Some steam left from last year's Budget - Meaningful reliefs on the way from Budget 2026

This one is a super Sunday coming our way, being the Budget Day (February 01), unfolding what all benefits would come into the hands of the individual taxpayers. In the last few budgets, the government's aim has been to promote the New personal tax regime (NPTR) which led to almost 72% of taxpayers opting for NPTR while filing tax returns for fiscal year 2023-24.

The government will continue its focus to promote NPTR in 2026 also. While, on the one hand, the scope for further rationalization of tax slabs and additional rebates is limited as these were revised last year only, on the other hand, introducing new deductions or exemptions under the NPTR may not be feasible, given that the regime is designed to operate without such provisions, and any deviation could dilute its core objective.

There are a few proposals which the government may consider for all taxpayers, particularly for the remaining 28% of taxpayers who continue to opt for the Old Tax Regime (OTR). Let's analyze what more could be done:

Standard Deduction can be raised by at least Rs. 15,000

Standard deduction of Rs 50,000 was allowed in NPTR by Budget 2023. It was hiked by Rs 25,000 in the next budget of 2024. The government may explore to further increase the existing limit of Rs 75,000 by at least Rs 15,000 to address rising cost-of-living pressures.

Also read | Income Tax Budget 2026 Expectations Live

This increase in the standard deduction becomes particularly more important in the context of the new Labour Codes. With the expanded definition of "wages," under the Codes, the provident fund contributions may increase, leading to a potential reduction in employees' take-home pay.

In this backdrop, a higher standard deduction would serve as a necessary relief measure, helping mitigate some of the impact on disposable income of salaried individuals.

Individual's contribution to National Pension Scheme may be considered for exemption

Among the very few deductions allowed in NPTR, the deduction for employer's contribution to the NPS (up to 14% of salary) is an important one. However, there is no deduction allowed for individual's contribution to NPS, which is allowed up to Rs 50,000 under the OTR.

While salaried employees still get a deduction for employer's contribution to NPS, but non salaried ones don't get any benefit. The government may consider extending the said deduction of Rs 50,000 under NPTR also which will benefit all individual taxpayers and further promote NPS.

Also read | Tax relief already delivered, says Economic Survey: Experts decode what Budget 2026 is likely to offer on income tax and beyond

Increasing the basic exemption for senior citizens to bring parity in NPTR

There are separate basic exemption limits for this category of taxpayers in the OTR like Rs 300,000 for senior citizens (individuals with age 60 years or more) and Rs 500,000 for senior citizens (individuals with age 80 years or more - very senior citizens). Moreover, such individuals are entitled to claim specific deduction such as:

• Up to Rs 50,000 with respect to interest earned on fixed deposits and savings bank interest.
• Up to Rs 50,000 against the medical expenses incurred if they do not have an active mediclaim/ health insurance cover.

Under NPTR, the basic exemption limit is Rs 400,000 for all individual taxpayers. A senior citizen may decide to opt for NPTR, depending upon his/ her individual facts and eligibility to claim the specific deductions, as mentioned above apart from normal deductions available in OTR.

Considering this, the government may explore introducing separate exemption limits for such taxpayers in NPTR also like Rs 500,000 for senior citizens and Rs 600,000 for very senior citizens. This will push them to opt for NPTR, if they are not doing so currently.

Budget 2026 unlikely to see a hike in personal income tax slab rate as govt bets on widening the base

Lowering the surcharge rate

The surcharge rates were revisited in Budget 2023 wherein a rate of 25% was made applicable for taxable incomes exceeding Rs 2 crore. That had a tremendous impact leading to maximum marginal rate coming down from 42.74% in OTR to 39% in NPTR.

While this significantly nudged taxpayers in this income bracket towards NPTR, many continue to prefer the OTR due to exemptions and deductions available on account of housing loans, long-term savings instruments, donations, mediclaim insurance etc. Considering this, the government may consider reducing the surcharge rate by 2%-3% for this segment, thereby diminishing the comparative appeal of the OTR and encouraging a more decisive shift towards NPTR.

It would be very interesting to see what steps will be taken by the government to bring joy to all taxpayers, keeping financial discipline and achieving the larger objective of making the NPTR a default regime of choice. Let's wait for action this Sunday.

(The article is authored by Chander Talreja, Partner, Vialto Partners. Supported by Manavi Gupta, Director, Vialto Partners. Views are personal)