Last year’s Union Budget was historic, not only because Finance Minister Nirmala Sitharaman presented her eighth consecutive Budget, but also due to one of the most significant shifts in India’s personal income tax framework in recent years.

Budget 2025 brought meaningful relief to a large section of salaried taxpayers, significantly narrowed the gap between the old and new tax regimes, and set the stage for the future of personal taxation. As Budget 2026 approaches, these changes continue to influence how individuals plan their finances, assess relief, and choose between tax regimes.

Key Changes in Budget 2025
Experts highlighted several decisive measures from last year:

• Expanded new tax regime benefits: Income up to Rs 12 lakh (or Rs 12.75 lakh for salaried taxpayers after standard deductions and Section 87A rebate) was effectively tax-free.

• Narrowing of old vs new regime gap: With fewer incentives under the old regime, the new regime became the preferred choice for taxpayers without major deductions.

• Housing tax relief: Taxpayers could now declare two properties as self-occupied, reducing tax liability.

• Structural reforms: Introduction of the new Income Tax Act (effective April 2026), extended ITR-U filing window, and clarity on ULIPs being treated as capital assets for tax purposes.

Who Benefited Most
Middle- and lower-income salaried taxpayers saw the most tangible benefits, with higher monthly take-home pay and reduced year-end tax burdens. High-income earners experienced limited relief, though certain surcharge advantages in the new regime made it slightly more attractive for them.

Changing the Old vs New Regime Equation
The choice between the two regimes has become more calculation-driven. The new regime suits taxpayers without major deductions, while careful evaluation is required for those with significant exemptions.

Focus Areas for Budget 2026
With substantial relief already provided in 2025, expectations for 2026 are moderate:

• Possible incremental adjustments, such as modest increases in the standard deduction to offset inflation.

• Review of existing old-regime deductions, including housing loan interest limits and Section 80C thresholds.

• Smooth rollout of the new Income Tax Act, with a focus on legislative alignment, clarity, and removing ambiguities.

• Emphasis on compliance and dispute resolution, as targeted resolution of pending cases could benefit taxpayers more than fresh tax cuts.

As Budget 2026 approaches, the focus appears less on sweeping tax relief and more on fine-tuning the system, ensuring smooth implementation, and reducing friction in personal taxation.