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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