What is the story about?
As the Union Budget 2026 approaches, taxpayers, investors and industry experts must be closely tracking potential changes in the tax framework, with expectations centred more on rationalisation and clarity than on large populist measures.
Personal income tax
On the personal taxation front, no major giveaways are expected. However, there is anticipation of targeted relief within the concessional income tax regime.
A key expectation is an increase in the standard deduction under the new regime from ₹75,000 to ₹1 lakh. There are also calls to revisit the cap on deductions for home loan interest payments under Section 24(b), currently capped at ₹2 lakh.
Tax experts are also seeking higher deductions for health insurance premiums under the new tax regime and clearer rules on the valuation of perquisites related to electric vehicles, including their tax treatment.
Another expectation is the introduction of foreign tax relief at the point of tax withholding to ease compliance for taxpayers with overseas income.
Under the concessional tax regime, income slabs currently range from nil tax for income up to ₹4 lakh to 30% for income above ₹24 lakh. The old tax regime, which continues to coexist, retains slabs with a peak rate of 30% for income above ₹10 lakh.
Capital gains and FPIs
Market participants are also watching for changes to capital gains taxation, particularly for foreign portfolio investors (FPIs). Expectations include a review of the capital gains tax structure, a possible reduction in long-term capital gains (LTCG) tax, and a rollback of the securities transaction tax (STT) to encourage higher market participation.
Currently, equity mutual funds and listed equity shares attract short-term capital gains (STCG) tax of 20%, while LTCG is taxed at 12.5%, with an exemption of up to ₹1.25 lakh for listed equities.
Debt mutual funds purchased after April 1, 2023, no longer enjoy long-term capital gains benefits and are taxed at slab rates. For real estate and precious metals such as gold and silver, LTCG is taxed at 12.5% without indexation after a holding period of over 24 months.
Gold investments through mutual funds and listed ETFs attract LTCG tax of 12.5%, with holding periods of two years and one year respectively.
TDS simplification
Another area under discussion is the simplification of tax deducted at source (TDS). Expectations include a reduction in the number of TDS rates to two, aimed at easing compliance and reducing administrative complexity.
Emerging sectors and ESOP taxation
Industry experts are also seeking targeted tax incentives for emerging sectors such as research and development, artificial intelligence and renewable energy. Proposals include extending the concessional 15% tax rate for new manufacturing companies and introducing tax credits for projects related to critical minerals.
On employee stock ownership plans (ESOPs), there are expectations of allowing deferment of perquisite taxation across industries and providing greater certainty on the deductibility of stock-based compensation expenses for employers.
Indirect taxes
In the indirect tax space, expectations focus on process improvements and cost rationalisation. These include further digitalisation of the customs litigation process, a reduction in basic customs duty on raw materials used in steel manufacturing, and customs duty waivers on critical imported equipment required for data centres.
Personal income tax
On the personal taxation front, no major giveaways are expected. However, there is anticipation of targeted relief within the concessional income tax regime.
A key expectation is an increase in the standard deduction under the new regime from ₹75,000 to ₹1 lakh. There are also calls to revisit the cap on deductions for home loan interest payments under Section 24(b), currently capped at ₹2 lakh.
Tax experts are also seeking higher deductions for health insurance premiums under the new tax regime and clearer rules on the valuation of perquisites related to electric vehicles, including their tax treatment.
Another expectation is the introduction of foreign tax relief at the point of tax withholding to ease compliance for taxpayers with overseas income.
Under the concessional tax regime, income slabs currently range from nil tax for income up to ₹4 lakh to 30% for income above ₹24 lakh. The old tax regime, which continues to coexist, retains slabs with a peak rate of 30% for income above ₹10 lakh.
Capital gains and FPIs
Market participants are also watching for changes to capital gains taxation, particularly for foreign portfolio investors (FPIs). Expectations include a review of the capital gains tax structure, a possible reduction in long-term capital gains (LTCG) tax, and a rollback of the securities transaction tax (STT) to encourage higher market participation.
Currently, equity mutual funds and listed equity shares attract short-term capital gains (STCG) tax of 20%, while LTCG is taxed at 12.5%, with an exemption of up to ₹1.25 lakh for listed equities.
Debt mutual funds purchased after April 1, 2023, no longer enjoy long-term capital gains benefits and are taxed at slab rates. For real estate and precious metals such as gold and silver, LTCG is taxed at 12.5% without indexation after a holding period of over 24 months.
Gold investments through mutual funds and listed ETFs attract LTCG tax of 12.5%, with holding periods of two years and one year respectively.
TDS simplification
Another area under discussion is the simplification of tax deducted at source (TDS). Expectations include a reduction in the number of TDS rates to two, aimed at easing compliance and reducing administrative complexity.
Emerging sectors and ESOP taxation
Industry experts are also seeking targeted tax incentives for emerging sectors such as research and development, artificial intelligence and renewable energy. Proposals include extending the concessional 15% tax rate for new manufacturing companies and introducing tax credits for projects related to critical minerals.
On employee stock ownership plans (ESOPs), there are expectations of allowing deferment of perquisite taxation across industries and providing greater certainty on the deductibility of stock-based compensation expenses for employers.
Indirect taxes
In the indirect tax space, expectations focus on process improvements and cost rationalisation. These include further digitalisation of the customs litigation process, a reduction in basic customs duty on raw materials used in steel manufacturing, and customs duty waivers on critical imported equipment required for data centres.
