Budget 2026 Expectations Income Tax Highlights: Will income tax be further reduced this year?

That's all about our Income Tax expectations. Now all eyes will be on the Lok Sabha where Finance Minister Nirmala Sitharaman will be present the Union Budget 2026-27. Follow our liveblogs here for latest news on the Union Budget:

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The Union Budget 2026 will be broadcast live on Sansad TV starting 11 am. It will also be livestreamed on the official Sansad TV YouTube channel.

“The Union Budget 2026 is expected to be a cautious, tightly balanced budget focused more on strategic prioritisation than big announcements. With tax revenues under pressure due to last year’s income-tax relief, the government’s major focus will be to fund rising needs, especially defence, renewable energy, and semiconductors—without breaking fiscal discipline,” says Gaurav Garg, Research Analyst at Lemonn Markets Desk.

EY suggested that Budget 2026 should establish a clear roadmap to streamline the TDS rate structure to no more than three or four rates. B2B payments subject to GST could be exempt from TDS, as information about such transactions is already captured in Form 26AS/AIS.

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

The biggest challenge for Sitharaman will be to find a new economic growth driver, particularly against the backdrop of a global economy ravaged by heightened uncertainty and fragmentation, financial markets on a precipice, and global commodity prices on a continued uptrend.

She also faces the difficult task of restoring investor confidence in the near term, as uncertainty over India's trade talks with the US has unsettled financial markets, with foreign investors continuing to sell Indian equities and pushing the rupee to a record low.

Prabodh Mohanty, President of the Utkal Chamber of Commerce and Industry, has expressed optimism about stronger support for the MSME sector in the upcoming Union Budget.

Mohanty told ANI that he is hopeful for improved facilities and new schemes to help MSMEs scale up, modernise, and remain competitive in the global market and stressed the need for easier access to credit without collateral as a key priority.

He also called for rationalisation of mining laws and taxes and urged the Centre to take proactive steps to deregulate sectors, particularly MSMEs.

Delhi Chief Minister Rekha Gupta expressed confidence on Saturday that the upcoming Union Budget will have a positive impact on the city's development plans.

The Union Budget 2026-27 is scheduled to be tabled in the Parliament on Sunday.

She said that the Central government is actively involved in several important projects in the city.

Union Commerce and Industry Minister Piyush Goyal on Saturday expressed confidence that the 2026-27 Budget, to be presented by Finance Minister Nirmala Sitharaman on February 1, would be a good one.

"It will be a good Budget...I am very, very confident that it will be a very good Budget," he told PTI.

Despite slippage concerns, a Barclays report notes that the government is expected to meet the fiscal deficit target of 4.4% in FY25-26 and is likely to maintain a moderate target of 4.2% in FY26-27.

It said the government is likely to remain committed to its medium-term fiscal consolidation path.

Finance Minister Nirmala Sitharaman will on February 1 present her ninth straight Budget, which is expected to unveil measures to sustain growth momentum, maintain fiscal discipline, and contain reforms that could buffer the economy from global trade frictions, including US tariffs.

Sitharaman's sweeping income tax and GST cuts, together with spending on infrastructure and the RBI's interest rate reductions, have so far helped the Indian economy withstand the punitive 50 per cent tariff US President Donald Trump has imposed on Indian goods. But now, she has to come up with measures to sustain the momentum.

The Cellular Operators Association of India (COAI) has called for a significant overhaul of the financial framework governing the telecom industry. Lt Gen (retd) Dr SP Kochhar, Director General of COAI, emphasised that the sector should be viewed not as a standalone industry but as the backbone of the entire economy.

Kochhar noted that the government's own vision aligns with this, stating, "In the words of our Minister, our telecom has become a value added horizontal sector that give value to all other sectors."

SBI chairman CS Setty on Saturday pitched for parity in tax treatment on returns made on equity investments and bank deposits.

Setty said there is no disparity in taxation anywhere else in the world, and it is time for India also to align with other markets.

"I think there should be a level playing field for the financial savings instruments," he told reporters on the sidelines of an event in New Delhi.

As the Union Budget is set to be presented by Finance Minister Nirmala Sitharaman on Sunday, the local locksmiths and businessmen from Aligarh district of Uttar Pradesh have demanded a faceless system and tax cut in GST from the government, so that the local workers of the region could benefit.

