As the nation eagerly awaits the Union Budget 2026, set to be tabled by Finance Minister Nirmala Sitharaman on February 1, income tax remains a pivotal focus for millions of Indian taxpayers. Following the significant boosts provided in Budget 2025, which included tax cuts for earnings up to ₹12 lakh and the introduction of the New Income Tax Act, 2025, expectations are running high for continued fiscal relief. However, indications suggest that this year's budget might not bring drastic alterations to income tax rules, instead focusing on targeted benefits.
Budget Expectations for Salaried Employees
Salaried employees, particularly the middle class, are vocal in their demands for enhanced financial support. A primary expectation is an increase in the standard deduction limit under the new tax regime, which currently stands at ₹75,000, up from ₹50,000 previously. Many argue that raising this limit would provide substantial relief, especially amid rising living costs. Additionally, taxpayers are hopeful for rationalization in Tax Deducted at Source (TDS) procedures, which could simplify compliance and reduce immediate tax burdens.
Income Tax Slab Rates for FY 2025-26
Understanding the current tax structure is crucial for anticipating changes. Under the old tax regime, the slabs are as follows:
- Income up to ₹2,50,000 – Nil
- ₹2,50,001 to ₹5,00,000 – 5%
- ₹5,00,001 to ₹10,00,000 – 20%
- Income above ₹10,00,000 – 30%
In contrast, the new tax regime offers:
- Income up to ₹3,00,000 – Nil
- ₹3,00,001 to ₹6,00,000 – 5%
- ₹6,00,001 to ₹9,00,000 – 10%
- ₹9,00,001 to ₹12,00,000 – 15%
- ₹12,00,001 to ₹15,00,000 – 20%
- Income above ₹15,00,000 – 30%
Old vs New Tax Regime: Key Differences
The primary distinction between the old and new tax regimes lies in their slab structures. The new regime features more categories, potentially lowering the tax burden for many individuals by spreading income across progressive rates. However, the old regime retains an advantage through its allowance of numerous deductions, such as those for investments and expenses, whereas the new regime limits deductions to specific cases like National Pension System (NPS) contributions. This trade-off between lower rates and deduction benefits makes the choice regime-dependent for taxpayers.
Key Income Tax Changes in Budget 2025
Budget 2025 marked a milestone for Indian taxpayers, with Finance Minister Sitharaman implementing cuts that benefited millions in the middle class. Notably, the non-taxable income under the new regime rose to ₹12.75 lakh after incorporating the standard deduction, and the announcement of the New Income Tax Act, 2025, set to take effect from April 1, signaled a broader reform agenda. These changes have set a precedent, fueling hopes for further enhancements in the upcoming budget.
What to Expect in Budget 2026?
Expert analyses suggest that the government may refrain from overhauling income tax slabs this year, opting instead for incremental adjustments. The spotlight is likely to be on standard deduction increases and TDS reforms, which could directly impact disposable income for salaried individuals. Beyond personal taxation, other sectors also harbor expectations, indicating a comprehensive budget approach. For those planning their finances, calculating income tax for FY 2025-26 (AY 2026-27) involves inputting income details, selecting a tax regime, and applying the relevant slab rates, with tools available for accurate estimations.
As the budget day approaches, all eyes are on FM Sitharaman to see if she will address these pressing demands and continue the momentum of taxpayer-friendly policies initiated in the previous year.
