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Kolkata: Is Budget 2026 going to provide income tax relief? More specifically, after the big reliefs that she provided in the last budget on income tax, will FM Nirmala Sitharaman be munificent enough to open her purse strings again? These are questions that are on many lips and definitive answers cannot be provided before the FM ends her Budget speech -- don't forget, direct tax proposals always come at the end of any budget speech.
However, before approaching the subject of direct taxes, one must realise the macro picture. The government is trying its best to stoke consumption in the country. In 2025 when the FM announced that she is making an annual income of Rs 12 lakh free from income tax, her main objective was to inject life in the private consumption scenario. The relief put significant amount of additional cash in the hands of the average salaried citizen from April 2025. In September 2025, the GST Council rolled out the biggest GST rejig yet, bringing down the indirect tax rates on 91% of the products and services.
On its part, RBI too trimmed the Repo Rate by 125 basis points to bring down the interest rate on loans to boost consumption. If the government thinks that consumption is yet to reach the desired level, the FM could seriously consider another round of income tax relief. But on the flip side, fiscal constriants and the need to raise the Tax-GDP ration could be a dampner to this objective of the government.
According to analysts, there could be some relief in the form of rationalisation of income tax slabs under the new tax regime. There are also hopes of higher deductions and inflation-linked slabs.
The highest income tax slab now becomes effective as one crosses the income of Rs 24 lakh a year. But given the impact of inflation over the past few years, this threshold needs upward revision. For example, Akhil Chandna, partner, Global People Solutions Leader, Grant Thornton Bharat, has told the media that this threshold should be raised to an annual income of Rs 35 lakh. His logic: nominal wage growth has been eroded by living expenses and taxpayers encounter higher rates without genuine wealth gains.
Direct tax expectations this year include a higher basic exemption limit too. Additionally there are hopes of higher deductions under Sections 80C, 80D, and 80CCD. Tax experts are also hoping for a higher standard deduction, now at Rs 75,000 under the new tax system.
Other tax expectations are restoration of the indexation benefits on debt mutual funds and simpler capital gains taxes. One also hopes that the new tax system allows some tax deductions, though that could interfere with its simple structure. Those who opt for home loans are keen to see higher interest deductions on home loans.
Additionally, the government could further goad individuals towards the new tax regime. The government could also signal a phase-out of the old regime. With interest rates in the downwards spiral to stoke consumption, senior citizens and retires could ask for protection of interest income more effectively than the 50 basis points that is paid over and above the normal band to senior citizens.
Analysts also pointed out that there could be announcement on taxation of ESOPs, NPS incentives and insurance-related deductions.
