Summary of this article
Budget 2026 may ease transition to the new Income Tax Act, 2025.
Taxpayers expect middle-class relief and old deductions in the new regime.
ESOP taxation reform sought to end double-tax and aid startups.
Growth push likely in EVs, green energy, infra, MSME, and housing.
Union Budget 2026 is coming up, and as every year, there are a lot of expectations from the Finance Minister as far as taxes are concerned. Let us take a look.
Budget 2026 May Smooth The Tax Act Transition
One of the key expectations from the upcoming Union Budget 2026 is that it should, hopefully, have certain revisions to the Income Tax Act, 2025, to facilitate a seamless transition from the erstwhile Income Tax Act, 1961, to the Income Tax Act, 2025.
“These changes could be in the form of relaxed deadlines, waiver of late fees, etc. Even though no changes were anticipated through the introduction of the Income-tax Act, 2025, there remains certain apprehension because a number of definitions have been revised/amended, resulting in confusion among the taxpayers,” says SR Patnaik, partner (head - taxation), Cyril Amarchand Mangaldas.
1 January 2026
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Old Deductions May Extend To The New Regime
The taxpayers are also expecting the Finance Minister to build on the relief provided in the previous Budget and provide additional relief to the taxpayers, especially the middle class. Taxpayers are also expecting an extension of certain deductions available under the old regime to the new regime.
“These changes are critical to combat the inflationary trends that have increased the price of essential commodities for the middle-class taxpayers,” says Patnaik.
End The ESOP Double Tax Trap
To encourage startups and help them hire and retain good talent, employee stock ownership plans (ESOPs) are issued to employees; however, their tax treatment is heavy since they are taxed twice. To incentivize the same, the government should consider taxing the same only on the capital gains when they are sold. “Clearer rules regarding timing, valuation, foreign tax credit availability, etc., for ESOPs for employees who work across various jurisdictions would be welcome in order to have seamless compliance,” says Ritika Nayyar, partner, Singhania & Co.
Shift TDS Relief To The Deduction Stage
Allowing tax credits/reliefs during the process of undertaking tax deducted at source (TDS) compliance instead of only at the return-filing stage is suggested. “This would reduce the cash flow locking burden for non-residents and help in easing out Indian tax compliance,” says Nayyar.
EV And Green Energy Priority
Budget 2026 is expected to stay growth-oriented, with a strong push on infrastructure and urban development, improved credit access for MSMEs through refinance and guarantee mechanisms, and continued support for manufacturing under Make in India.
“Expectations also include sustained focus on electric vehicle (EVs), green energy, and battery storage to aid the energy transition, along with measures to boost affordable housing and deepen capital markets. Overall, the emphasis is likely to be on capex-led growth, ease of doing business, and sector-driven reforms rather than pure tax relief,” says Alay Razvi, Managing Partner, Accord Juris.
