Budget 2026: Expectations For New Tax Slabs And Deduction Limits

As India approaches Union Budget 2026, tax policy must move decisively beyond revenue mobilisation towards certainty, administrative discipline and institutional credibility. With robust tax collections and direct taxes contributing over half of total receipts in recent years, fiscal space now exists to prioritise predictability, dispute reduction and quality of administration.

Given that the last Union Budget provided significant relief by increasing the no-tax income threshold under the New Regime from Rs 7 lakh to Rs 12 lakh, it is unlikely that any further major relief will be announced this year for small and middle-income taxpayers.

The middle class and the transition to the new Income Tax Act, 2025, which will replace the 1961 Act on April 1, 2026, are the main topics of discussion as India gets ready for the Union Budget 2026, which is anticipated on February 1, 2026. Rationalizing the high-tax brackets, which currently hit middle-class income earners, is the main demand from taxpayers and from some tax experts as highlighted below.

As per CA Manish Golyan, FCA, LLB, FAFD, ADR, ISA, Partner, Gupta Jai & Company, however, some expectations are as follows:

1. The slabs of surcharge should be increased from

50 lacs --> 75 lacs = 10%
1 crores --> 1.5 crores = 15%

Corresponding upward shifts for higher slabs

2. The deduction for long term capital gain in case of listed securities from 1.25 lacs to 2 lacs

However, it is most likely that the government may remove wholly or partially old regime slabs or deductions, as there are substantial cases of wrongful claims, and the effective tax in the new regime is lesser than the old regime with deductions/claims.

For LLPs: The government should match the tax rates with companies' tax rates

For companies: Lower tax rates for manufacturers to promote Make in India.

Budget 2026 Expectations For New Tax Slabs And Deduction Limits

As per Anita Basrur, Partner, Sudit K. Parekh & Co. LLP, here are the Budget 2026 expectations for new tax slabs and deduction limits.

Tax Slabs:

Currently, there are 2 regimes for individual taxpayers - Old and new. Under the old regime, while a number of deductions are available, the highest tax rate of 30% applies to income above Rs 10,00,000. As against this, under the new regime, the highest tax rate applies to income above Rs 15,00,000.

The tax slabs for senior citizens could be made better. This will be helpful as the interest rates are reducing, so higher tax slabs will bring ease and more liquidity to senior citizens.

The Govt wants to discourage the old regime and is therefore making amendments in the new regime. There is a possibility of the Govt abolishing the old tax regime completely.

There are expectations that the income threshold for the highest 30% tax rate should be raised from Rs 24 lakh to Rs 35 lakh.

Standard Deduction:

There is an expectation that the standard deduction for salaried employees be increased to Rs 1 lakh.

Revision in 80C Limits:

Taxpayers are expecting an increase in the Section 80C deduction limit from Rs 1.5 lakh to Rs 3 lakh.