Budget 2026 Expectations: Tax Experts Seek Higher Deductions, Relief On 30% Slab, Capital Gains

Budget 2026 Expectations On Taxation: As the government is set to present the Union Budget 2026 on February 1, tax experts are calling for stability, simplification and reduced litigation to support investor confidence and household consumption. Tax experts are pitching for a higher standard deduction, a raised 30% tax slab threshold, simplified capital gains rules, and a customs amnesty scheme to cut litigation, saying that predictability and inflation-linked relief will boost middle-class consumption and investor confidence.

According to Vipin Upadhyay, Partner at King Stubb & Kasiva, the upcoming Budget is crucial from a tax policy standpoint as India moves towards implementing the Income Tax Act, 2025.

“From a tax policy perspective, the upcoming

Union Budget 2026 presents a critical opportunity to reinforce certainty and investor confidence as India transitions to the Income Tax Act, 2025. On the income tax front, the focus should shift toward ensuring a seamless migration to this new legislative framework, which already promises simplified language and the elimination of hundreds of redundant provisos,” Upadhyay said.

He noted that while the Budget 2025 provided significant relief by making income up to Rs 12 lakh effectively tax-free under the new regime, there is scope for further rationalisation to address inflationary pressures on the middle class.

“Further rationalisation such as increasing the standard deduction to Rs 1,00,000 and raising the threshold for the 30% tax slab would provide essential relief against inflation for the middle class. Clarity on the long-term roadmap for the old and new regimes remains vital for predictable financial planning,” he added.

On capital gains taxation, Upadhyay said stakeholders are seeking simpler structures under the new law. “In relation to capital gains, stakeholders seek a simplified holding period classification and harmonized rates across asset classes within the new Act’s framework. Streamlining these for listed securities and startups would significantly reduce interpretational disputes and improve the ease of investment.”

From a trade and customs perspective, he expects calibrated duty changes aligned with India’s manufacturing push. “From a customs standpoint, a calibrated duty rationalization aligned with the ‘Make in India’ and ‘China+1’ strategies is expected to enhance global competitiveness,” he said.

Upadhyay also underlined the demand for a one-time dispute resolution mechanism. “Crucially, there is a strong push for the introduction of a Customs Amnesty Scheme, similar to the ‘Vivad se Vishwas’ or ‘Sabka Vishwas’ initiatives. Such a one-time settlement scheme could unlock over Rs 1.5 lakh crore currently stuck in litigation across approximately 38,000 cases, allowing businesses to clear legacy disputes by paying principal duties with a waiver of interest and penalties.”

“Overall, a predictable, litigation-light tax framework, supported by the new 2025 Act and targeted settlement schemes, will be instrumental in boosting investment sentiment and supporting sustainable economic growth,” he said.

Echoing similar themes, Rajarshi Dasgupta, Executive Director – Tax at AQUILAW, said the Budget is expected to prioritise relief for individuals, simplification of capital gains rules, and stability in corporate taxation.

On personal income tax, Dasgupta said expectations include a higher basic exemption limit under the new tax regime and rationalisation of slabs to ease the middle-class tax burden. He also flagged demands for an increase in standard deduction beyond Rs 50,000 for salaried taxpayers and pensioners, and a higher Section 80C limit, which has remained unchanged at Rs 1.5 lakh since 2014.

He added that there is a growing demand for relief on health insurance deductions under Section 80D, particularly for senior citizens, along with greater clarity and incentives to encourage adoption of the new tax regime while keeping it competitive vis-à-vis the old regime.

On capital gains, Dasgupta said investors are seeking further simplification following recent changes, including fewer holding-period categories and clearer or more uniform tax rates across asset classes. He also highlighted expectations of relief for small investors through an increase in the basic exemption limit for long-term capital gains on equities, currently set at Rs 1.25 lakh, and a reconsideration of indexation benefits for long-term assets such as debt instruments and real estate.

In customs duties, Dasgupta expects lower levies on critical raw materials to support manufacturing, MSMEs, green energy and electronics, while selective increases in duties on finished goods to promote Make in India. He also flagged rationalisation of inverted duty structures and continued policy support for sectors such as semiconductors, electric vehicles, solar equipment and defence manufacturing.

On the corporate tax front, Dasgupta said stability is the key expectation, with no major rate hikes anticipated. Instead, the focus is likely to be on sector-specific incentives for manufacturing, startups, and green and digital infrastructure, alongside further simplification of compliance and dispute resolution mechanisms.

Summing up expectations from Budget 2026, Dasgupta said the overarching theme is likely to be “tax certainty over tax shocks”, with measures aimed at boosting consumption and middle-class disposable income, supporting manufacturing and exports, and pursuing gradual fiscal consolidation without aggressive tax increases.