Union Budget 2026 Expectations: What Taxpayers Are Hoping for From Nirmala Sitharaman’s Ninth Budget
As the country prepares for Union Budget 2026, expectations among taxpayers are running high. Finance Minister Nirmala Sitharaman is likely to present her ninth Union Budget on 1 February 2026, and for income tax payers, this year is being seen as particularly significant. The reason is simple: a historic shift in India’s tax framework is about to take place with the replacement of the decades-old Income Tax Act, 1961.
Experts believe Budget 2026 could mark a turning point in how individuals understand and comply with tax laws, as the government prepares to roll out a new income tax legislation from the next financial year.
Income Tax Act, 2025 to Come Into Effect From April 1
One of the biggest developments expected around Budget 2026 is the formal transition to the Income Tax Act, 2025, which will replace the existing 1961 Act. The new law is scheduled to come into force from 1 April 2026.
According to the government, the objective of the new Act is not to overhaul tax rates or introduce radical changes in taxation principles. Instead, the focus is on simplifying tax rules, improving clarity, and making the law easier for the common taxpayer to understand. The complex legal language of the old Act often required professional assistance from tax experts or chartered accountants, which discouraged voluntary compliance.
Tax professionals say that the simplified structure and clearer wording under the new Act could significantly improve tax compliance, as more individuals may feel confident filing returns on their own.
Strong Expectations After Major Relief in Previous Budgets
Taxpayers’ expectations from Budget 2026 have grown after a series of major reforms announced in recent years. In the previous Union Budget, the finance minister provided substantial relief to the middle class by making annual income up to ₹12 lakh tax-free, a move that was widely welcomed.
Earlier, changes were also introduced in capital gains taxation, signalling the government’s intent to streamline the tax system and reduce disputes. These reforms have strengthened public trust in the tax framework, leading many to believe that Budget 2026 may bring further rationalisation.
Possible Increase in Basic Exemption Limit Under New Regime
One of the key expectations from Budget 2026 relates to the basic exemption limit under the new tax regime. Currently, the exemption limit stands at ₹3 lakh. However, experts suggest that the finance minister may consider increasing this limit to ₹5 lakh.
If this proposal is announced, individuals earning up to ₹5 lakh annually may no longer be required to file income tax returns, significantly reducing the compliance burden for small taxpayers. Such a move would align with the government’s broader goal of simplifying taxation while providing direct relief to low-income earners.
Benefits of the New Income Tax Law for Taxpayers
The old Income Tax Act, 1961, was often criticised for its dense language and complex provisions. Many taxpayers found it difficult to interpret rules without expert help. The Income Tax Act, 2025 aims to address this long-standing issue.
Experts believe the biggest advantage of the new law will be improved transparency and understanding. When rules are simpler, taxpayers are more likely to comply voluntarily. This could also help reduce litigation and administrative challenges faced by tax authorities.
LTCG Tax-Free Limit May Be Raised
Another major expectation from Union Budget 2026 is related to Long-Term Capital Gains (LTCG) on equity investments. In 2024, the government made significant changes to capital gains tax rules. Now, investors are hopeful that the tax-free LTCG limit on equity shares and equity mutual funds could be increased.
Currently, long-term capital gains up to ₹1.25 lakh are exempt from tax. Market experts believe this limit could be raised to ₹2 lakh, which would provide additional relief to retail investors. Such a move may also encourage greater participation in equity markets and mutual funds, especially at a time when only a small portion of the population invests in these instruments.
Boost to Investor Confidence and Market Participation
If the government raises the LTCG exemption limit, it could strengthen long-term investment behaviour and support capital market growth. Higher tax-free thresholds may motivate more individuals to shift towards formal investment channels, supporting wealth creation and financial inclusion.
Final Outlook on Budget 2026
Union Budget 2026 is shaping up to be a landmark event for taxpayers. With the introduction of the Income Tax Act, 2025, possible increases in exemption limits, and further simplification of tax rules, the government appears focused on building a transparent, taxpayer-friendly system.
While the final announcements will only be known on budget day, experts agree that expectations are high for reforms that reduce compliance burdens, encourage savings and investments, and strengthen trust between taxpayers and the tax administration.
