Finance Minister Nirmala Sitharaman will present the Union Budget for 2026 on Sunday, February 1. This budget holds special significance for millions of Indian taxpayers. They anticipate possible announcements regarding income tax reforms that could directly affect their finances.
Recent History of Tax Changes
The government first introduced the New Tax Regime in the 2020 budget. Since that time, officials have implemented several modifications to better serve taxpayer interests. In the previous Budget for 2025, Finance Minister Sitharaman took a major step. She lowered income tax rates significantly. This move effectively made income tax-free for individuals earning up to twelve lakh rupees annually. However, these changes applied exclusively to the New Tax Regime.
Over recent years, the government has simplified the New Tax Regime through various adjustments. These include revisions to the tax slabs. A key question now emerges. Will the Finance Minister introduce further changes to the income tax sector in Budget 2026?
Expert Opinions on Feasibility and Direction
Richa Sawhney, a Tax Partner at Grant Thornton Bharat, shared her perspective. She suggested that additional changes to the New Tax Regime might not be practical this year. This view considers the substantial modifications implemented in the previous budget.
Making the New Regime More Attractive
Gaurav Jain, Partner for Direct Tax at Forvis Mazars in India, spoke with Livemint. He emphasized the need for certainty, predictability, and disciplined administration within the New Tax Regime. These elements could make it more appealing to taxpayers.
Jain noted that the success of the Income Tax Act, 2025, will hinge on several factors. Authorities must use their powers with restraint. They should decriminalize technical and interpretational defaults. Prosecution should focus only on cases involving wilful intent or fraud.
Improving appellate efficiency is also crucial. This involves setting enforceable timelines and refining the faceless appeals mechanism. Ensuring consistent application of settled law will help reduce litigation. Such measures can strengthen taxpayer confidence and enhance voluntary compliance under the new system.
Inflation-Linked Adjustments
Richa Sawhney proposed another idea. If the government considers cost-of-living parameters and inflation rates for an annual adjustment of slab rates, it could benefit a large section of taxpayers. This step might provide a significant boost to popularizing the New Tax Regime.
Yashraj Bhardwaj, co-founder and COO at Petonic AI, echoed this sentiment. He stated that Budget 2026 presents an opportunity to strengthen the new tax regime and make it more appealing.
Bhardwaj suggested several actions. Rationalizing tax slabs and increasing the basic exemption limit would help. Providing limited, well-designed deductions within the new regime could improve disposable incomes while preserving ease of compliance. Aligning tax thresholds with inflation and evolving income patterns can encourage wider adoption.
Specific Demands: Home Loan Deductions
Archit Gupta, founder and CEO of ClearTax, highlighted a specific need. He advocated for bringing Section 24(b) of the Income Tax Act, 1961, under the new tax regime. This section allows taxpayers to claim a deduction of up to two lakh rupees on interest paid for a home loan on a self-occupied property.
Gupta argued that if the New Regime aims to be more than just simpler and become the default choice for mainstream taxpayers, it must accommodate real Indian aspirations. Home ownership is a key aspiration. Reintroducing Section 24(b) into the regime would address this.
According to Gupta, introducing an interest deduction in the new income tax regime can reduce the cost of housing finance. In a context of rising prices and constrained affordable supply, giving home buyers predictable and meaningful tax support will make the New Regime not just easier to file, but financially compelling to choose.
Key Takeaways for Taxpayers
- Reintroducing home loan interest deductions could make the New Tax Regime more appealing to homebuyers.
- Adjusting tax slabs based on inflation could benefit a larger section of taxpayers.
- Ensuring predictability and reducing litigation under the new tax regime may enhance taxpayer confidence.
All eyes now turn to February 1. Taxpayers across India await the Finance Minister's announcements, hoping for reforms that simplify compliance and improve their financial well-being.
