Budget 2026 Income Tax Expectations: Will the New Tax Regime Get Another Push?
With India gearing up for the Union Budget 2026, taxpayers, professionals, and policymakers have their sights set on whether the government will bring in more amendments to income tax laws. In recent times, the Centre has systematically been promoting a New Tax Regime as one that would ease compliance and reduce rates. The question now, following this once-in-a-generation package of Budget 2025 reforms, is whether Budget 2026 income tax expectations will build in yet another set of incentives or opt for stability after years of continued change.
How the New Tax Law Reached this Point
The New Tax Regime was initially announced in the Union Budget 2020 and aims to simplify India’s complicated income tax structure. In the years since, slabs were abolished and tax credits introduced in multiple budgets as jurisdictions fought for simplicity or fairness by incrementally overhauling the system. The biggest change came in Budget 2025, when former Finance Minister Nirmala Sitharaman nearly made up to ₹12 lakh tax-free under the New Tax Regime.
These changes had a huge effect on taxpayers’ conduct. Further, official data shows that almost 72% of the 7.28 crore income tax returns filed for the Assessment Year (AY) 2024–25 were under the New Tax Regime, and only around 28% of such cases were under the old regime. That steep climb is one reason why Union Budget 2026 income tax prospects are a little longer fixed on radical reform, and more about consolidation.
Union Budget 2026 Income Tax Expectations: Stability Over Big Changes
Most tax experts believe that Budget 2026 is unlikely to bring major slab revisions. Richa Sawhney, Partner – Tax, Grant Thornton Bharat LLP, also observes that the government has already introduced a consequential rehaul of the New Tax Regime in the last budget, and there may not be much to expect in this respect.
Reiterating this opinion, Preeti Sharma, Partner – Tax and Regulatory Services at BDO India, said the New Tax Regime already gives a lower tax outgo to those individuals who do not claim very significant deductions. Against this backdrop, most are anticipating the Union Budget 2026 income tax announcements to be about continuity rather than radical change.
Why So Many Taxpayers Still Love the Old Law
The New Tax Regime is steadily being picked up, but a section of the taxpayers is constantly in favour of the old system, as they have home loans to be repaid, insurance premiums, and investments for retirement. The reason is simple: deductions.
The old regime has multiple benefits, such as home loan interest deduction (Section 24(b)), health insurance deductions (Section 80D), investments (Section 80C), etc., resulting in substantially lower taxable income. These deductions work in favour of the old regime for those earning between ₹12 lakh and ₹30 lakh, shaping sophisticated Union Budget 2026 income tax expectations.
What Can Be Done to Make the New Regime Less Ugly
Though large reforms may be off the table, experts think selective tweaks could make the New Tax Regime more attractive without taking away from its simplicity.
Akhil Chandna, Partner, Grant Thornton Bhara,t also recommended enhancing the standard deduction limit and allowing a select few exemptions. These might be health insurance premiums and a capped home loan interest deduction that would motivate middle-class taxpayers to transition.
Capped deductions (not unlimited) may be the right balance between simplicity and tax efficiency,” said Radhika Viswanathan, executive director at Deloitte India. Those calibrated responses fit neatly with the income tax Budget 2026 aspirations, entirely predicated on the broader, not complex, availability.
Reintroduce Home Loan Interest: A Major Demand
One of the heaviest demands from tax professionals is the revival of home loan interest deductions under the New Tax Regime. ClearTax founder and CEO Archit Gupta has emphasised the importance of Section 24(b), which allows a deduction of up to ₹2 lakh on interest paid on a self-occupied house.
According to Gupta, if the New Tax Regime is to become more than just “simpler” and truly emerge as the default choice, it must align with the aspirations of Indian households—especially home ownership. Reintroducing this deduction could reduce housing finance costs at a time when property prices remain elevated, strengthening Union Budget 2026 income tax expectations for middle-class relief.
Inflation Indexation and Annual Tweaks: A Long-Term Proposal
Some tax analysts contend that to future-proof the New Tax Regime, slabs should be indexed with inflation. Sawhney said there could be some benefits for taxpayers in the long run if cost-of-living CPI measures were applied to slab adjustments automatically without increasing taxes on bracket creep.
“These are reforms that create the climate for doing business and require calculation, predictability, and disciplined introduction,” according to Gaurav Jain, Partner – Direct Tax, Forvis Mazars. According to him, the income tax expectations from the Union Budget 2026 also include lowering of litigation, enhancing appellate efficiency, and ensuring uniform application of settled law to create long-term confidence in the taxpayer.
Administrative Reforms Over Rate Changes
Apart from rates and deductions, practitioners feel procedural changes could substantially improve the tax environment. Decriminalisation of minor offences, probation in the use of prosecutorial power, and quick settlement of disputes are also part of the new measures being planned to ensure that voluntary compliance is made faster.
“Rationalising slabs, indexing thresholds to inflation, and adding meaningful deductions could increase disposable income substantially and without increasing compliance burdens”, said Yashraj Bhardwaj, co-founder of Petonic AI, all important aspects shaping the Union Budget 2026 income tax expectations.
What to Watch for as Budget Day (Finally) Arrives
With Finance Minister Nirmala Sitharaman set to present the Union Budget 2026 on February 1, expectations are firmly anchored around fine-tuning rather than an overhaul. The government seems eager to consolidate the dominance of the New Tax Regime and keep any frequent policy shift at bay so as not to disturb taxpayers.
On any announcements, be it the increase in standard deduction, selected deductions, or administrative clarity, people would watch out for medium-term implications on their household finances and behaviour towards compliance.
Conclusion: A budget of certainty and confidence
Basically, the Union Budget 2026 income tax forecasts are indicative of a mature tax policy regime. After years of reform, the focus now is on stability, predictability, and incremental improvement. While there are unlikely to be sweeping changes in the major tax slabs, targeted relief measures and administrative fine-tuning could make the New Tax Regime more inclusive and attractive.
While Budget 2026 may not offer taxpayers major surprises, it could reinforce confidence in a simple, transparent tax system for the long-term.
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