from growth activities. Attrition patterns have shifted too. Employees now evaluate total experience, not just compensation. They want flexibility, career development, and organizational purpose. Meeting these expectations requires investment that many employers struggle to justify against current revenue pressures. Top Employer Expectations from Union Budget 2026 The wishlist from Indian employers is long. But certain themes dominate every conversation I’ve had with HR leaders preparing for this budget cycle. Tax Reforms Employers Want in Union Budget 2026 Corporate tax simplification sits at the top of most employer agendas. While the headline corporate tax rate of 22% appears competitive, the effective rate after surcharges and cess often reaches 25-26%. Employers want genuine simplification, not headline changes. TDS compliance creates disproportionate administrative burden. Every payment category carries different rates, thresholds, and filing requirements. HR and finance teams spend hours reconciling TDS on salaries, contractor payments, and professional fees. A unified TDS structure would free resources for higher-value work. GST reforms matter equally. Input tax credit blockages tie up working capital. The inverted duty structure penalizes domestic manufacturers. And frequent rate changes create planning uncertainty that affects hiring timelines. Employer expectations for tax reforms: Reduction in effective corporate tax rate to 22% after all surcharges Simplified TDS structure with fewer payment categories Faster GST refund processing within 30 days Rationalization of professional tax across states Tax Reform AreaCurrent ChallengeEmployer ExpectationCorporate TaxMultiple surcharges increase effective rateClean 22% rate without add-onsTDS Compliance20+ payment categories with different ratesUnified structure with 5-6 categoriesGST CreditsBlocked credits averaging 45-60 daysAutomated credit flow within 15 daysProfessional TaxDifferent rates across 28 statesCentral standardization or abolition Employment and Skilling Incentives Expected Job creation incentives directly influence hiring decisions. The Production Linked Incentive schemes have worked for manufacturing. Employers now want similar structures for services sectors, particularly IT services, BPO, and healthcare. Apprenticeship programs need expansion. Current limits on apprentice-to-employee ratios restrict how many young workers companies can train. Raising these limits and providing stipend subsidies would encourage broader participation. Upskilling support has become urgent. The skills gap in artificial intelligence, data science, and automation affects companies across sectors. Employers want tax benefits for employee training expenditure. They want recognition for internal certification programs. They want partnership arrangements with technical institutions that actually produce job-ready graduates. Every rupee spent on employee skilling should be deductible at 150%. That’s the kind of incentive that changes corporate behavior.” Meera Shankar, VP Human Resources, TechServe Solutions Policy Priorities for Sustainable Business Growth Beyond immediate tax relief, employers are watching for structural policy changes that affect long-term competitiveness. Infrastructure and Manufacturing Focus in Union Budget 2026 Logistics costs in India remain 13-14% of GDP, compared to 8-10% in developed economies. This gap directly affects manufacturing viability. Employers expect continued investment in dedicated freight corridors, port modernization, and last-mile connectivity. PLI scheme expansion has support across industries. The existing schemes have attracted investment commitments exceeding Rs. 4 lakh crore. Extending similar approaches to chemicals, aerospace components, and food processing would create employment opportunities across skill levels. Make in India 2.0 needs renewed momentum. Supply chain localization requires coordinated policy support, not just tariff protection. Employers want: Faster land acquisition processes for manufacturing units Single-window clearance systems that actually function across states Quality certification support for global market access Component cluster development through targeted policies Digital Economy and Sustainability Initiatives Digital infrastructure investment affects every employer. Rural broadband expansion enables distributed workforces. Data centre incentives attract technology investments. Cybersecurity measures protect business operations. Green transition support has become urgent for exporters. European carbon border adjustment mechanisms will affect Indian manufacturers starting 2026. Companies need capital support for emission reduction technologies. They need clear certification pathways for carbon accounting. They need transition timelines that balance competitiveness with compliance. Renewable energy access for industrial users deserves attention. Current open access regulations vary dramatically across states. A unified approach enabling direct renewable power purchase would reduce costs and meet sustainability commitments simultaneously. Sector-Specific Union Budget 2026 Expectations Different industries bring distinct priorities to budget discussions. Understanding these variations helps HR professionals anticipate sector-specific changes. What IT and Manufacturing Sectors Expect The IT sector employs over 5.4 million professionals directly in India. Budget expectations focus on maintaining competitiveness against Philippines, Vietnam, and Eastern European alternatives. R&D tax incentives need expansion. Safe harbour provisions for transfer pricing require updating. And employee stock option taxation continues to create compliance complications. Manufacturing priorities differ significantly. Raw material import duties affect input costs directly. Machinery modernization requires accelerated depreciation benefits. And labour law compliance simplification would reduce the administrative burden that discourages formal employment expansion. SectorPrimary ExpectationSecondary PriorityEmployment ImpactIT ServicesR&D tax incentives expansionESOP tax simplification5.4 million direct jobsManufacturingImport duty rationalizationAccelerated depreciation12+ million formal jobsHealthcareMedical equipment duty cutsDiagnostic centre tax relief4.7 million workersMSMEsCredit guarantee expansionDelayed payment enforcement11+ crore jobs Healthcare and MSME sectors carry distinct agendas too. Medical device import duties increase healthcare delivery costs. MSME credit access remains constrained despite government guarantee schemes. And delayed payment from large buyers continues to create cash flow crises for smaller suppliers. Preparing for Union Budget 2026 Outcomes Smart HR leaders prepare for multiple scenarios. They model hiring budgets under different tax assumptions. They track policy signals for early implementation advantages. And they build workforce flexibility that adapts regardless of specific budget outcomes. Union Budget 2026 will shape employer decisions throughout the coming fiscal year. The preparation you do now determines how quickly your organization responds when those decisions become necessary. Frequently Asked Questions About Union Budget 2026 Q: When will Union Budget 2026 be presented? A: Union Budget 2026 presentation is expected in the first week of February 2026, following the traditional parliamentary calendar. The exact date will be confirmed by the Finance Ministry in January. Q: What corporate tax changes are employers expecting in Union Budget 2026? A: Employers expect effective corporate tax rates to reach the promised 22% by removing surcharges. They also want TDS simplification, faster GST credit processing, and professional tax standardization across states. Q: How will Union Budget 2026 affect hiring decisions? A: Budget provisions for employment incentives, apprenticeship subsidies, and sector-specific PLI schemes will directly influence hiring budgets. HR teams should prepare workforce plans for multiple budget scenarios. Q: Which sectors expect maximum benefit from Union Budget 2026? A: Manufacturing, IT services, healthcare, and MSMEs have the most extensive expectation lists. Each sector seeks targeted reforms addressing their specific operational challenges.
