Budget 2026: Will Income tax overhaul continue? What salaried Indians can expect from FM Sitharaman
As Budget 2026 nears, the focus is shifting from tax rate cuts to deeper reforms in India’s income-tax system. After the 2025 changes that made income up to Rs 12 lakh largely tax-free, attention is now turning to ideas like joint tax filing for married couples, which could reshape exemption limits and deductions.
- Jan 8, 2026,
- Updated Jan 8, 2026 4:02 PM IST
Tax Budget 2026 expectations: With the Union Budget just weeks away, salaried employees are once again looking to the government for fresh tax relief, especially the middle class that has felt the squeeze of rising living costs. There is growing hope that the coming Budget will not only put more money in taxpayers’ pockets but also further simplify the often cumbersome process of filing income tax returns.
India’s shift towards a simpler tax system gathered pace with Budget 2020, when Finance Minister Nirmala Sitharaman introduced the new tax regime, moving away from a complex web of exemptions towards lower rates and easier compliance. The reform push gained momentum in Budget 2025, which delivered the biggest tax relief in recent years.
Speaking to Business Today, CA (Dr.) Suresh Surana shared his expectations on new tax slabs and deduction limits.
Income-tax framework
The comprehensive restructuring of India’s personal income-tax framework in 2025 has made net total income up to Rs 12 lakh effectively non-taxable. As a result, a substantial segment of middle-income taxpayers has moved outside the tax net. In this backdrop, future tax policy is likely to shift away from mere rate rationalisation towards deeper structural reforms that acknowledge the household as a distinct economic unit. In anticipation of the Union Budget 2026, the proposal to introduce a system of joint income-tax filing for married couples is gaining attention as a reform with strong potential.
At present, the Income-tax Act enables taxpayers to choose between the default regime under Section 115BAC and the old tax regime. Under both, the basic exemption limit is Rs 2.5 lakh in the old regime and Rs 4 lakh from FY 2025–26 onwards in the default regime, without reference to marital status or household composition. Consequently, while households with multiple earning members can fully utilise these thresholds independently, families sustained by a single or principal earning spouse often face a mismatch between individual-based exemptions and real household cost-of-living pressures.
Joint taxation mechanism
To address this structural inequity, an optional joint taxation mechanism for married couples may be considered, allowing spouses to file a consolidated return of income. Such a framework could provide for a higher, family-level basic exemption limit, effectively aggregating individual thresholds and offering proportionate relief to single-income households.
Under a joint filing regime, certain personal reliefs, including the standard deduction under Section 16(ia), could continue to apply on a spouse-specific basis for salaried taxpayers, even with a combined return. From a policy standpoint, joint taxation would rationalise the tax burden on families where income accrues mainly to one spouse, promote equity among similarly placed households, and improve administrative efficiency.
Comparable joint filing provisions exist in developed tax jurisdictions such as the US and the UK, where tax laws recognise spousal income pooling and shared family responsibilities. Adopting a similar framework in India would align the system with global best practices and support long-term household financial stability.
Union Budget 2025
Last year’s Budget marked a major reset of India’s tax framework with the introduction of the Income Tax Act, 2025, designed to simplify provisions and curb disputes. Alongside this, the Finance Minister gave a fresh push to the New Tax Regime by exempting income up to Rs 12 lakh from tax and effectively raising the limit to Rs 12.75 lakh for salaried taxpayers through the standard deduction. The overhaul also included a restructuring of tax slabs and a rationalisation of TDS and TCS rules, reducing the compliance load on individuals and businesses alike.
Tax Budget 2026 expectations: With the Union Budget just weeks away, salaried employees are once again looking to the government for fresh tax relief, especially the middle class that has felt the squeeze of rising living costs. There is growing hope that the coming Budget will not only put more money in taxpayers’ pockets but also further simplify the often cumbersome process of filing income tax returns.
India’s shift towards a simpler tax system gathered pace with Budget 2020, when Finance Minister Nirmala Sitharaman introduced the new tax regime, moving away from a complex web of exemptions towards lower rates and easier compliance. The reform push gained momentum in Budget 2025, which delivered the biggest tax relief in recent years.
Speaking to Business Today, CA (Dr.) Suresh Surana shared his expectations on new tax slabs and deduction limits.
Income-tax framework
The comprehensive restructuring of India’s personal income-tax framework in 2025 has made net total income up to Rs 12 lakh effectively non-taxable. As a result, a substantial segment of middle-income taxpayers has moved outside the tax net. In this backdrop, future tax policy is likely to shift away from mere rate rationalisation towards deeper structural reforms that acknowledge the household as a distinct economic unit. In anticipation of the Union Budget 2026, the proposal to introduce a system of joint income-tax filing for married couples is gaining attention as a reform with strong potential.
At present, the Income-tax Act enables taxpayers to choose between the default regime under Section 115BAC and the old tax regime. Under both, the basic exemption limit is Rs 2.5 lakh in the old regime and Rs 4 lakh from FY 2025–26 onwards in the default regime, without reference to marital status or household composition. Consequently, while households with multiple earning members can fully utilise these thresholds independently, families sustained by a single or principal earning spouse often face a mismatch between individual-based exemptions and real household cost-of-living pressures.
Joint taxation mechanism
To address this structural inequity, an optional joint taxation mechanism for married couples may be considered, allowing spouses to file a consolidated return of income. Such a framework could provide for a higher, family-level basic exemption limit, effectively aggregating individual thresholds and offering proportionate relief to single-income households.
Under a joint filing regime, certain personal reliefs, including the standard deduction under Section 16(ia), could continue to apply on a spouse-specific basis for salaried taxpayers, even with a combined return. From a policy standpoint, joint taxation would rationalise the tax burden on families where income accrues mainly to one spouse, promote equity among similarly placed households, and improve administrative efficiency.
Comparable joint filing provisions exist in developed tax jurisdictions such as the US and the UK, where tax laws recognise spousal income pooling and shared family responsibilities. Adopting a similar framework in India would align the system with global best practices and support long-term household financial stability.
Union Budget 2025
Last year’s Budget marked a major reset of India’s tax framework with the introduction of the Income Tax Act, 2025, designed to simplify provisions and curb disputes. Alongside this, the Finance Minister gave a fresh push to the New Tax Regime by exempting income up to Rs 12 lakh from tax and effectively raising the limit to Rs 12.75 lakh for salaried taxpayers through the standard deduction. The overhaul also included a restructuring of tax slabs and a rationalisation of TDS and TCS rules, reducing the compliance load on individuals and businesses alike.