Income Tax Expectations for Union Budget 2026
As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2026 on February 1, 2026, taxpayers anticipate potential changes and reliefs. The budget is expected to prioritize growth continuity.
Key Expectations for Taxpayers
Several key expectations have emerged regarding potential income tax changes in the upcoming budget:
- Standard Deduction: A modest increase in the standard deduction is anticipated to offset inflation. Some experts suggest raising the standard deduction from ₹75,000 to ₹1 lakh. Others propose an even higher increase to ₹150,000 to help salaried employees cope with rising living costs.
- Long-Term Capital Gains (LTCG): There are expectations of raising the LTCG tax-free limit from ₹1.25 lakh to ₹2 lakh to encourage long-term investing. Some experts suggest reducing LTCG tax to 10% to improve investor sentiment and encourage higher Foreign Institutional Investor (FII) participation.
- Health Insurance Deductions: Taxpayers hope for the inclusion of health insurance deductions under Section 80D in the new tax regime.
- Home Loan Interest Relief: Possible relief on home loan interest, especially for first-time buyers, is also anticipated. Some suggest a separate income tax benefit for home loan EMIs, as principal repayments currently compete with other investments under Section 80C's ₹1.5 lakh cap.
- TDS Rationalization: Taxpayers are expecting simplification and rationalization of TDS (Tax Deducted at Source) requirements.
New vs. Old Tax Regime
The budget is expected to introduce further incentives to encourage taxpayers to shift to the new income tax regime, which offers lower rates but removes exemptions. The old regime, however, is expected to continue for the next few years.
Other Expectations
- Surcharge Threshold: The Institute of Chartered Accountants of India (ICAI) has proposed raising the surcharge threshold under the new regime from ₹50 lakh to ₹75 lakh.
- Section 80C Limit: Some tax experts believe the Section 80C limit should be increased to ₹3.5 lakh to match today's cost-of-living pressures.
- Faster Refunds: Taxpayers are hoping for more transparency and accountability in the refund process, with real-time refund tracking and fair interest on delayed refunds.
FM Sitharaman's Ninth Budget
The Union Budget 2026 will be presented by Finance Minister Nirmala Sitharaman on Sunday, February 1, 2026, at 11 AM. This marks her ninth consecutive budget presentation.
Budget 2025 Highlights
In the previous Budget 2025, the Finance Minister provided a boost to taxpayers by cutting income tax on earnings up to ₹12 lakh. The non-taxable income under the new tax regime increased to ₹12.75 lakh after standard deduction.
Conclusion
The Union Budget 2026 is keenly awaited by taxpayers, with expectations of income tax relief, simplification of TDS, and incentives to promote the new tax regime. The focus is expected to be on economic stability, growth, and encouraging public consumption.
