Budget 2026: Will taxpayers get modest relief after last year’s big income tax cuts?

The Union Budget 2026 is expected to strike a pragmatic balance between sustaining economic growth and consolidating the sweeping tax reforms announced last year, rather than introducing dramatic policy shifts. After Budget 2025 delivered landmark personal tax relief — including zero income tax on annual income up to Rs 12 lakh under the new tax regime and a restructuring of capital gains taxation — the upcoming budget is widely seen as one of calibration and course correction.

Modest changes vs huge savings

Taxpayers and experts anticipate modest, targeted changes aimed at easing inflationary pressures and improving disposable incomes. Among the key demands are a rise in the standard deduction from Rs 75,000 to Rs 1 lakh, an increase in the long-term capital gains (LTCG) tax-free limit from Rs 1.25 lakh to Rs 2 lakh to encourage long-term investing, and enhanced deductions under Section 80D, as medical inflation continues to run in the range of 11–14%. There is also renewed hope for additional home loan interest relief, particularly for first-time buyers grappling with elevated housing costs.

However, a major overhaul of income tax slabs appears unlikely. Budget 2025 already provided substantial relief under the new tax regime, including a higher standard deduction for salaried employees and a sharp increase in the Section 87A rebate to ₹60,000, effectively ensuring nil tax liability for many middle-class taxpayers. In contrast, individuals continuing under the old tax regime saw no changes in slabs, exemptions or deductions, widening the divergence between the two systems.

The Economic Survey 2025–26, scheduled to be tabled on January 29, 2026, is expected to provide critical context for the budget by outlining growth projections, fiscal challenges and policy priorities. Its assessment will shape expectations around how much fiscal headroom exists for further tax concessions.

Deductions unchanged

Several deductions — notably under Sections 80C, 80D and home loan interest — have remained unchanged for years, even as insurance premiums and housing expenses have risen sharply. As deductions are the cornerstone of the old tax regime, Budget 2026–27 is seen as particularly crucial for taxpayers who have not migrated to the new system. There is also hope that some of these benefits could be aligned with the new regime to make it more balanced.

Anita Basrur, Partner at Sudit K. Parekh & Co. LLP, noted that while taxpayers currently have a choice between the old and new regimes, the government appears keen to gradually phase out the former. She pointed out that under the old regime, the 30% tax rate applies on income above ₹10 lakh, compared with ₹15 lakh under the new regime. “There is a strong case for improving tax slabs for senior citizens. With interest rates declining, a higher threshold for taxation would ease the burden and improve liquidity,” she said, adding that there is speculation the highest 30% slab threshold could eventually be raised to around ₹35 lakh.

Basrur added that salaried taxpayers are hopeful of a higher standard deduction and an increase in the Section 80C limit from ₹1.5 lakh to ₹3 lakh. Echoing a cautious outlook, Mahesh Krishnamoorthy, Managing Director at Core Integra, said direct taxes are likely to remain largely unchanged, with only marginal tweaks possible.

New Tax Regime over Old Tax Regime

Industry voices have also stressed the need for simplicity and predictability. Ram Medury, Founder and CEO of Maxiom Wealth, said a cleaner new tax regime combined with GST simplification and sustained spending on infrastructure, green energy and MSMEs could bolster confidence and long-term wealth creation. Rahul Jain, Partner at Khaitan & Co, argued that allowing house rent allowance and self-occupied home loan interest deductions under the new regime would better reflect the cost of living and improve taxpayers’ net cash positions.

Overall, Budget 2026 is expected to reinforce the government’s gradual shift toward a simpler, growth-oriented tax framework, focusing on incremental relief rather than headline-grabbing changes.