As Finance Minister prepares to present the Union Budget 2026 on February 1, it comes against a backdrop of global geopolitical uncertainty, volatile capital
markets, regulatory transitions, fluctuating oil prices, and a shifting rupee–dollar equation. Amid these moving parts, one expectation remains constant: individual taxpayers are hoping for higher disposable income and a simpler tax experience.
However, with India set to implement the new Income-tax Act from April 1, 2026, expectations of sweeping tax reforms may need to be tempered. Instead of dramatic structural changes, the Budget may focus on targeted, practical tweaks and administrative improvements—such as faster refunds, simplified compliance, and smoother transition mechanisms—to enhance the overall taxpayer experience.
Even so, individual taxpayers continue to pin their hopes on a few long-standing issues being addressed. Here are the four key income tax expectations heading into Budget 2026:
1. Higher Standard Deduction
One of the most widely anticipated changes is an increase in the standard deduction, which currently stands at Rs 50,000 under the old tax regime and Rs 75,000 under the new tax regime.
With inflation steadily pushing up the cost of living, salaried taxpayers are hoping the deduction will be raised to at least Rs 1 lakh. Such a move would provide immediate relief to households facing rising expenses and help preserve purchasing power without complicating tax compliance.
2. Rational Perquisite Valuation for Electric Vehicles
Electric vehicles (EVs) are increasingly central to corporate ESG strategies, with many employers encouraging employees to opt for EVs under company car lease policies. However, current perquisite valuation rules are still based on engine cubic capacity, a framework that does not reflect the unique nature of EVs.
Taxpayers and employers alike are expecting the government to introduce a separate, EV-specific valuation mechanism, ensuring fair tax treatment while further incentivising the adoption of clean mobility solutions.
3. Housing Loan Interest Relief Under the New Tax Regime
Under the new tax regime, taxpayers cannot claim deductions on housing loan interest, even for self-occupied properties—a major concern for homebuyers.
With housing prices continuing to climb and the government actively promoting affordable home ownership, there is growing expectation that interest deduction on self-occupied homes may be allowed under the new regime. Such relief would particularly benefit middle-income families and strengthen confidence in the simplified tax structure.
4. Extended Timelines for Revised or Belated Returns
Currently, revised or belated income tax returns can be filed only until 31 December following the end of the financial year. This deadline often proves challenging for individuals with cross-border income or overseas investments, where foreign tax filings may be completed later.
Extending this timeline would help prevent unintentional misreporting and ease compliance, especially for returning Indians and globally mobile professionals dealing with overlapping tax years.
As India approaches a landmark transition to a new Income-tax Act in April 2026, Budget 2026 offers a chance to address practical pain points faced by individual taxpayers. While large-scale reforms may be unlikely in a transition year, targeted relief measures and administrative flexibility could go a long way in improving trust and ease of compliance.
Ultimately, taxpayers are hoping the Budget strikes the right balance between fiscal discipline and the genuine needs of India’s expanding salaried middle class—delivering not just lower taxes, but a more humane and efficient tax system.
