Union Budget 2026 Tax Regime Highlights & Expectations

Balasahana Suresh

📌 1. What the New Tax Regime Offers (Continuing in 2026)

✅ Higher Tax‑Free Threshold

Under the new tax regime (introduced significantly in Budget 2025), the basic exemption limit was raised so that individuals earning up to around ₹12 lakh per year pay zero income tax after the standard deduction.

👉 This is a major benefit compared with the earlier default threshold of lower income limits under both regimes before 2025.

✅ Revised, Lower Slabs for Middle‑Income Earners

The new tax slab structure (for FY 2025‑26 and into 2026‑27) makes the tax burden lighter for taxpayers across incomes:

Income Range (FY 26)

Tax Rate (New Regime)

Up to ₹4 lakh

0%

₹4 lakh – ₹8 lakh

5%

₹8 lakh – ₹12 lakh

10%

₹12 lakh – ₹16 lakh

15%

₹16 lakh – ₹20 lakh

20%

₹20 lakh – ₹24 lakh

25%

Above ₹24 lakh

30%

📌 Example impact: A taxpayer earning ₹20 lakh pays significantly less under the new regime than under the old one — saving over ₹1 lakh a year.

✅ Higher Standard Deduction

Under the new regime, salaried individuals enjoy a standard deduction of ₹75,000, which helps reduce taxable income further.

This deduction wasn’t as generous in the old regime, so this is another gain for middle‑class taxpayers moving to the new system.

📌 2. What the Old Tax Regime Still Offers (and Why Some Taxpayers Keep It)

🔹 Deductions and Exemptions

The old tax regime retains traditional tax deductions and exemptions such as:

  • Section 80C investments (like PPF, ELSS, etc.)
  • HRA and LTA exemptions
  • Home loan interest deductions
  • 80D health insurance deductions
💡 These can reduce taxable income significantly for taxpayers who make large tax‑saving investments — which the new regime doesn’t allow.

🔹 Still Available in 2026

Even though most taxpayers are shifting to the new regime and experts say the old system might be phased out someday, the old regime continues for now — especially beneficial to those who can claim large deductions.

📌 3. Broader Budget 2026 Expectations for Taxpayers

📊 No major further tax rate cuts are widely expected in Budget 2026 — because the big changes were already made last year, especially around the new regime’s slab restructure.

📊 Clarification on the future of the old tax regime is likely — experts expect Budget 2026 may provide guidance on if or when it will be phased out.

📊 Some taxpayers hoped for relief on things like interest earned on savings/FDs or expanded deductions under the new regime — but concrete changes are uncertain.

🎯 In Simple Terms — What Taxpayers Gained

🌟 New Tax Regime

Benefits:

  • At least zero tax up to ~₹12 lakh income
  • Lower effective tax rates across slabs
  • Higher standard deduction
  • Simpler filing (no need to itemize deductions)
➡️ Especially beneficial for middle‑income earners.

💡 Old Tax Regime

Benefits:

  • Ability to claim many deductions/exemptions
  • Better if you invest a lot in tax‑saving instruments
➡️ Still useful for taxpayers with high deductible expenses.

 

Disclaimer:

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.

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