As the calendar turns toward February 1st, 2026, the air in India is thick with one specific question: “Will the Finance Minister give us more tax relief this year?”
Following the transformative changes in Budget 2025—which effectively made income up to ₹12.75 lakh tax-free for salaried individuals under the New Tax Regime—expectations for the Union Budget 2026 are soaring. With the 8th Pay Commission on the horizon and a brand-new Income Tax Act set to take effect, taxpayers are looking for a budget that balances fiscal discipline with more “money in the pocket.”
In this in-depth analysis, we explore the top income tax slab expectations for Budget 2026, expert predictions, and how the new legal framework might change the way you file your returns.
1. The Context: A Transition to the New Income Tax Act, 2025
One of the most significant factors for Budget 2026 is the implementation of the New Income Tax Act, 2025, which is scheduled to become operational on April 1, 2026. This act aims to replace the legacy 1961 legislation with a simplified, principle-based framework.
Because of this massive transition, many experts believe the government might favor stability over sweeping changes. However, “stability” doesn’t mean “stagnation.” There is a strong push to refine the existing slabs to ensure the transition is smooth and rewarding for the common man.
2. Expected Income Tax Slabs for FY 2026-27 (New Regime)
The New Tax Regime is now the default option and the clear favorite of the government. In Budget 2025, the exemption limit was pushed to ₹4 lakh, and the 87A rebate was hiked. For Budget 2026, the buzz suggests a “fine-tuning” of the middle brackets.
Predicted vs. Current Slabs (New Regime)
| Income Level | Current Tax Rate (FY 2025-26) | Expected Tax Rate (Budget 2026) |
|---|---|---|
| Up to ₹4,00,000 | Nil | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% | 5% (Possible threshold hike) |
| ₹8,00,001 – ₹12,00,000 | 10% | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% | 12% – 15% |
| ₹16,00,001 – ₹20,00,000 | 20% | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% | 20% – 25% |
| Above ₹24,00,000 | 30% | 30% |
Expert Tip: While a major rate cut is unlikely, a widening of the 10% and 15% brackets could provide significant relief to urban professionals earning between ₹15 lakh and ₹25 lakh.
3. The “Standard Deduction” Hope: ₹75,000 to ₹1,00,000?
Salaried employees have a singular wish every year: a higher Standard Deduction. In the previous budget, it was raised to ₹75,000. Considering the inflation rates and the rising cost of living in Tier-1 cities, industry bodies like FICCI and CII have suggested increasing this to ₹1,00,000.
An increase to ₹1 lakh would mean that a person earning ₹13 lakh annually could potentially end up paying zero tax (when combined with the Section 87A rebate).
4. The 8th Pay Commission Factor
2026 is a milestone year for over 1.1 crore central government employees and pensioners due to the expected implementation of the 8th Pay Commission.
Historically, when pay commissions are implemented, disposable income increases, which can push individuals into higher tax brackets (bracket creep). To prevent this “inflation tax,” the government often adjusts the lower tax slabs to ensure that the pay hike actually stays with the employee rather than flowing back to the treasury.
5. Potential Introduction of a 25% “Middle” Slab
Currently, the jump from 20% to 30% (in the old regime) or the rapid progression in the new regime can feel steep. There are rumors of a proposal to introduce a more graduated “25% tax band” for income between ₹30 lakh and ₹50 lakh.
This move would address the “missing middle” and provide relief to senior managers and mid-level entrepreneurs who currently hit the 30% ceiling very quickly.
6. What About the Old Tax Regime?
The message from North Block has been loud and clear: The Old Tax Regime is on its way out. * Exemption Limits: No major changes are expected for the ₹2.5 lakh limit.
- Section 80C & 80D: While taxpayers desperately want the 80C limit (₹1.5 lakh) to be doubled, the government is unlikely to oblige. Their strategy is to disincentivize forced savings and encourage the “New Regime” where taxpayers have more cash to spend or invest as they please.
7. Key “Wishlist” Items for Taxpayers
Beyond the slabs, here are the top 3 demands likely to be addressed:
- Simplification of TDS: With 37 different TDS rates currently in play, a “Unified TDS Framework” with just 2-3 standardized rates is expected.
- Home Loan Interest (Section 24b): For those still in the Old Regime, a hike in the ₹2 lakh limit to ₹3 lakh is a recurring demand to support the housing sector.
- Health Insurance (Section 80D): With medical inflation touching 14%, increasing the deduction for senior citizen parents is a high-probability move.
Final Thoughts: Should You Wait to Plan Your Taxes?
Budget 2026 is shaping up to be a “Consumption Budget.” The government wants to spur economic growth by putting more money in the hands of the middle class. While we might not see a total overhaul of the rates, the “New Income Tax Act 2025” will likely bring cleaner rules and fewer disputes.
Our Advice: If you earn up to ₹12-15 lakh, the New Tax Regime is already highly efficient. However, keep a close watch on the February 1st announcements, as even a minor adjustment in the 15% slab or Standard Deduction could save you an additional ₹15,000 – ₹25,000 annually.
Disclaimer: These are expectations based on current economic trends and expert projections. Final decisions rest with the Ministry of Finance during the Union Budget presentation.
