Budget 2026 Income Tax Expectations: What's in Store for Taxpayers?
Finance Minister Nirmala Sitharaman delivered significant tax relief in Budget 2025. Now, all eyes are on Budget 2026. Salaried individuals and middle-class taxpayers wonder if they will receive more reasons to celebrate. The government has actively promoted the new income tax regime in recent years. It became the default option two years ago. Taxpayers must explicitly choose the old regime. Missing the income tax return filing deadline automatically switches them to the new system.
Recap of Last Year's Tax Changes
During her Budget speech last year, FM Sitharaman announced substantial revisions. The new income tax regime now exempts individuals with income up to Rs 12 lakh from paying any tax. Salaried taxpayers benefit even more. They enjoy a higher threshold of Rs 12.75 lakh due to the standard deduction of Rs 75,000.
The basic tax exemption limit increased from Rs 3 lakh to Rs 4 lakh. A taxpayer earning Rs 12 lakh under the new regime saves Rs 80,000 in tax. Someone with an income of Rs 18 lakh gets a benefit of Rs 70,000. An individual earning Rs 25 lakh saves Rs 1,10,000.
Expert Views on Budget 2026 Prospects
Tax experts surveyed by Times of India Online generally expect minimal changes this year. Preeti Sharma, Partner at BDO India, notes the government already made major improvements in Budget 2025. She believes significant alterations to tax slabs are unlikely now.
The new regime's popularity is evident. For Assessment Year 2024–25, around 72% of 7.28 crore filed returns used the new system. Only 28% opted for the old regime. This shift indicates most taxpayers find the new regime simpler and more efficient.
Surabhi Marwah, Tax Partner at EY India, shares similar expectations. She cites a recent parliamentary clarification from the Minister of State for Finance. The minister stated no further proposals are under consideration regarding the personal income-tax regime.
Parizad Sirwalla of KPMG India suggests focusing on incremental measures. These could ease interpretation and rationalize compliance. Tanu Gupta from Mainstay Tax Advisors LLP highlights fiscal constraints. Government tax collections face pressure. More resources are needed to support exports and businesses in a uncertain global economy.
Potential Tweaks to Enhance the New Regime
While major changes seem improbable, experts suggest some possible refinements. Preeti Sharma mentions minor adjustments could make the regime more attractive for middle-class taxpayers.
Chander Talreja of Vialto Partners outlines specific proposals:
- Increase the standard deduction limit from Rs 75,000 to Rs 90,000.
- Introduce a deduction for individual contributions to the National Pension System under section 80CCD(1B). This would benefit both salaried and non-salaried individuals.
Akhil Chandna of Grant Thornton Bharat advocates for a higher standard deduction. He also suggests allowing certain reasonable deductions. These could include health insurance and home loan interest under the new regime.
Radhika Viswanathan from Deloitte India identifies a gap. Taxpayers earning between Rs 12 lakh and Rs 30 lakh often prefer the old regime. They typically have home loans and insurance. To bridge this gap, she proposes targeted measures:
- Introduce a capped deduction for interest on self-occupied house property, perhaps up to Rs 2 lakh.
- Allow deductions for employee contributions to NPS, promoting retirement savings.
- Provide a limited deduction for medical insurance premiums, addressing rising healthcare costs.
These selective reliefs could make the new regime more compelling for a wider taxpayer segment.
Looking Ahead
The government's immediate focus appears to be stability and smooth transition. After last year's sweeping reforms, the emphasis is on consolidation. Any future refinements will likely follow a phased approach. This aligns with broader goals of tax certainty and compliance simplification.
Taxpayers await FM Sitharaman's Budget 2026 announcement with cautious optimism. While major slab revisions may not materialize, targeted tweaks could still offer some cheer.
