Budget 2026: Will tax tweaks in FM Sitharaman's 9th Budget ease pressure on salaried middle class?
As India prepares for the Union Budget 2026, expectations are mounting around possible income tax relief for the middle class. With Finance Minister Nirmala Sitharaman set to present her ninth consecutive Budget, taxpayers are watching closely for signs of slab rationalisation and higher deductions. From the new tax regime to standard deduction hikes, Budget 2026 could shape household finances in a year of rising incomes and costs.
- Jan 13, 2026,
- Updated Jan 13, 2026 3:15 PM IST
As India gears up for the Union Budget 2026, to be presented on Sunday, February 1, expectations are building around possible income tax relief for the middle class. Ahead of the Budget, Union Finance Minister Nirmala Sitharaman has begun pre-Budget consultations with states and Union Territories, gathering suggestions that could shape fiscal priorities for FY27.
This will be Sitharaman’s ninth consecutive Union Budget — a rare milestone — and one that comes at a time when household finances are under strain from rising living costs and uneven income growth. For millions of salaried taxpayers, the central question is whether Budget 2026 will finally deliver meaningful tax relief.
Expectations on new and old tax regimes
A Motilal Oswal report noted that the government’s preference for the New Tax Regime is now unmistakable. By simplifying tax structures and reducing dependence on exemptions, policymakers aim to make compliance easier and widen the tax base. Rather than sweeping changes, the report expects Budget 2026 to introduce calibrated adjustments, particularly in light of the anticipated rollout of the 8th Pay Commission, which is likely to raise salaries and pensions in early 2026.
With incomes set to rise, modest slab rationalisation could prevent taxpayers from slipping into higher tax brackets without a real increase in purchasing power. Possible measures include widening lower tax brackets and increasing the standard deduction to better reflect inflation. According to the report, the most effective relief would be targeted at urban middle-income earners, where higher disposable income has the strongest multiplier effect on consumption.
Tax experts broadly echo this view. CA Akshay Jain, Direct Tax Partner at NPV & Associates LLP, said Budget 2026–27 is expected to be a pivotal policy statement aligned with the Viksit Bharat 2047 vision. “Fiscal measures that stimulate demand growth, improve credit flows and generate employment will be crucial for sustaining India’s high growth path,” he said.
Jain added that the Income-tax Act, 2025, which comes into force from April 1, 2026, has raised expectations for clarity on transitional provisions, compliance timelines and dispute resolution mechanisms. Stakeholders are also hoping for faster processing of returns, quicker refunds and a more taxpayer-friendly approach to scrutiny assessments.
While major changes to tax slabs may be unlikely, given that Budget 2025 already raised thresholds under the New Tax Regime and made income up to Rs 12 lakh tax-free through rebates, experts see room for targeted relief. Jain suggested that capital gains income could be included within the Rs 12 lakh rebate limit to ease the burden on small taxpayers.
He also flagged expectations for raising the standard deduction from Rs 75,000 to Rs 1 lakh, increasing the home loan interest deduction under the Old Regime to ₹3 lakh, and doubling the additional NPS deduction to Rs 1 lakh.
Anita Basrur, Partner at Sudit K. Parekh & Co. LLP, said there are currently two regimes for individual taxpayers — the Old and the New. “Under the old regime, while a number of deductions are available, the highest tax rate of 30% applies to income above Rs 10 lakh. Under the new regime, the highest rate applies to income above Rs 15 lakh. The tax slabs for senior citizens could be improved, especially as interest rates are falling. Higher slab thresholds will bring greater liquidity and ease,” she said.
Basrur added that the government is gradually discouraging the old regime by making the new regime more attractive, and there is a possibility that the old tax regime could eventually be abolished. “There are expectations that the income threshold for the highest 30% tax rate should be raised from Rs 24 lakh to Rs 35 lakh,” she said.
Easing the tax burden
From an academic perspective, Prof Shikha Bhatia of IMI Delhi said the Budget should aim to reduce the tax burden on the salaried middle class while maintaining fiscal discipline. “An increase in the tax-free slab and the standard deduction to Rs 1 lakh, along with simplified TDS and TCS compliance, would go a long way,” she said, adding that quicker refunds remain a key demand.
Prof Prateek Bedi of IMI Delhi stressed the need for structural reforms beyond rate tweaks. He called for a simpler, more progressive tax system that aligns marginal rates with inflation and reduces compliance complexity. Bedi also highlighted the importance of expanding the tax base through better GST tracking, PAN-Aadhaar integration and real-time reporting systems to identify undeclared income.
Basrur added that salaried taxpayers are also expecting the standard deduction to be increased to Rs 1 lakh and are seeking a revision in Section 80C limits. “There is a strong expectation that the deduction limit under Section 80C should be raised from Rs 1.5 lakh to Rs 3 lakh,” she said.
