As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2026 on February 1, 2026, expectations are high among the middle class and salaried taxpayers for potential income tax relief. This will be Sitharaman's ninth consecutive Union Budget, and the first to be presented on a Sunday since the tradition of February 1 budget presentations began in 2017. The BSE and NSE will hold special Sunday trading sessions to allow investors to react to the policy announcements.

Focus on Taxpayer Experience and Compliance

Tax experts anticipate that Budget 2026 will focus on addressing gaps in the new income tax regime, with emphasis on expanding deductions and simplifying compliance rules rather than major changes to the tax slabs. The Economic Survey suggests a move towards broadening the tax base and improving compliance, rather than increasing tax rates. This indicates that Budget 2026 may prioritize stability and offer fewer surprises for taxpayers, focusing on streamlining the tax system and encouraging voluntary compliance.

Expectations for Income Tax Relief

Salaried individuals anticipate an increase in the standard deduction under the new tax regime, potentially raising it to ₹1 lakh to make income up to ₹13 lakh tax-free. Currently, the standard deduction stands at ₹75,000. A calibrated enhancement of the standard deduction could help families manage inflationary pressures.

Another key expectation is the allowance of an additional ₹50,000 deduction for National Pension Scheme (NPS) contributions under the new regime, outside the Section 80C limit, to encourage long-term retirement savings.

Simplification and Clarity

With the Income-tax Act, 2025 (ITA 2025) scheduled to take effect on April 1, 2026, taxpayers are looking for clarity and stability in the budget to ease the transition. The ITA 2025 aims to simplify the tax code, and households are seeking measures that offer predictability and simpler compliance. Measures such as plain-English FAQs, old-to-new comparisons, and simple illustrations for salary, rent, and capital gains could help taxpayers understand the changes.

Experts also anticipate a built-in regime selection option within the ITR form to simplify the choice between the old and new tax regimes and reduce errors.

Other Key Expectations

• Crypto Taxation: Indian crypto investors are hoping for a more balanced tax system for virtual digital assets (VDAs), including a review of the 30% tax rate, a reduction in the 1% TDS, and permission to set off losses.
• MSME Support: Strengthening agri-focused MSMEs through easier institutional credit, interest subvention, and R&D incentives.
• Green Energy: Focus on charging infrastructure, battery recycling, and component production for EVs within the country.
• Agriculture: Scaling climate-smart practices, expanding digital agriculture initiatives, and investment in post-harvest management infrastructure.
• Startups: Stronger support for startups exploring exports through smoother market access and easier availability of growth capital.
• Delayed Tax Returns: The ICAI has recommended extending the due date for filing belated and revised income tax returns to March 31, citing compliance challenges and taxpayer stress.

Focus on Widening the Tax Base

The government's direct tax approach is expected to focus on widening the tax base and improving compliance rather than increasing tax rates. The Budget 2026 may offer stability with fewer surprises for taxpayers, focusing on cleaning up the tax system and encouraging voluntary compliance.