As the nation anticipates the Union Budget 2026, to be presented to Parliament on February 1, all eyes are on potential income tax reforms aimed at boosting economic stability and encouraging public consumption. While major changes to income tax slabs are considered less likely, several expectations persist, including a possible increase in the standard deduction and further simplification of compliance procedures. This article delves into the key expectations surrounding income tax in the upcoming budget and provides an overview of the current tax rates under both the new and old tax regimes.

Key Expectations from Budget 2026

Experts suggest that the primary focus of Budget 2026 will be on maintaining economic stability and stimulating consumer spending. Here's a summary of the main expectations:

• No major changes in income tax slabs: Significant alterations to the existing income tax slabs are not anticipated.
• Increased standard deduction: There is a possibility of an increase in the standard deduction, offering some relief to taxpayers. Some experts expect the government to increase the standard deduction to ₹1,00,000 while increasing the threshold for the 30% tax slab.
• Simplified TDS rules: The budget may include measures to simplify Tax Deducted at Source (TDS) rules. The budget is expected to standardize the TDS rates and reduce numerous TDS rates to just a few prescribed rates for most transactions.
• Faster dispute resolution: The government may introduce steps to expedite tax dispute resolution and refund processing.
• Continuation of Old Regime: The old tax regime is expected to continue, giving taxpayers the option to choose between the two regimes.
• Relaxation for Senior Citizens: Senior citizens can anticipate a relaxation of deduction limit under section 80TTB, as this was last changed a few years ago.

Current Income Tax Rates

For individuals, the income tax system offers two options: the new tax regime and the old tax regime. The new tax regime is the default option, but taxpayers can choose to opt-out and be taxed under the old tax regime.

New Tax Regime (FY 2025-26)

The Finance Minister made changes to the income tax slabs under the new tax regime in the Union Budget 2025, effective from April 1, 2025, for the financial year 2025-26. The new income tax slabs and rates are as follows:

• Rs. 0 to Rs. 4 lakh – Nil
• Rs. 4 lakh to Rs. 8 lakh – 5%
• Rs. 8 lakh to Rs. 12 lakh – 10%
• Rs. 12 lakh to Rs. 16 lakh – 15%
• Rs. 16 lakh to Rs. 20 lakh – 20%
• Rs. 20 lakh to Rs. 24 lakh – 25%
• Income above Rs. 24 lakh will be taxed at 30%

Under Section 87A, for AY 2026-27, a maximum rebate of Rs. 60,000 is allowed if the total income of an individual is chargeable to tax under section 115BAC(1A) and the total income does not exceed Rs. 7,00,000.

Old Tax Regime (FY 2024-25)

Under the old tax regime, the tax rates vary based on the individual's age:

• Individuals below 60 years:
  • Up to ₹2,50,000: Nil
  • ₹2,50,001 to ₹5,00,000: 5% above ₹2,50,000
  • ₹5,00,001 to ₹10,00,000: ₹12,500 + 20% above ₹5,00,000
  • Above ₹10,00,000: ₹1,12,500 + 30% above ₹10,00,000
• Senior Citizens (60 years and above but below 80 years):
  • Up to ₹3,00,000: Nil
  • ₹3,00,001 to ₹5,00,000: 5% above ₹3,00,000
  • ₹5,00,001 to ₹10,00,000: ₹10,000 + 20% above ₹5,00,000
  • Above ₹10,00,000: ₹1,10,000 + 30% above ₹10,00,000
• Super Senior Citizens (80 years and above):
  • Up to ₹5,00,000: Nil
  • ₹5,00,001 to ₹10,00,000: 20% above ₹5,00,000
  • Above ₹10,00,000: ₹1,00,000 + 30% above ₹10,00,000

Surcharge

Surcharge is levied on the amount of income tax where net income exceeds Rs. 1 crore:

• ₹50,00,001 to ₹1,00,00,000: 10%
• ₹1,00,00,001 to ₹2,00,00,000: 15%
• ₹2,00,00,001 to ₹5,00,00,000: 25%
• Above ₹5,00,00,000: 37%

Health and Education Cess

A health and education cess of 4% is added to the income tax plus surcharge (if applicable) in both regimes.

Conclusion

While major changes in income tax slabs are unlikely in Budget 2026, the focus is expected to be on simplification, faster dispute resolution, and measures to encourage public consumption. The new tax regime continues to be the default option, but taxpayers retain the flexibility to choose the old regime based on their financial planning. As the budget approaches, taxpayers and experts alike will be keenly watching for any announcements that could impact their financial well-being.