Last year’s Union Budget was historic not only because Finance Minister Nirmala Sitharaman presented her eighth consecutive Budget, but also because it marked one of the most significant shifts in India’s personal income tax framework in recent years.
Budget 2025 delivered substantial relief to a wide segment of salaried taxpayers, significantly narrowed the gap between the old and new tax regimes, and clearly signalled the future direction of personal taxation in India. As Union Budget 2026 approaches, those reforms continue to influence how individuals evaluate tax relief, choose between regimes, and plan their finances.
Experts widely view Budget 2025 as a turning point. Revised tax slabs and a higher rebate under the new tax regime effectively exempted income up to ₹12 lakh—and up to ₹12.75 lakh for salaried taxpayers after standard deduction—making the new regime more attractive for those without large exemptions. The ease of compliance increasingly outweighed the benefits of deductions, while the old regime was largely relegated to a transitional role.
Key changes included zero tax liability up to ₹12.75 lakh under the new regime, expanded relief on housing taxation by allowing two self-occupied properties, and structural reforms such as the rollout of the new Income Tax Act from April 2026, an extended window for updated returns (ITR-U), and clarity on taxation of ULIPs.
The impact was most visible among lower- and middle-income earners, many of whom saw a tangible increase in take-home pay due to lower TDS and reduced tax outgo. However, higher-income groups and individuals earning significant capital gains saw limited relief, as rebates did not apply to income taxed at special rates.
The narrowing gap between the two tax regimes has made the choice more calculation-driven, with the new regime emerging as the preferred option for taxpayers without major deductions. High-income salaried individuals also benefited from a lower surcharge cap under the new regime.
Looking ahead to Budget 2026, expectations are tempered. With substantial relief already provided, sweeping tax cuts appear unlikely. Instead, experts anticipate modest adjustments such as a higher standard deduction, potential tweaks to select old-regime deductions, smoother implementation of the new tax law, and a stronger focus on compliance simplification and dispute resolution.
As Budget 2026 draws closer, last year’s tax reforms remain the benchmark. The emphasis now seems to be less on broad-based relief and more on fine-tuning, clarity, and reducing friction within the tax system.
