Summary of this article
Major changes in income tax slabs are unlikely, given the generous relief already extended under the New Tax Regime.
The government may rationalise surcharge rates and simplify the TDS–TCS framework to reduce the effective tax burden and litigation.
With 85–90 per cent taxpayers shifting to the New Tax Regime, the Old Regime could be gradually phased out or selectively tweaked.
Policy emphasis is expected on certainty, compliance ease, and long-term structural reforms rather than headline-grabbing tax cuts.
With the Union Budget 2026 round the corner, Finance Minister Nirmala Sitharaman faces the complex challenge of sustaining high growth while maintaining fiscal discipline. With tax revenue growth stagnating, the government may carefully balance the need to accelerate economic momentum, support capital expenditure, and offer meaningful relief to the middle class, all without widening the fiscal deficit.
According to Taxmann, the budget is likely to be evolutionary rather than revolutionary, laying the foundation for long-term structural transformation while managing short-term economic challenges. It is a need of the time that, in this Budget, the government should prioritise the smooth transition of the Income Tax Act, 2025, give thrust to the adoption and development of India-specific AI, make Indian entities competitive in the new world of protectionist countries, and focus on R&D. All of this while maintaining fiscal discipline.
CA Naveen Wadhwa, Vice-President, Taxmann, points out that with the New Income Tax Act, 2025, now in its implementation phase, the government is likely to prioritise a smooth transition for taxpayers. Instead of introducing sweeping changes, the emphasis may be on providing certainty, reducing litigation, and streamlining compliance. “However, a key opportunity lies in rationalising the complex TDS and TCS framework by consolidating the multitude of existing rates into three or four broad categories. Since it is expected that 85–90 per cent of taxpayers have migrated to the New Tax Regime, particularly after over-generous tax-free limits, there is growing speculation that the old regime may now be phased out entirely,” he says.
Tax experts note that India’s income tax structure has evolved over the years. The 2020 Budget marked a significant structural overhaul, introducing an optional concessional tax regime with changes to income slabs and tax rates.
However, this also minimised the extent of deductions / exemptions that taxpayers could claim against their income. This transition was further strengthened in Budget 2023, when the New Tax Regime was made the default regime, underscoring the government’s preference for a simpler tax structure focusing on ease of compliance.
“The 2025 Budget further realigned the income slabs and tax rates while enhancing the rebate. The changes effectively meant that taxpayers with income up to Rs 12 lakh did not have a tax liability, while confining the highest marginal rate of 30 per cent to income beyond Rs 24 lakh,” says Radhika Viswanathan, Executive Director, Deloitte India.
This measure provided much-needed relief to a large segment of individual taxpayers, especially the salaried class, leading to higher disposable incomes and supporting overall consumption in the economy. In FY 2023–24, approximately 72 per cent of individual taxpayers migrated to the New Tax Regime, a trend expected to gain further momentum after the recent revisions.
“Given the significant relief extended in the previous budget, the likelihood of a further reduction in income tax slabs in the forthcoming Budget appears limited. However, this does not rule out the likelihood of measures to ease the tax burden. The government could still consider rationalising surcharge rates, particularly for higher-income taxpayers, to address concerns around high effective tax rates,” observes Viswanathan.
Another possible avenue is revisiting the Old Tax Regime by updating tax slabs and deduction limits that have remained static for several years. This will be more relevant for taxpayers who continue to rely on deductions and exemptions.
