ECONOMY | MARCH 2026
CLAT Relevance
Tax reforms, fiscal deficit, debt management, and new legislation are core GK topics. The new Income Tax Act 2025 is a landmark change — expect direct questions on its features and effective date.
Tax reforms, fiscal deficit, debt management, and new legislation are core GK topics. The new Income Tax Act 2025 is a landmark change — expect direct questions on its features and effective date.
New Income Tax Act 2025 — Key Features
- Replaces: Income Tax Act 1961 — in force for 63 years
- Effective: April 2026 — applies from Assessment Year 2027-28
- Objective: Simplify tax language, reduce litigation, remove redundant provisions
- Simplified structure: Fewer chapters, plain English drafting, reduced cross-references
- Digital-first: Built for faceless assessments, e-verification, and AI-based compliance
SEZ to DTA Transition
Key Change: Special Economic Zones (SEZs) will transition to Domestic Tariff Area (DTA) regime — existing SEZ units get sunset period for tax benefits but new units won’t get blanket exemptions.
- SEZ Act 2005 provisions gradually phased out
- Existing units: Tax benefits continue till expiry of individual approval period
- New units: Must compete under general DTA rules — level playing field with non-SEZ manufacturers
STT Hike & Market Impact
- STT (Securities Transaction Tax): Rate increased on equity delivery, F&O, and options
- Market reaction: Sensex crashed sharply on Budget Day — F&O traders and retail investors hit hardest
- Government rationale: Curb speculative trading, increase revenue from capital markets
- Impact: Daily trading volumes on NSE/BSE expected to decline 10-15% initially
Fiscal Consolidation — Numbers to Remember
- Fiscal Deficit: 4.3% of GDP (down from 4.8% in 2025-26)
- Debt-to-GDP: 55.6% — target is 50 +/- 1% by 2030-31
- Total Borrowing: Rs 17.2 lakh crore (gross market borrowing)
- Total Budget Size: Rs 53.47 lakh crore — largest-ever Union Budget
- Revenue Deficit: Narrowing trend continues — focus on non-tax revenue growth
What is Fiscal Deficit?
- Formula: Total Expenditure – Total Revenue (excluding borrowings)
- Significance: Measures how much the government borrows to fund its spending
- FRBM Act 2003: Originally mandated 3% fiscal deficit target — repeatedly deferred
- Glide path: Government aims to reach below 4% by 2028-29
Revenue vs Capital — Budget Classification
- Revenue Expenditure: Salaries, subsidies, interest payments — does not create assets
- Capital Expenditure: Infrastructure, defence equipment, loans to states — creates assets
- Effective CapEx: Direct CapEx + grants to states for capital creation — a broader measure the government now emphasises
CLAT Quick Recall
New IT Act = 2025, effective April 2026 | Fiscal Deficit = 4.3% | Debt/GDP = 55.6% target 50% by 2030-31 | Budget Size = Rs 53.47L Cr | Borrowing = Rs 17.2L Cr | SEZ → DTA | STT hike = Sensex crash
New IT Act = 2025, effective April 2026 | Fiscal Deficit = 4.3% | Debt/GDP = 55.6% target 50% by 2030-31 | Budget Size = Rs 53.47L Cr | Borrowing = Rs 17.2L Cr | SEZ → DTA | STT hike = Sensex crash
Source: UPSC Essentials, The Indian Express — March 2026
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Quick answers
When does the new Income Tax Act 2025 come into effect?
April 2026. The new Income Tax Act 2025 replaces the 1961 Act and comes into effect from April 2026.
What is the fiscal deficit target for 2026-27?
4.3% of GDP. The fiscal deficit target for FY 2026-27 is 4.3% of GDP, continuing the consolidation path.
What is the Debt-to-GDP ratio in Budget 2026-27?
55.6%. The Debt-to-GDP ratio stands at 55.6%, with a target to bring it to 50 plus/minus 1% by 2030-31.
What is the total budget size for 2026-27?
Rs 53.47 lakh crore. The total Union Budget for 2026-27 is Rs 53.47 lakh crore.
What caused the Sensex crash during budget session?
STT hike announcement. The Securities Transaction Tax (STT) hike announcement triggered a sharp Sensex crash during the budget session.
What is the target year for Debt-to-GDP ratio of 50 plus/minus 1%?
2030-31. The government targets achieving Debt-to-GDP ratio of 50 plus/minus 1% by 2030-31.