Chairman of the Aligarh Talanagri Audyogik Association, Chandrashekhar Sharma, on Saturday called for the introduction of a faceless system in GST in the upcoming Union Budget, saying officials should not personally visit businessmen and harass them.

EY suggested that Budget 2026 should establish a clear roadmap to streamline the TDS rate structure to no more than three or four rates. B2B payments subject to GST could be exempt from TDS, as information about such transactions is already captured in Form 26AS/AIS.

“The Union Budget 2026 is expected to be a cautious, tightly balanced budget focused more on strategic prioritisation than big announcements. With tax revenues under pressure due to last year’s income-tax relief, the government’s major focus will be to fund rising needs, especially defence, renewable energy, and semiconductors—without breaking fiscal discipline,” says Gaurav Garg, Research Analyst at Lemonn Markets Desk.

“The Union Budget 2026 is expected to be a cautious, tightly balanced budget focused more on strategic prioritisation than big announcements. With tax revenues under pressure due to last year’s income-tax relief, the government’s major focus will be to fund rising needs, especially defence, renewable energy, and semiconductors—without breaking fiscal discipline,” says Gaurav Garg, Research Analyst at Lemonn Markets Desk.

“The Union Budget 2026 is expected to be a cautious, tightly balanced budget focused more on strategic prioritisation than big announcements. With tax revenues under pressure due to last year’s income-tax relief, the government’s major focus will be to fund rising needs, especially defence, renewable energy, and semiconductors—without breaking fiscal discipline,” says Gaurav Garg, Research Analyst at Lemonn Markets Desk.

“The Union Budget 2026 is expected to be a cautious, tightly balanced budget focused more on strategic prioritisation than big announcements. With tax revenues under pressure due to last year’s income-tax relief, the government’s major focus will be to fund rising needs, especially defence, renewable energy, and semiconductors—without breaking fiscal discipline,” says Gaurav Garg, Research Analyst at Lemonn Markets Desk.

According to experts, salaried taxpayers are looking for an increase in their standard deduction in the Union Budget 2026. Currently, the standard deduction is ₹75,000 under the new tax regime. It is expected that this will be increased to ₹1 lakh, bringing the income up to ₹13 lakh, making it income tax-free.

“Salaried taxpayers expect a simplification of income tax slabs to ensure that incremental income does not disproportionately increase tax outgo. A smoother progression between slabs would make the system more equitable," said Yojit Pareek, Partner and tax head Chambers of Jain and Kumar.

Experts suggest that the government probably won't introduce new changes to income tax slabs in the Union Budget 2026. However, there is significant anticipation regarding updates to TDS and standard deductions.

“Greater clarity and parity between the old and new tax regimes is essential. Many salaried individuals remain uncertain about long-term benefits, and the Budget should aim to make the new regime genuinely attractive rather than merely optional," said Yojit Pareek, Partner and tax head, Chambers of Jain and Kumar.

Khushboo Mulani, Founder & ShEO, Slay Media, said, “In this Budget, I hope for a meaningful increase in the standard deduction to help with rising living costs and improve take-home pay. Simplifying TDS structures and lowering the burden on salaried individuals and freelancers would help cash flow and financial planning. These changes can offer real relief to the middle class and improve overall spending sentiment.”

Check tax slabs under 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%

“From an employee’s perspective, ESOP taxation needs rationalisation. Taxing notional gains at the time of exercise before any actual liquidity is burdensome and often forces employees to fund tax out of pocket. Deferring taxation until the point of sale would make ESOPs a genuine wealth-creation tool rather than a cash-flow risk," according to Yojit Pareek, Partner and tax head Chambers of Jain and Kumar

Check out 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%

“With Budget 2026, the Government must send a strong signal of trust by accelerating decriminalisation under direct taxes and limiting prosecution strictly to cases of wilful tax evasion. Removing dual penalties and rationalising punitive provisions will bring much-needed fairness and certainty to the tax system. Introducing a year-wise income-tax e-ledger for TDS, TCS and advance tax, similar to GST, can be a game-changer in reducing disputes and taxpayer interface. On the indirect tax front, GST needs sharper rate rationalisation, faster refunds and a more robust input tax credit mechanism, especially for MSMEs and exporters. Together, these measures will significantly improve ease of doing business and strengthen voluntary tax compliance,” says CA Charanjot Singh Nanda, President, ICAI.

