Budget 2026: Indian Finance Minister's Major Income Tax Announcement
In a significant development from the Union Budget 2026, Finance Minister Nirmala Sitharaman has announced that income tax slabs will remain unchanged for the financial year 2026-27. This decision maintains the same tax structure that was applicable during FY 2025-26, applying to both the new tax regime and the old tax regime. The announcement comes at a crucial time as the new Income Tax Act is poised to come into effect in the coming months, setting the stage for future fiscal adjustments.
Continuity Over Change in Tax Policy
Expectations for major tax relief in Budget 2026 were already tempered due to the impending implementation of the new Income Tax Act. The budget has firmly confirmed a policy of continuity rather than introducing sweeping changes. This approach suggests a focus on stability as the country transitions to the new legislative framework, ensuring taxpayers face no sudden disruptions in their financial planning.
Details of the New Tax Regime
Under the new tax regime, which continues as the default option for most taxpayers, the income tax slabs remain as follows:
- Incomes up to ₹4 lakh are entirely tax-free, providing relief to lower-income earners.
- The highest tax slab of 30% applies only to incomes exceeding ₹24 lakh, targeting higher earners.
- This regime is designed to simplify tax filing by minimizing deductions, making it attractive for those who prefer straightforward compliance.
Persistence of the Old Tax Regime
The old tax regime also remains unchanged, continuing with its traditional structure that features higher tax rates but allows for multiple deductions. Taxpayers opting for this regime can benefit from various exemptions, including:
- House Rent Allowance (HRA) for those living in rented accommodations.
- Leave Travel Allowance (LTA) for travel expenses during leave.
- Section 80C deductions for investments in instruments like PPF, ELSS, and life insurance.
- Section 80D deductions for health insurance premiums.
- Benefits from the National Pension System (NPS) contributions.
- Home loan interest deductions under Section 24, aiding property buyers.
This dual-regime system allows individuals to choose based on their financial situations, whether they prioritize lower rates or extensive deductions.
Implications for Taxpayers and the Economy
The decision to keep tax slabs unchanged reflects a cautious fiscal stance amid economic considerations. It ensures predictability for taxpayers, who can plan their finances without worrying about sudden tax hikes or complex new rules. As the new Income Tax Act looms, this stability may help smooth the transition, though it means no immediate relief for those hoping for reduced tax burdens. The focus remains on leveraging existing structures while preparing for future reforms that could reshape India's tax landscape in the years ahead.
