Income Tax Budget 2026: Five Key Announcements That Could Resolve Taxpayers’ Biggest Concerns

With just weeks to go before the Union Budget 2026, expectations among taxpayers are running high. Finance Minister Nirmala Sitharaman is scheduled to present the budget in the Lok Sabha on February 1, and income tax reforms are once again at the centre of attention. In the previous budget, the government delivered major relief by making annual income up to ₹12 lakh tax-free, a move that significantly benefited middle-class taxpayers.

However, despite these changes, several concerns still remain, particularly around the new income tax regime. Tax experts believe that if a few key issues are addressed in Budget 2026, it could greatly improve taxpayer satisfaction and simplify compliance. Here are five major announcements that taxpayers are hoping for in the upcoming Union Budget.

1. Additional NPS Deduction Under the New Tax Regime

One of the biggest drawbacks of the new tax regime is the limited availability of deductions. Currently, most exemptions and deductions are not allowed, except for the employer’s contribution to the National Pension System (NPS) under Section 80CCD(2).

Experts suggest that the government should also allow the additional ₹50,000 deduction under Section 80CCD(1B) for employee contributions to NPS, even under the new regime. There is also a strong demand to increase this limit to ₹1 lakh. Such a move would not only provide tax relief but also encourage long-term retirement savings and boost participation in the NPS.

2. Easier Declaration Option for the Old Tax Regime

In Union Budget 2024, the government made the new tax regime the default option. Individuals and Hindu Undivided Families (HUFs) who wish to opt for the old regime must explicitly declare their choice under Section 10-IE.

Many taxpayers either forget to make this declaration or make errors during the process, which leads to complications while filing returns. Experts believe this issue can be resolved if the government provides a simple, built-in option directly within the Income Tax Return (ITR) form. This would allow taxpayers to select their preferred regime easily and avoid unnecessary confusion or mistakes.

3. Clarity on Taxation of Lump-Sum NPS Withdrawals

The Pension Fund Regulatory and Development Authority (PFRDA) has recently introduced significant changes to NPS withdrawal rules. Under the revised norms:

• If the total NPS corpus is up to ₹8 lakh, subscribers can withdraw the entire amount as a lump sum at maturity.

• If the corpus exceeds ₹8 lakh, up to 80% withdrawal is allowed, compared to the earlier limit of 60%.

However, there is still uncertainty regarding the tax treatment of the additional 20% withdrawal. Taxpayers are unclear whether this extra amount will be tax-free or taxable. Clear guidelines in Budget 2026 could remove ambiguity and help individuals plan their retirement finances more effectively.

4. Deductions for Term Life and Health Insurance in the New Regime

At present, deductions for life insurance premiums and health insurance policies are available only under the old tax regime. Experts argue that these benefits should also be extended to taxpayers opting for the new regime.

Term life insurance and health insurance have become essential financial tools for every household, especially in times of rising medical costs. Allowing deductions for these policies under the new regime would encourage wider insurance coverage and strengthen financial security, while also making the new regime more attractive.

5. Joint Income Tax Return for Husband and Wife

The Institute of Chartered Accountants of India (ICAI) has recommended allowing joint income tax returns for married couples. Currently, husbands and wives are required to file separate tax returns, which can increase the overall tax burden on families.

If joint filing is introduced, the government could also consider offering higher basic exemption limits or revised tax slabs for joint filers. This system already exists in several countries, including the United States, and has proven effective in reducing tax pressure on families. Introducing this option in India could simplify compliance and provide meaningful relief to married taxpayers.

Why These Expectations Matter

Income tax rules directly impact household savings, investments, and long-term financial planning. While the government has already taken steps to simplify taxation, addressing these five areas could significantly enhance trust and satisfaction among taxpayers.

As Budget Day approaches, taxpayers are hopeful that Union Budget 2026 will not only continue the reform momentum but also resolve lingering concerns. If these expectations are met, the upcoming budget could mark another milestone in making India’s tax system simpler, fairer, and more taxpayer-friendly.