Income Tax Budget 2026: Will Finance Minister Nirmala Sitharaman Announce Another Major Relief for Taxpayers?

As the Union Budget 2026 approaches, expectations among taxpayers are running high once again. Finance Minister Nirmala Sitharaman is set to present the budget on February 1, 2026, and all eyes are on whether the government will announce fresh income tax relief or focus on strengthening the tax system further. This year’s budget is particularly significant because a new Income Tax Act is scheduled to come into force, replacing the decades-old Income Tax Act of 1961.

While big changes in tax rates may not be on the cards, experts believe Budget 2026 could still bring meaningful improvements for taxpayers—especially in terms of simplification, faster services, and better administration.

A New Income Tax Act From April 1, 2026

One of the most important developments this year is the implementation of the Income Tax Act, 2025, which will come into effect from April 1, 2026. This new law will replace the Income Tax Act, 1961, which has governed taxation in India for more than six decades.

However, taxpayers should not expect dramatic changes in tax slabs or rates under the new law. According to experts, the government has deliberately avoided altering the basic structure of taxation. Instead, the primary objective of the new Act is to simplify the language and presentation of tax laws, making them easier to understand for the common taxpayer.

The existing Income Tax Act is often criticized for its complex wording and legal jargon, which makes compliance difficult. The new Act aims to address this problem by using clearer and more user-friendly language.

Focus Likely on Tax Administration, Not Higher Rates

In Budget 2026, Finance Minister Sitharaman is expected to focus more on improving tax administration rather than increasing tax burdens. Over the past few years, the government has consistently highlighted its goal of creating a taxpayer-friendly ecosystem.

Experts believe the budget may include measures such as:

• Faster processing of income tax returns

• Quicker refunds for taxpayers

• Improved digital infrastructure for tax filing

• New mechanisms to resolve long-pending tax disputes

There is a significant amount of money currently stuck in tax litigation. If the government announces any settlement or dispute-resolution schemes, it could benefit both taxpayers and the exchequer. Higher compliance and quicker dispute resolution may also help boost government revenues without raising tax rates.

What Did Taxpayers Get in Budget 2025?

Last year’s Union Budget brought major relief to taxpayers under the new tax regime. In Budget 2025, the government announced that annual income up to ₹12 lakh would effectively be tax-free under the new regime. This move was seen as a landmark reform.

In addition, several important changes were made:

• Tax slabs under the new regime were revised

• The basic exemption limit was increased to ₹4 lakh

• The standard deduction for salaried employees was raised to ₹75,000

These measures significantly improved the attractiveness of the new tax regime, especially for individuals who do not rely heavily on deductions and exemptions.

Will the New Tax Regime Get More Deductions?

Despite the improvements, many taxpayers still prefer the old tax regime because of the deductions it offers. Over the last few years, the government has made very limited changes to the old regime, focusing instead on promoting the new one.

Tax experts now believe that Budget 2026 could strike a balance by allowing select deductions in the new tax regime as well. According to industry voices, at least three commonly used deductions could be considered:

• Deduction for term life insurance premiums

• Deduction for health insurance premiums

• Deduction for home loan interest

If these benefits are extended to taxpayers opting for the new regime, it could significantly increase its adoption and make it more appealing to middle-class households.

What Can Taxpayers Expect Overall?

While there may not be another dramatic tax-free income announcement like last year, Budget 2026 still holds promise. The government’s approach appears to be centered on:

• Simplifying tax laws

• Making compliance easier

• Reducing disputes and delays

• Encouraging voluntary compliance

These reforms may not grab headlines immediately, but they could greatly improve the overall tax experience for individuals and businesses alike.

Final Takeaway

The Union Budget 2026 may not focus on major changes in income tax rates, but it is expected to play a crucial role in reshaping India’s tax system through the introduction of a new Income Tax Act and a more user-friendly administration. If the government also extends limited deductions to the new tax regime, taxpayers could still receive a meaningful “budget gift” this year.

The real impact will become clear only after the budget speech on February 1, but for now, expectations remain cautiously optimistic.