Union Budget 2026-27 has put income tax relief back in focus. Taxpayers now track possible changes ahead of February 1, including a bigger standard deduction, home loan relief, and tweaks to long-term capital gains tax.
Finance Minister Nirmala Sitharaman will present the Union Budget on February 1. It will be her ninth consecutive Budget and the third full Budget of the Modi 3.0 government.
Salaried taxpayers have kept the standard deduction at the center of budget expectations. Experts have discussed a hike to Rs 1 lakh, with attention on the new tax regime.
The old tax regime offers a Rs 50,000 standard deduction, while the new one sets it at Rs 75,000. Meanwhile, taxpayers have also tracked possible tweaks in income tax slabs and the basic exemption limit.
Section 87A rebate remains a key part of middle-class relief under the new tax regime. Some taxpayers now watch for a threshold increase to Rs 15 lakh. Last year’s structure made income up to Rs 12 lakh tax-free.
Many salaried filers still use the old tax regime because it supports popular deductions. These include House Rent Allowance (HRA) and benefits under Section 80C. However, new regime taxpayers want limited deductions without losing lower slab rates.
In addition, taxpayers have asked for flexibility to claim Section 80C and Section 80D. Many also want home loan interest relief. Policy watchers are even looking for signals on whether the government plans to make the old regime less attractive.
Homebuyers have pressed for a higher Section 24(b) deduction on home loan interest for self-occupied houses. The current cap allows up to Rs 2 lakh of interest. Buyers have linked this demand to higher equated monthly instalments (EMIs).
However, the new tax regime does not allow a home loan interest deduction for self-occupied property. Experts have suggested the budget may permit such claims under Section 202 of the Income-tax Act, 2025.
Long-term capital gains (LTCG) tax remains a major issue for equity and mutual fund investors. The Association of Mutual Funds in India (AMFI) has proposed raising the tax-free LTCG limit on equity mutual funds to Rs 2 lakh per year.
AMFI has also suggested exempting LTCG on equity mutual funds held for more than five years. Furthermore, the industry body has pushed for a fresh incentive structure for Equity Linked Savings Scheme (ELSS) funds under the new tax regime.
Meanwhile, investors have sought clarity on debt mutual fund taxation and indexation. Recent changes and the removal of indexation benefits have drawn criticism, with tax experts discussing a reintroduction of indexation or offering alternative relief to protect real returns.
Senior citizens have asked for a higher tax-free income limit and stronger deductions on health insurance premiums. Many also want increased exemptions on interest income from bank deposits and small savings schemes. Simplified filing for pensioners and interest-income taxpayers remains another key ask.
Compliance concerns have also gained attention ahead of the Budget. Anand K Rathi, co-founder of MIRA Money, called for compliance simplicity and lower uncertainty. He said a budget that “simplifies compliance, reduces uncertainty” can support long-term wealth creation.
The proposed shift from ‘Assessment Year’ to ‘Tax Year’ starts on April 1, 2026. Taxpayers want clear transition rules for returns related to FY 2025–26. The Institute of Chartered Accountants of India (ICAI) has suggested adding a new income tax calculator on the e-filing portal using Form 26AS and the Annual Information Statement (AIS).
Refund issues have also surfaced in the run-up to the budget. Experts have pointed to lower interest on delayed refunds than the interest charged on unpaid tax dues. Consequently, some have urged the government to align the rates to improve fairness.
The February 1 budget will clarify which measures the government adopts. Taxpayers also expect clearer rules on deductions, capital gains taxation, and faster Income Tax Return (ITR) processing.