Income Tax 2026 Expectations Highlights: Will FM Sitharaman give another boost to taxpayers in Budget 2026?

Updates to this blog has been closed. Catch latest updates on Budget 2026 income tax expectations here.

Check the income tax slabs for the old tax regime —

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%

“If Budget 2026 moves toward a simpler New Tax Regime with clear savings incentives, along with GST simplification and sustained spending on infrastructure, green energy and MSMEs, confidence can improve. Predictable policies can help businesses invest in growth, and households can plan better. To sum up, a fair and globally competitive tax system is our aspiration for Budget 2026 which strengthens both growth and long term wealth creation,” said Ram Medury, Founder & CEO, Maxiom Wealth.

In a surprising move, Sitharaman announced that income up to ₹12 lakh will be exempt from tax, providing a boost for the middle class. For salaried individuals, the effective tax exemption threshold increased to ₹12.75 lakh after factoring in the ₹75,000 standard deduction. Consequently, incomes up to ₹12.75 lakh are now tax-free.

Finance Minister Nirmala Sitharaman will present her ninth consecutive Budget on February 1.

In the 2025 budget speech, Sitharaman made several changes to TDS (Tax Deducted at Source). TDS on rent limit increased from ₹2.4 lakh to ₹6 lakh, reducing compliance for small landlords. The threshold for senior citizens’ interest income doubled from ₹50,000 to ₹1 lakh.

The government is unlikely to make any new changes to income tax slabs, as per experts. However, hopes are high on the TDS and standard deductions front.

Income tax slabs for the old tax regime —

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%

Income tax slabs for the new tax regime

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%

“Investors are watching closely for measures that could improve post-tax returns from fixed deposits, such as a higher income-tax exemption limit or an increase in the TDS threshold on interest income. There is also renewed excitement around a possible enhancement in the DICGC insurance cover applicable on fixed deposits, which currently stands at ₹5 lakh per depositor and was last revised in 2020—a topic that has featured prominently in past budget discussions," says Saurabh Jain, Co-founder & CEO, Stable Money.

“Rationalising tax slabs, increasing the basic exemption limit, and providing limited, well-designed deductions within the new regime would help improve disposable incomes while preserving ease of compliance. Aligning tax thresholds with inflation and evolving income patterns can also encourage wider adoption,” Yashraj Bhardwaj, co-founder and COO at Petonic AI said in a statement to Livemint.

“On direct taxes, a key expectation is broader tax certainty for foreign investors and smoother implementation of the new Income-tax Act, 2025. Within this, the government is reportedly examining a proposal to exempt sovereign wealth funds and other patient capital from tax on equity gains in Indian listed securities, expanding the current, narrower exemptions that focus mainly on infrastructure investments. This is aimed at reversing recent FPI outflows and attracting long‑term, stable capital,” Nishant Shah, Partner at Economic Laws Practice, told Mint.

“Considering the changes done last year in the slab rates and the consequential impact on tax collections, it may not be feasible for the government to make any further changes this year. However, going forward, if the cost-of-living parameters and inflation rates are considered for a default annual tweak in the slab rates in the new tax regime, it may benefit a large section of taxpayers and provide a fillip to further popularising the new tax regime,” Richa Sawhney, Partner, Tax, at Grant Thornton Bharat, told Mint earlier.

In the budget 2025 speech, the Finance Minister announced that updated ITRs (ITR (U)) could be filed for up to four years, instead of the earlier two years.

“From direct tax perspective, expect it to remain largely same. At best, the standard deduction value could be revisited, and old tax regime may continue to be retained,” said Mahesh Krishnamoorthy, Managing Director - Core Integra.

In the 2025 budget, FM Sitharaman made changes to how TDS (Tax Deducted at Source) works. TDS on rent limit hiked from ₹2.4 lakh to ₹6 lakh, reducing compliance for small landlords. The threshold for senior citizens’ interest income doubled from ₹50,000 to ₹1 lakh.

The Finance Minister announced the New Income Tax Bill, 2025, which was later passed in the Lok Sabha. The New Income Tax Act, 2025, which is set to come into effect from 1 April this year, seeks to simplify language, remove obsolete provisions, and streamline sections to produce a simpler version.

In a surprising move, Sitharaman announced that income up to ₹12 lakh will be exempt from tax. For salaried individuals, the effective tax exemption threshold increased to ₹12.75 lakh after including the ₹75,000 standard deduction. Consequently, incomes up to ₹12.75 lakh are now tax-free.

“Ahead of the Union Budget, investors are watching closely for measures that could improve post-tax returns from fixed deposits, such as a higher income-tax exemption limit or an increase in the TDS threshold on interest income. There is also renewed excitement around a possible enhancement in the DICGC insurance cover applicable on fixed deposits, which currently stands at ₹5 lakh per depositor and was last revised in 2020—a topic that has featured prominently in past budget discussions," says Saurabh Jain, Co-founder & CEO, Stable Money.

For individuals, who last year got a big relief in terms of Income Tax exemption limit hike to ₹12 lakh and later GST rate cuts, are still hoping for some relief in standard deduction.

Finance Minister Nirmala Sitharaman will present her ninth consecutive Budget on February 1 in the Lok Sabha amid expectations of an overhaul of the Customs duty regime, much on the lines of GST structure rationalisation, and more reform measures to boost the economy in the wake of heightened geopolitical uncertainty.