“For Budget 2026, salaried and middle-class taxpayers are expecting meaningful relief through personal income tax reforms that directly improve take-home pay. An increase in the standard deduction would help offset rising living costs, while rationalisation of TDS provisions could ease cash-flow pressures during the year. Simplifying tax slabs and reducing compliance friction for salaried individuals would further strengthen household finances and boost consumption,” says Pranav Koomar, Founder and CEO of PlusCash.

“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 slabs 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,” says Richa Sawhney, Partner, Tax, Grant Thornton Bharat.

“Budget 2026 must decisively strengthen India’s consumption engine. Raising the new tax regime exemption limit to ₹15 lakh, enhancing the standard deduction to ₹1.5 lakh, and removing long-term capital gains tax up to ₹5 lakh will unlock immediate economic momentum. While this implies a direct revenue forgoing of approximately ₹1.2 lakh crore, the real impact lies in what follows: middle-class households spend nearly 80% of incremental income, injecting close to ₹4.8 lakh crore into consumption. With a proven 5x fiscal multiplier, this can translate into ₹6 lakh crore in additional demand, accelerating GDP growth by nearly 3%. History shows tax reforms of this nature boost employment sentiment by over 20%, driving job creation in high-velocity sectors like retail, hospitality, services, and e-commerce. This is not a giveaway; it is a strategic growth lever that strengthens demand, employment, and long-term tax buoyancy without stressing fiscal discipline,” says Consortium Gifts and Investment Expert managing director Gaurav Bhagat.

The Internet and Mobile Association of India has demanded the rationalisation of TDS Rates by introducing a streamlined structure with only two or three broad categories. “As per IAMAI, as the current TDS framework contains numerous sections with different rates applicable to various types of income and payments, it becomes difficult for organisations and individuals to correctly identify and apply the appropriate TDS provisions. This complexity significantly increases administrative effort and compliance costs, while heightening the risk of disputes with tax authorities.”

“The upcoming Budget must move from optics to execution. Industry wants regulatory simplicity, faster GST refunds, and customs rationalisation to unlock investment. Exporters, especially those hit by US tariffs, need certainty on remission schemes, quicker refunds, and interest subvention to ease working-capital stress. Markets are looking for tax certainty, clarity on capital gains rules and relief from perceived double taxation via STT and capital gains, a key driver of FPI outflows. A fiscally credible, execution-focused Budget can materially lift confidence, growth, and India’s global competitiveness, at a time of heightened trade tensions, and geo-economic fragmentation,” says antanu Sengupta, Global Banking and Board Leader, and Former MD at Wells Fargo.

“As India moves towards a simpler and more predictable tax regime, Budget 2026 offers an opportunity to enhance financial inclusion and expand credit access. Targeted refinements such as modest increases in standard deductions or allowances for housing, insurance, and retirement savings can improve disposable income, enabling households to borrow responsibly and invest in long-term financial goals,” says VimanoTech founder Vikkas Goyal.

Salaried taxpayers are looking for an increase in their standard deduction in Union Budget 2026. Currently, the standard deduction stands at ₹75,000 in the new tax regime. Expectations are that this will be increased to ₹1 lakh, to make income up to ₹13 lakh income tax-free.

“Further widening of tax slabs in the new regime and enhancing limits for standard deduction – the likelihood is lower, considering the changes were done in the previous budget, and the government has already given relief in terms of GST rate cuts. Widening of tax slabs will be positive for all capital market plays,” say analysts at Motilal Oswal

In last year's Budget 2025, FM Sitharaman gave a major relief to Indian taxpayers by cutting income tax on earnings up to ₹12 lakh, benefitting millions of middle class taxpayers as the amount became tax-free. For the salaried people, the non-taxable income under the new tax regime increased to ₹12.75 lakh after standard deduction. The finance minister also announced the New Income Tax Act, 2025, which will come into effect from 1 April.

