As India gears up for the Union Budget 2026, all eyes are on the new Income-tax Act, 2025, set to take effect on April 1, 2026. This budget is seen as a critical opportunity to fine-tune the new tax law and ensure its smooth implementation. The focus is on creating a tax regime that is predictable, principle-based, and encourages voluntary compliance. Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget on February 1, 2026.
Key Priorities for Budget 2026
Several key priorities have emerged as critical for making India’s new tax law a success.
- Easing Compliance: Simplifying tax procedures and reducing the burden of compliance is a major expectation. The goal is to create a taxpayer-friendly system that encourages more people to file their returns accurately and on time.
- Strengthening Digital Infrastructure: Leveraging technology to improve the taxpayer interface is crucial. This includes faster refund processing, simplified return processing, and a year-wise e-ledger to help taxpayers track taxes paid.
- Streamlining Dispute Resolution: Addressing long-pending tax disputes and improving appellate efficiency is essential for fostering taxpayer confidence.
- Decriminalization: Many existing provisions expose taxpayers to prosecution for unintentional compliance lapses or differing interpretations. Experts suggest restricting prosecution to cases of willful intent, fraud, or substantial evasion.
Taxpayer Expectations
With the new tax regime becoming the default option, many are hoping for revisions that will make it more attractive and beneficial.
- Standard Deduction: Increasing the standard deduction from the current limit of ₹75,000 to ₹1,00,000 is a widely anticipated measure. This would directly reduce taxable income and increase the take-home salary for salaried individuals.
- Health Insurance: Allowing deductions for health insurance premiums under the new regime, which is currently not permitted, is another key demand.
- Home Loan Interest: Allowing deduction on self-occupied property under the new tax regime.
- Joint Tax Filing: The introduction of optional joint taxation for married couples is being discussed, which could significantly reduce the tax burden for dual-income households.
- Capital Gains: Aligning capital gains tax with income tax slabs and extending the Section 87A rebate to capital gains are changes being considered to make taxation fairer for investors.
- Electric Vehicles: Introducing clear valuation guidelines for perquisites arising from employer-provided electric vehicles is recommended to promote the adoption of EVs.
Sector-Specific Expectations
Various sectors also have specific expectations from Budget 2026. The housing market is hoping for enhanced tax relief for mid-income homebuyers, higher interest deduction limits, and sustained investment in urban infrastructure. The home interiors and improvement ecosystem is seeking GST rationalization on interior and renovation services.
Simplification and Rationalization
The budget is expected to standardize TDS rates, potentially reducing the numerous existing rates to just a few prescribed rates for most transactions. There is also a push for simplified return processing and rationalized penalties.
Balancing Growth and Fiscal Discipline
Budget 2026 will need to strike a balance between promoting economic growth and maintaining fiscal discipline. The government aims to establish a predictable, rules-based, and forward-looking tax regime that strengthens taxpayer confidence and supports India's long-term economic aspirations.
In conclusion, Budget 2026 is crucial for setting the stage for the new Income-tax Act, 2025. By focusing on easing compliance, strengthening digital infrastructure, streamlining dispute resolution, and addressing key taxpayer expectations, the government can ensure the successful implementation of the new tax law and foster a more robust and taxpayer-friendly tax system.
