Budget 2026 income tax expectations emphasizes on public consumption, easier compliance and faster dispute resolution thereby broadening the tax base. The Union Budget 2026 will be presented before Parliament on Sunday, 1 February.

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Budget Expectations for Salaried Employees

Below are the major expectations highlighted for Budget 2026.

• Possible increase in standard deduction.
• Little to no changes to be made in income tax slabs.
• Further simplification of forms and compliance requirements.
• Steps for faster dispute resolution and refund processing.
• Old regime expected to continue.
• Possible increase in the ceiling limit of home loan interest deduction.

1. Income Tax Slabs

Expectation

• For budget 2026, significant relaxations in tax slabs appears less likely.
• However, experts suggest that the tax slabs should keep pace with inflation

Reason

• Significant slab relaxations were made last year.
• As income increases, the taxpayers move into higher slab rates, while the real income remains the same

2. Increased Standard Deduction

Expectation

• The standard deduction may be increased from the current limit of Rs.75,000 under the new regime.

Reason 

• The last hike in standard deduction was made in the budget 2024. 
• To keep pace with inflation and increase the disposable income, the existing limits might increase.

3. TDS Rationalization

Expectation

• The budget 2026 is expected to standardize the TDS rates. 
• Numerous TDS rates might be reduced to 2-3 prescribed rates for most of the transactions.

Reason

• In India, withholding tax provisions are complicated, with many TDS rates for a variety of transactions. 

4. Old vs New Tax Regime

Expectation

• Though the government will scrap out the old regime in a few years, it is not expected to be abolished in the upcoming budget.

Reason

• Over the years, more reliefs are provided to the new regime, making the old regime less relevant.
• As many taxpayers still file their returns under the old regime owing to more tax deductions, less likely to be removed in budget 2026.

5. Administrative Reforms

Expectation

•  Further simplification of tax laws and the establishment of a faster, more efficient dispute-resolution mechanism are in the 2026 budget expectations. 

Reason

• Tax provisions over the recent years have undergone multiple amendments to ensure simplicity. 
• Also, the assessment procedures have been significantly digitalised to ensure transparency in the proceedings. 
• However, there is still a lot of improvement required in the speed of disposal of assessment proceedings.
• This will ensure better compliance and faster disposal of assessments.

6. Section 24(b) - Interest Deduction under House Property

Expectation

• The maximum ceiling limit for interest deduction for self-occupied house properties under Section 24(b) could be further increased from Rs 2 lakhs.

Reason

• Under section 24(b), interest paid on a home loan can be claimed as a deduction of up to Rs 2 lakhs for a self-occupied property. 
• This ceiling limit was last increased almost a decade ago, making it less relevant in real terms.

7. Move Towards Decriminalizing Income Tax Provisions

Expectation

• The budget 2026 is expected to further decriminalise the income tax provisions.

Reason

• In the Union Budget 2025, certain provisions, such as those relating to non-compliance with specific TCS requirements, were decriminalized. 
• As a continuation of this approach, further decriminalization of income-tax provisions is anticipated.

8. Foreign Tax Credit at the TDS deduction stage

Meaning of Foreign tax Credit

• Assessees who are liable to pay tax in two countries, for the same income, can claim tax paid in one country as a credit in another country. This is called the Foreign Tax Credit.

Expectation

• An option to consider foreign tax credit at the stage of TDS deduction is a likely amendment in budget 2026.

Reason

• As per sections 90, 90A, and 91 of the Income Tax Act, Foreign Tax Credit can be claimed only at the time of payment of self-assessment tax, not at any time before that.
• This locks the taxpayers money as TDS, which can be claimed as credit only at the time of filing ITR.

9. Increased Depreciation Benefits for Manufacturing Industries

Section 32 - Depreciation

• Depreciation under section 32 is generic for all entities, with an additional depreciation provided to manufacturing entities in the first year of operation.

Expectation

• Additional depreciation benefits are expected in manufacturing sector

Reason

• Given the higher incidence of machinery wear and tear and the sector's requirement for further development, more depreciation benefits are expected.
• This tax benefit can boost the indigenous production and help the economy achieve the mission of Aatmanirbhar Bharat.

10. Capital Gains Taxation on Contingent Consideration

Existing ambiguity

• A part of the sale consideration is sometimes dependent on future, uncertain events, such as the achievement of revenue (and/or) EBITDA targets over the next few years in these kinds of transactions.
• This ambiguity is prevalent in merger and acquisition transactions, often involving the transfer of shares.
• Therefore, calculating capital gains becomes difficult in this regard.
• The current provisions of the act do not address the taxation of capital gains in these situations. 

Expectation

• Clarifying tax provisions on capital gain taxation on contingent consideration is expected to be addressed.

11. EV Cars - Perquisite Valuation

Expectation

• Perquisite valuation to Electric vehicles may be added to the perquisite valuation rules related to car benefits provided to the employee.

Reason

• Currently, the valuation of car perquisite provided by the employer is based on engine cubic capacity, which is not relevant to electric vehicles. 
• The inclusion of electric cars in the perquisite valuation is an expected change in the 2026 budget.

12. Possible Relaxations Under Section 80JJAA

Expectation

• Under section 80JJAA, the ceiling limit for the deduction on the new employee’s cost may be increased.

Reason

• India is taking various measures to create more jobs in the market. However, there is a greater need for employment generation in the current economic situation.

13. Possible Option of Filing Join Returns

Expectation

• Married couple might be given an option to file a single, joint return by combining their incomes instead of filing two separate returns. 

Reason

• This aims to provide financial relief by pooling income for tax savings, simplifying compliance and aligning with global practices. 

Conclusion

Budget 2026 is considered an important budget, as it is expected to address key developmental and sustainability issues amid rising global tensions. However, as far as taxation of salaried individuals, major changes are less likely in the slab rates. Therefore, plan your taxes as early as possible without anticipating of major changes.

Related Article:
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2. Best Investments Before Budget 2026