Budget 2026: Will FM Sitharaman Announce Income Tax Cuts? Experts Weigh In
Last year, Finance Minister Nirmala Sitharaman delivered a significant surprise to the Indian middle class taxpayer with a major income tax overhaul. This move substantially reduced the income tax burden for numerous individuals across the country. As Budget 2026 approaches, scheduled for presentation on 1 February, taxpayers are once again hopeful for another favorable announcement that could ease their financial load. However, the critical question remains: will Finance Minister Sitharaman announce any income tax cuts in the upcoming budget?
Limited Expectations for Major Tax Cuts
According to industry experts, expectations for Budget 2026 regarding income tax should be tempered. The focus is likely to be on tax rationalization and specific adjustments in areas such as Tax Deducted at Source (TDS) and standard deduction. A major income tax cut is not anticipated this year, primarily because the Finance Minister already implemented a comprehensive overhaul in the previous budget.
Naval Kagalwala, COO and Head of Products at Shriram Wealth, emphasized that Budget 2026 is expected to prioritize capital expenditure (capex) in the upcoming financial year. This strategic focus is due to limited fiscal headroom anticipated in FY28, coinciding with the implementation of the 8th Pay Commission. "We do not anticipate any major changes in personal income tax this year," he stated, reinforcing the cautious outlook.
What Income Tax Changes Can Be Expected?
The New Tax Regime continues to be advantageous for taxpayers earning under ₹25 lakh, appreciated for its simplicity and lower rates, as noted by Archit Gupta, founder and CEO of ClearTax. Despite this, data compiled by the company reveals that 26% of taxpayers still file their Income Tax Returns (ITRs) using the Old Tax Regime.
"The reason is structural: their entire financial lifecycle is deeply anchored in legacy benefits like House Rent Allowance (HRA) and home loans. For this group, switching isn't just a tax calculation; it is a disruption that breaks the long-term wealth structure they have spent years building," Gupta explained. He urged the government to expand deductions beyond the National Pension System (NPS) in Budget 2026, recognizing that high earners often rely on a mix of instruments such as Employee Provident Fund (EPF), Public Provident Fund (PPF), and Equity-Linked Savings Scheme (ELSS) to build financial security.
Echoing these sentiments, Sunil Kumar Roy, Professor and Dean at the School of Business of Manav Rachna University, highlighted the need for income tax rationalization. "Many salaried individuals are looking for greater clarity and simplification between the old and new tax regimes," he remarked, underscoring the ongoing confusion among taxpayers.
Will Standard Deduction Increase?
Experts and stakeholders are also anticipating an increase in the standard deduction for salaried taxpayers, which would provide additional relief in terms of income tax outgo. Currently, the standard deduction stands at ₹75,000 under the old tax regime and ₹50,000 under the new tax regime.
Senthil R Kumar, Managing Director and CEO at Nitstone Finserv Pvt. Ltd., noted, "Budget 2026 offers an opportunity to align India’s personal income tax structure with the evolving needs of the salaried class. While a dramatic overhaul may be unlikely, measures such as increasing the standard deduction threshold — currently at ₹75,000 under the new tax regime — or refining slab thresholds and rebates can meaningfully reduce tax outgo for millions of employees."
There is a growing demand from taxpayers and experts to raise the standard deduction to ₹1 lakh, up from the current ₹75,000, which was last adjusted in Budget 2024. Nehal Mota, Co-founder and CEO of Finnovate, suggested, "The Union Budget 2026 may consider increasing the standard deduction for salaried employees to ₹1 lakh." According to him, a higher standard deduction would help salaried taxpayers manage rising living costs, providing much-needed financial breathing room.
Recap of Income Tax Changes in Budget 2025
In Budget 2025, Finance Minister Nirmala Sitharaman introduced significant changes to personal income tax, offering relief to taxpayers who file under the New Tax Regime. A key modification was making income up to ₹12 lakh tax-free with a rebate. For salaried individuals, this effectively extended to ₹12.75 lakh after accounting for the standard deduction.
The tax slabs were also restructured as follows:
- Up to ₹4,00,000: Nil
- ₹4,00,001 to ₹8,00,000: 5%
- ₹8,00,001 to ₹12,00,000: 10%
- ₹12,00,001 to ₹16,00,000: 15%
- ₹16,00,001 to ₹20,00,000: 20%
- ₹20,00,001 to ₹24,00,000: 25%
- Above ₹24,00,000: 30%
These adjustments set a precedent for potential future changes, but as Budget 2026 looms, the consensus among experts points towards incremental adjustments rather than sweeping reforms. Taxpayers are advised to stay informed and manage their expectations accordingly as the budget announcement approaches.