With Budget day approaching, the government faces a delicate balancing act — offering targeted relief to boost consumption while keeping fiscal discipline intact. For India’s middle class, even modest tax tweaks could provide timely breathing room in an economy navigating both growth ambitions and cost pressures.
As India gears up for the Union Budget 2026, to be presented on Sunday, February 1, expectations are building around possible income tax relief for the middle class. Ahead of the Budget, Union Finance Minister Nirmala Sitharaman has begun pre-Budget consultations with states and Union Territories, gathering suggestions that could shape fiscal priorities for FY27.
This will be Sitharaman’s ninth consecutive Union Budget — a rare milestone — and one that comes at a time when household finances are under strain from rising living costs and uneven income growth. For millions of salaried taxpayers, the central question is whether Budget 2026 will finally deliver meaningful tax relief.
Expectations on new and old tax regimes
A Motilal Oswal report noted that the government’s preference for the New Tax Regime is now unmistakable. By simplifying tax structures and reducing dependence on exemptions, policymakers aim to make compliance easier and widen the tax base. Rather than sweeping changes, the report expects Budget 2026 to introduce calibrated adjustments, particularly in light of the anticipated rollout of the 8th Pay Commission, which is likely to raise salaries and pensions in early 2026.
With incomes set to rise, modest slab rationalisation could prevent taxpayers from slipping into higher tax brackets without a real increase in purchasing power. Possible measures include widening lower tax brackets and increasing the standard deduction to better reflect inflation. According to the report, the most effective relief would be targeted at urban middle-income earners, where higher disposable income has the strongest multiplier effect on consumption.
Tax experts broadly echo this view. CA Akshay Jain, Direct Tax Partner at NPV & Associates LLP, said Budget 2026–27 is expected to be a pivotal policy statement aligned with the Viksit Bharat 2047 vision. “Fiscal measures that stimulate demand growth, improve credit flows and generate employment will be crucial for sustaining India’s high growth path,” he said.
Jain added that the Income-tax Act, 2025, which comes into force from April 1, 2026, has raised expectations for clarity on transitional provisions, compliance timelines and dispute resolution mechanisms. Stakeholders are also hoping for faster processing of returns, quicker refunds and a more taxpayer-friendly approach to scrutiny assessments.
While major changes to tax slabs may be unlikely, given that Budget 2025 already raised thresholds under the New Tax Regime and made income up to Rs 12 lakh tax-free through rebates, experts see room for targeted relief. Jain suggested that capital gains income could be included within the Rs 12 lakh rebate limit to ease the burden on small taxpayers.
He also flagged expectations for raising the standard deduction from Rs 75,000 to Rs 1 lakh, increasing the home loan interest deduction under the Old Regime to ₹3 lakh, and doubling the additional NPS deduction to Rs 1 lakh.
Anita Basrur, Partner at Sudit K. Parekh & Co. LLP, said there are currently two regimes for individual taxpayers — the Old and the New. “Under the old regime, while a number of deductions are available, the highest tax rate of 30% applies to income above Rs 10 lakh. Under the new regime, the highest rate applies to income above Rs 15 lakh. The tax slabs for senior citizens could be improved, especially as interest rates are falling. Higher slab thresholds will bring greater liquidity and ease,” she said.
Basrur added that the government is gradually discouraging the old regime by making the new regime more attractive, and there is a possibility that the old tax regime could eventually be abolished. “There are expectations that the income threshold for the highest 30% tax rate should be raised from Rs 24 lakh to Rs 35 lakh,” she said.
Easing the tax burden
From an academic perspective, Prof Shikha Bhatia of IMI Delhi said the Budget should aim to reduce the tax burden on the salaried middle class while maintaining fiscal discipline. “An increase in the tax-free slab and the standard deduction to Rs 1 lakh, along with simplified TDS and TCS compliance, would go a long way,” she said, adding that quicker refunds remain a key demand.
Prof Prateek Bedi of IMI Delhi stressed the need for structural reforms beyond rate tweaks. He called for a simpler, more progressive tax system that aligns marginal rates with inflation and reduces compliance complexity. Bedi also highlighted the importance of expanding the tax base through better GST tracking, PAN-Aadhaar integration and real-time reporting systems to identify undeclared income.
Basrur added that salaried taxpayers are also expecting the standard deduction to be increased to Rs 1 lakh and are seeking a revision in Section 80C limits. “There is a strong expectation that the deduction limit under Section 80C should be raised from Rs 1.5 lakh to Rs 3 lakh,” she said.
With Budget day approaching, the government faces a delicate balancing act — offering targeted relief to boost consumption while keeping fiscal discipline intact. For India’s middle class, even modest tax tweaks could provide timely breathing room in an economy navigating both growth ambitions and cost pressures.