As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2026-27, all eyes are on potential changes to the income tax structure, particularly within the new tax regime. Expectations are mixed, with some anticipating only minor adjustments focused on simplifying compliance, while others hope for more substantial relief to address inflationary pressures on the middle class. The Economic Survey, presented ahead of the budget, suggests a move away from altering tax rates and slabs, with a greater emphasis on widening the tax base and improving compliance.

New Tax Regime in Focus

The new tax regime, which became effective from April 1, 2025, for the financial year 2025-26, introduced revised income tax slabs and rates. Under this regime, income is taxed as follows:

• Up to ₹4 lakh: Nil
• ₹4 lakh to ₹8 lakh: 5%
• ₹8 lakh to ₹12 lakh: 10%
• ₹12 lakh to ₹16 lakh: 15%
• ₹16 lakh to ₹20 lakh: 20%
• ₹20 lakh to ₹24 lakh: 25%
• Above ₹24 lakh: 30%

A significant feature of the new regime is a rebate that effectively makes income up to ₹12 lakh tax-free. For salaried taxpayers, this limit extends to ₹12.75 lakh due to the standard deduction of ₹75,000. This standard deduction may increase to ₹90,000. The new regime also offers a higher rebate of ₹60,000 under Section 87A for individuals with a total income not exceeding ₹7,00,000.

Expectations and Possible Changes

Despite the राहत provided in the previous budget, there are expectations for further rationalization of the income tax structure. Some experts suggest increasing the standard deduction to ₹1,00,000 and raising the threshold for the 30% tax slab. Salaried individuals are also hoping for an increase in the income threshold for the 30% tax bracket to ₹30 lakh.

Another potential change is the introduction of joint taxation for married couples, allowing them to combine their incomes and file a single return, potentially reducing their tax liability.

No major announcements?

However, given the government's focus on fiscal discipline and widening the tax base, major changes to the income tax slabs are unlikely. The emphasis is expected to be on simplifying tax filing and reducing the compliance burden for taxpayers. The Economic Survey indicates that the government's approach to direct taxes is shifting towards greater participation and improved compliance, rather than altering tax rates. This suggests a focus on stability and predictability in the direct tax regime.

Other Key Areas to Watch

Beyond income tax, the budget is expected to address other key areas, including:

• Infrastructure Spending: Continued strong investment in railways, roads, highways, and power projects.
• Technology and AI: Incentives for investments in cutting-edge technology powered by Artificial Intelligence (AI).
• GST Rationalization: Potential for further rationalization of the Goods and Services Tax (GST) to improve ease of doing business.
• Fiscal Discipline: A clear plan to reduce India's debt-to-GDP ratio.

As India moves towards Union Budget 2026, the focus remains on balancing राहत for the middle class with the government's broader economic goals.