Anticipations for Union Budget 2026: Tax Relief for Middle Class
Countdown to Union Budget 2026
The Union Budget for 2026 is just weeks away, with Finance Minister Nirmala Sitharaman set to present the budget for the fiscal year 2026-27 on February 1, 2026 (Sunday). This will mark her ninth consecutive full budget, potentially making her a historic figure in Indian finance. As with previous budgets, the middle class and salaried taxpayers are keenly awaiting tax relief, particularly in making the new tax regime more appealing.
Nirmala Sitharaman's Journey in Tax Reforms
The Finance Minister introduced the new tax regime in 2020, aiming to create a simplified tax system with lower rates and fewer exemptions. Each budget has seen enhancements to this framework:
- Budget 2025 announced a significant change, making annual incomes up to 12 lakh rupees completely tax-free. For salaried individuals, this limit increased to 12.75 lakh rupees with the standard deduction.
- The basic exemption limit was raised from 3 lakh to 4 lakh.
- Adjustments in tax slabs provided relief to the middle-income group.
These modifications have led to a surge in the popularity of the new regime, with over 70-80% of taxpayers opting for it, while fewer individuals remain under the old regime despite its deductions.
Expectations for Budget 2026
Following last year's substantial relief, expectations for this budget are more cautious. Experts suggest that the government may focus on structural reforms:
- Strengthening the new tax regime, possibly moving towards phasing out the old one.
- Introducing a new 25% slab for incomes between 30 lakh and 50 lakh to alleviate pressure on high-income groups and improve proportional taxation.
- Providing joint filing options for married couples to enhance family income relief.
- Increasing the 80C deduction limit or offering exemptions on housing loan interest.
- Offering greater relief for senior citizens on pension and interest income.
- Simplifying tax filing, refunds, and TDS processes, as the new income tax act of 2025 will come into effect on April 1, 2026.
Current Slabs of the New Regime (FY 2025-26)
- 0 to 4 lakh: 0%
- 4 to 8 lakh: 5%
- 8 to 12 lakh: 10%
- Increased rates for higher slabs.
The tax-free threshold of 12 lakh has boosted the disposable income of the middle class, fostering increased consumption and savings. However, amidst inflation and global challenges, the middle class continues to hope for further relief.
Upcoming Budget Session
The budget session will commence on January 28, with the Economic Survey scheduled for presentation on January 29. All eyes will be on whether Nirmala Sitharaman will surprise the middle class again or if the focus will remain on a smooth transition to the new tax laws.