Budget 2026: Income Tax Changes Expected?

• Budget 2026 focuses on adjusting the new income tax regime, now the default option.
• Tax slab revisions within the new regime are expected to increase disposable income.
• Changes may lower rates, aiming to simplify taxes and benefit more taxpayers.

As Budget 2026 approaches, many are eager to understand how the government plans to address income tax. The focus is on the new income tax regime, which was made the default two years ago. This article explores potential adjustments to tax slabs, the likelihood of increased disposable income for taxpayers, and what changes we might see.

The Current Landscape

In the preceding year, significant tax reforms were implemented. These included a comprehensive overhaul of the new income tax regime and the introduction of the New Income Tax Act. Additionally, there were extensive GST rate cuts and rationalizations of slabs. These changes set a precedent, and the expectation is that Budget 2026 will build upon these foundations, especially regarding the new income tax system. Two years ago, the government made the new tax regime the default option. Consequently, taxpayers must actively choose the old tax regime if they wish to use it; otherwise, they are automatically enrolled in the new regime. This approach reflects the government's direction and influences the anticipated modifications in the forthcoming budget.

Expected Tax Adjustments

Each year, there's an expectation that the government will review and adjust the tax slabs to provide taxpayers with more net disposable income. Based on previous trends, any amendments are likely to be confined to the new income tax regime. This regime is now the primary focus for tax-related changes. This shift suggests that the government might be aiming to enhance the appeal and benefits of the new regime, possibly through adjustments to tax brackets, deductions, or other incentives. The aim is to simplify the tax structure and make it more advantageous for a broader segment of the population, thereby encouraging greater compliance and financial relief.

Focus on the Regime

The decision to make the new income tax regime the default option two years prior underscores the government's commitment to this framework. Taxpayers now need to actively choose the old regime, implying a shift towards streamlining the tax process. Failing to file income tax returns on time automatically places individuals under the new regime. The new regime, with its different deductions and calculations, has become the focal point of tax-related conversations. With the old regime requiring explicit selection, the new income tax structure is expected to see more development in Budget 2026. This setup shows a clear move toward refining and making the new regime more attractive.

Potential Impact for Taxpayers

The upcoming budget has the potential to introduce changes that could affect the take-home pay of salaried individuals and middle-class taxpayers. Such changes could come in the form of modifications to tax slabs, deductions, or credits. These changes aim to boost disposable income and ease the tax burden. The government could also consider adjustments to the existing tax rates within the new regime, offering lower rates across various income brackets to make it more appealing. These potential moves highlight the government's ongoing effort to maintain a tax system that is both efficient and equitable, benefiting a large number of taxpayers in the country.