Jigar M. Patel
International Tax Attorney
As the government prepares to present the Union Budget 2026, expectations around income-tax reforms have moved to the forefront of public forum and policy discourse. Budget 2026 is widely seen as an opportunity to recalibrate India’s personal tax framework, especially the New Tax Regime.
The challenge also arises because the current Income-tax Act, 1961 is virtually coming to an end on 31st March 2026 and from 1st April 2026, the new Income-tax Act will come into force.
Expectations of the Salaried Class from the FM
Salaried employees are eagerly looking forward to the Standard Deduction being increased from Rs. 75,000 to at least Rs. 1 lakh in the income-tax proposals of Budget 2026. Standard deduction being a key element of tax saving for the salaried class, an increase in its limit for employees opting for the New Tax Regime will be a welcome move indeed.
Need for Consolidated Savings Incentive
With the elimination of deductions, the general perception is that the new tax regime discourages savings and investment. In this context, introducing a single consolidated incentive, covering retirement contributions, health insurance and long-term investment could strike a balance between exemption-free tax regime and responsible financial planning.
New Act: Re-write of the Old, Rather than Reform?
The new Income-tax Act has disappointed experts who were hoping for genuine reform and rationalisation. While an attempt has certainly been made to simplify the new law, the broader consensus is that there is a conspicuous absence of rationalisation. Instead of meaningful reform, what seems to have been delivered is nothing more than ‘old wine in a new bottle,’ with a plethora of age-old limits remaining the same, even after decades.
Call for Procedural Simplification and Dispute Resolution
Beyond rates and deductions, Budget 2026 should focus on procedural simplification and consolidating ongoing digitalization. Wider use of pre-filled returns, reduced disclosure requirements for small taxpayers and clearer rules on income classification, particularly for consultants and professionals could significantly lower compliance friction.
With over 6 lakhs income-tax appeals piled up before the first appellate authorities, reducing tax litigation and timely and effective dispute resolution remains a top priority. Faster processing of refunds, fewer scrutiny notices and clearer interpretative guidance would improve trust and encourage voluntary compliance.
Joint Filing of Income-tax Returns on the Anvil?
Doing the rounds for the past few weeks is the talk for introduction of joint filing of income-tax returns for married couples, as practiced in several developed economies. While joint filing would recognise the economic unity of households and reduce the tax burden on single-income families, the provisions in relation to clubbing of income would call for a complete overhaul.
Time to end the Debate on Tax Rebate
The FM’s slogan of introducing zero tax for resident individuals for incomes below Rs. 12 lakhs in Budget 2025, proved illusory and raged a huge controversy with the rider attached that tax rebate under section 87A would not be allowed in respect of income from capital gains to be taxed at special rates. The illogical discrimination currently prevailing needs to be eliminated.
It is time to take a pragmatic view and clarify that in cases of total incomes not exceeding the threshold limit of Rs. 12 lakhs, but inclusive of capital gains would enjoy the eligible rebate of up to Rs. 60,000 and balance tax liability, if any, should be discharged.
