Budget 2026: As the Union Budget is set to be presented on February 1, expectations are rising among individual taxpayers about possible changes to income tax rules. With the new tax regime continuing as the default system for the financial year 2025–26, attention is focused on whether the government will offer more relief or indicate a future course for the old tax regime.
For FY 2025–26, income tax liability will remain based on the existing slab structure. The new tax regime will apply automatically when filing income tax returns. However, salaried taxpayers still have the option to switch to the old tax regime at the time of filing their return. One key condition is that a belated return can only be filed under the new tax regime.
Under the new regime, resident individuals earning up to Rs 12 lakh annually do not have to pay income tax, provided the income is classified as normal income. This benefit does not apply to special-rate incomes such as short-term capital gains or long-term capital gains.
The new tax regime follows a progressive slab system, starting with no tax up to Rs 4 lakh and going up to 30 per cent for income above Rs 24 lakh. It also offers certain benefits, including a standard deduction of Rs 75,000 for salaried employees and pensioners, a Section 87A rebate for resident taxpayers with taxable income up to Rs 12 lakh, and an NPS deduction of up to 14 percent of basic salary under Section 80CCD(2).
Despite this, the old tax regime continues to attract taxpayers who can make full use of exemptions and deductions. These include investments under Section 80C, house rent allowance, leave travel allowance, home loan interest, health insurance premiums, education loan interest, and a standard deduction of Rs 50,000. The old regime also offers higher basic exemption limits for senior citizens and super senior citizens, making it attractive for certain groups.
Finance Minister Nirmala Sitharaman will present her ninth consecutive Union Budget, moving closer to the record held by Morarji Desai. In the 2025 Budget, major relief was provided under the new tax regime, while the old regime remained unchanged. This has sparked debate on whether the old regime will be improved or gradually phased out.
