With the Income tax expectations Union Budget 2026 on the anvil on February 1 2026, taxpayers and market players; financial experts are keenly following the goings on in the personal income tax policy. Its emphasis lies in effective relief, reduction of tax bracket, and deserts that go in line with increased cost of living and changing economic conditions.
Background: Why Tax Policy Matters in 2026
The cross-cutting trends that determine the fiscal background of Budget 2026 are:
- The consumption in the city has curtailed leading to policy strains, where increasing disposable incomes have been debated by policy makers.
- With the Government moving to the Income Tax Act, 2025, which will supersede the Income-tax Act, 1961, beginning April 1, 2026, the Government has provided itself with a strategic point in time to make tax legislation reflect economic realities in the contemporary times.
- Both taxpayers and markets would appreciate predictability and ease in the face of swift transformations in income lines of digital economy and investment patterns.
These reasons cause the income tax policy to rise to a higher level not only of revenue machine but of economic participation, saving, and investment pleasure.
What Were the Key Expectations Before the Budget?
1. Better Standard Deduction on Salaried persons.
Increasing the standard deduction under the new tax regime is one of the most frequently U.S. tax reforms. As per the existing level of 75,000, some proposals are in progress to increase this to 1 lakh which is based on the challenge of inflation and increased daily living costs by some experts and middle-income representatives.
An increase in the standard deduction would immediately lower the taxable amount among people with fixed salaries and pensioners with easy tax relief without extra compliance costs.
2. Tax rationalisation of Income Tax Slabs.
The experts anticipate gradual adjustments in order to flatten the existing tax slabs than a radical redesign. Particular attention is put on the earning group 12 lakh to 20 lakh which has been affected by inflation causing a decrease in real earnings.
Although no concrete slab changes were validated prior to the Budget, extension of the lower tax scales to curb the so-called bracket creep is a fundamental requirement.
3. Long-Term Capital Gains (LTCG): A Relief in Your Reach.
The existing LTCG tax rule is 12.5% on all gains above 1.25 lakh and is further not indexed on equity.
Much talk ahead of the Budget recommended raising the tax free LTCG limit to 2 lakh and providing the small investors with some specific relief to lure them into the long term in the market.
The advocates believe that the result of this would be less taxation on the modest investors and encourage widening participation in capital markets without much of denting government income.
4. New Tax Regime on healthcare and Section 80D.
Professionals have advocated on the increase of deductions on Section 80D (health insurance premiums) particularly with the increased cost of medical services.
Although these deductions only apply to the old tax regime, there is an increasing urge and pressure to make them applicable to the new tax regime and increase limitations so as to mirror the economic realities.
5. Housing and Home Loan Measures of Affordability.
As real estate prices skyrocketed in both Tier-1 and Tier-2 cities, stakeholders have demanded adjustment on home loan interest deductions and House Rent Allowance (HRA) limit to reflect more closely on actual rental prices.
This may involve HRA exemptions of the high-cost cities that are not within the normal metros, restructuring of loan interest on homes to the salaried type.
Modernising Tax Compliance and Administration
Beyond slab rates and deductions, tax experts are urging advancements in compliance mechanisms:
- Pre-filled deduction templates to streamline return filing.
- Simplification of filing requirements for gig workers, freelancers, and digital income earners, whose income streams often don’t fit traditional employment categories.
- Clearer provisions for crypto, global income, and foreign asset taxation to reduce ambiguity under the new tax law.
These administrative enhancements aim to reduce friction and increase voluntary compliance.
Old vs New Tax Regime: A Continued Dual Structure
The new tax structure particularly under which those before 12 lakh income would be effectively tax-free in Budget 2025 is still taking charge and more than 72 per cent of taxpayers had chosen the new tax structure.
However, the old regime has taxpayers that continue enjoying the benefits of customary tax deductions such as HRA, Section 80C, and home loan interest. Consequently, the government will tend to retain both of the regimes, and the new regime will be more preferable by increasing deductions and indexing slabs.
Investor and Market Sentiment: Beyond Personal Taxation
Financial markets also have clear expectations from Budget 2026:
- Lower LTCG and broader tax parity across asset classes, including structured products and debt instruments, to improve investor confidence.
- Reduction in friction for REITs, InvITs, and foreign institutional investors (FIIs) to deepen liquidity and attract capital.
- Rationalisation of transaction taxes like STT (Securities Transaction Tax) that, combined with capital gains taxes, raise the overall cost of trading.
These reforms, while technical, are seen as essential for positioning India as a competitive destination for both domestic and global investment.
Real-World Impact: What Taxpayers Stand to Gain
If expectations translate into actual policy:
- A higher standard deduction could reduce taxable income significantly for millions of salaried taxpayers and retirees.
- Expanded LTCG exemptions would enhance post-tax returns for long-term investors.
- Greater health and housing deductions would shield households from rising living costs.
- Simplified compliance would reduce the time and costs associated with tax filing, especially for non-traditional income earners.
Overall, these measures could boost disposable incomes, support consumption, and incentivise long-term savings and investment.
Conclusion: A Budget for Stability and Growth
The Union Budget 2026 will be at the vanguard of the balancing act between providing relief to the taxpayers and being fiscal prudent, and being economic growth inducing. In advance of the Budget, a desire is to have:
- Judicious tax cut to individuals and families.
- An even simpler and modern tax administration.
- Reforms that are market friendly which increase investor participation.
The choice to provide in these fronts by policymakers will be evident when Finance Minister Nirmala Sitharaman presents the full Budget on February 1, 2026, however, the debates prior to it will have pointed to an important moment in Indian tax policy.
Grow your business through Go Finance– get quick, flexible business and finance loans that are geared towards your growth. We offer any form of finance and loan facilities easy approval and sound support.