“The Union Budget 2026 may consider increasing the standard deduction for salaried employees to ₹1 lakh. Currently it is ₹50,000 under the old tax regime and ₹75,000 under the new tax regime. A higher standard deduction would help salaried taxpayers manage rising living costs,” says Nehal Mota, Co-Founder & CEO, Finnovate.

“The Union Budget 2026 is expected to be a cautious, tightly balanced budget focused more on strategic prioritisation than big announcements. With tax revenues under pressure due to last year’s income-tax relief, the government’s major focus will be to fund rising needs, especially defence, renewable energy, and semiconductors—without breaking fiscal discipline,” says Gaurav Garg, Research Analyst at Lemonn Markets Desk.

“Any income tax changes are likely to be modest and aimed at giving practical relief to middle-income earners, while ensuring the overall fiscal strategy remains responsible and growth-oriented,” says Sankar Chakraborti, MD & CEO, Acuité Ratings & Research Limited.

“As we approach Union Budget 2026, the loyalty and engagement industry is looking for catalysts that will accelerate the 'Experience Economy.' We anticipate policy measures that prioritize tax rationalization for the middle class, as increased disposable income directly correlates with higher engagement in premium lifestyle and travel rewards,” says Dhruv Verma, CEO of Thriwe.

“Given the government’s stated commitment to fiscal consolidation, it would be unrealistic to expect any major sops, especially in the form of tax cuts. This is particularly true when the government is also contemplating customs duty rationalisation as part of ongoing and proposed FTAs. Accordingly, expectations of capital gains tax relief or other capital-market friendly tax measures are unlikely. The government is likely to maintain capital expenditure broadly at current levels as a percentage of GDP, but without dramatic shifts in allocation,” says N. ArunaGiri, CEO, TrustLine Holdings.

“India cannot credibly promote Skill India and urge its youth to become job creators while maintaining a tax structure in which professionals bear a higher effective tax burden than companies. This anomaly needs to be addressed. In an era defined by Trumpian ad hoc ism in global trade, Finance Minister Nirmala Sitharaman faces the difficult task of proposing consistent duties and exemptions on imports and exports,” says Smita Mazumdar, Program Director, PGDM, Great Lakes Gurgaon

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%

“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.

“I see the government's clear signal through recent income tax cuts and GST reductions: a strong push to boost consumption and revive that aspect of the economy. The upcoming budget should follow suit, layering in additional supports to sustain this momentum. Last year festive sales were very strong & for a retail brand like ours, this means brighter prospects for demand, sales growth, and business expansion. Overall expect this year to focus on mass consumption too,” said Vidushi Jain, Co- Founder, Attrangi

“A further move toward a simplified and globally competitive corporate tax regime, minimising rate differentials and cascading effects, can enhance investor confidence and promote domestic reinvestment,” said Rajesh Shah – Audit & Accounting, Bhuta Shah & Co. LLP.

“A forward-looking GST architecture, built on consistency, simplified rules, and seamless credit flow, will be pivotal in accelerating private investment and supporting India’s aspiration to become a US$5 trillion economy in the near term,” says Manoj Mishra, Partner and Tax Controversy Management Leader, Grant Thornton Bharat

“Introduce tax incentives that encourage global players to invest in India through long-term capital investments. This shifts the focus away from debt or debt-like instruments, which typically result in cash outflows through interest payments and repayments, and instead promotes patient capital that stays within the country, strengthens domestic businesses, and supports sustained economic growth,” says Nitin Singhal, Managing Director at Sinch India.

“The government must do everything in its power to unleash mass entrepreneurship, which starts by tax reform. A huge amount of capital is needed, either from India or from around the world, and the government should do everything possible to remove the friction of doing business so that growth can thrive. Indians are the smartest people in the world, and it’s critical that this new budget addresses these pain points so that we can reach our full potential,” says Indian-American entrepreneur Kanwal Rekhi.

“Since the indexation has already been withdrawn for all asset classes including property, there is not much reason to keep such an unevenness and corresponding complexity. It is thus expected that the holding period for the purpose of computing capital gains for all asset classes may be set as 12 months in Union Budget 2026,” says Vivek Jalan, Partner at Tax Connect Advisory Services.