Let’s be honest—filing your taxes in India often feels like solving a Rubik’s Cube blindfolded. Last year’s Budget 2026 income tax announcements brought a much-needed sigh of relief, but the job is far from done. As we head into the Union Budget 2026, millions of salaried Indians are asking one simple question: “Will this finally be the year our tax system becomes truly simple?”
The Finance Minister, Nirmala Sitharaman, has already overseen a massive overhaul of the direct tax landscape between 2019 and 2025 . The big move was making the new tax regime the default option, a strategy clearly aimed at nudging everyone towards a simpler, albeit less flexible, system. But what’s next? With the stage set for the next phase of tax simplification, here’s a deep dive into what we can realistically expect.
Table of Contents
- Recap of Last Year’s Big Win
- Budget 2026 Income Tax Expectations: The Top Asks
- The Great Debate: New vs. Old Tax Regime in 2026
- Will the Government Finally Kill the Old Regime?
- What This Means For You: A Practical Guide
- Conclusion: The Path to a Truly Simple Tax System
- Sources
Recap of Last Year’s Big Win
The previous budget was a game-changer. The government significantly enhanced the rebate under Section 87A, effectively making income up to ₹12 lakh tax-free for those opting for the new tax regime . This was a masterstroke that instantly benefited a huge chunk of the middle class. The logic was clear: offer a generous, no-strings-attached benefit in the new regime to make it the obvious choice over the old one, which is laden with complex deductions and exemptions .
Budget 2026 Income Tax Expectations: The Top Asks
Building on that momentum, experts and citizens alike have a wishlist for the upcoming budget. Here are the most anticipated changes:
- A Higher Standard Deduction: Currently at ₹75,000 for salaried individuals in the new regime, there’s a strong push to raise this to ₹1 lakh . This would provide direct relief to employees without any paperwork.
- Rationalising the Slab Rates: While the basic exemption is generous, the jump to the 20% slab can be steep. A more gradual progression, perhaps by introducing a 15% slab for incomes between ₹12-15 lakh, is a common suggestion .
- Clarity on House Rent Allowance (HRA): One of the biggest pain points for the new regime is the lack of HRA benefit. Many hope for a simplified, standardised HRA deduction to be reintroduced .
- Tapering the Section 87A Rebate: Instead of a hard cut-off at ₹12 lakh, a phased reduction of the rebate for incomes between ₹12-15 lakh could be a fairer approach .
The Great Debate: New vs. Old Tax Regime in 2026
The core of the simplification drive is the battle between the two regimes. The new tax regime offers lower rates but strips away most deductions (like 80C, 80D, HRA) . The old tax regime retains all those benefits but comes with higher base rates .
For someone with minimal investments and no home loan, the new regime is a no-brainer. But for a typical middle-class family investing in PPF, paying for health insurance, and servicing a home loan, the old regime often wins . This duality is the very source of the complexity the government is trying to eliminate. The data shows that while the new regime is the default, a significant number of taxpayers still find the old one more beneficial, creating a confusing two-track system .
Will the Government Finally Kill the Old Regime?
This is the billion-dollar question. To achieve true tax simplification, the government may eventually have to sunset the old regime entirely. However, doing so before the new regime is fully matured and universally beneficial would be politically risky. It’s more likely that Budget 2026 will continue to sweeten the new regime (with a higher standard deduction or better slabs) while slowly making the old regime less attractive, pushing more people to switch voluntarily . An outright abolition in 2026 seems premature.
What This Means For You: A Practical Guide
While we wait for the FM’s speech, you can take proactive steps:
- Run the Numbers: Use online calculators to compare your tax liability under both regimes for FY 2025-26. Don’t assume the new one is always better.
- Plan Your Investments: If you’re leaning towards the old regime, ensure your investments in ELSS, PPF, and NSC are aligned to maximise your 80C deduction of ₹1.5 lakh.
- Track Your Expenses: Keep meticulous records of your rent, medical insurance premiums, and home loan interest. These are your key weapons in the old regime.
For a deeper look at investment strategies under either regime, check out our guide on [INTERNAL_LINK:smart-tax-saving-investments-2026].
Conclusion: The Path to a Truly Simple Tax System
The journey towards a simple, efficient, and fair income tax system in India is a marathon, not a sprint. Budget 2026 income tax policies will be a critical checkpoint on this path. While a complete overhaul is unlikely, we can expect targeted tweaks designed to make the new regime even more irresistible. The ultimate goal remains clear: a future where filing your taxes is a quick, painless affair, not a month-long headache. Until then, stay informed, plan ahead, and keep your fingers crossed for a taxpayer-friendly budget.
Sources
- Times of India: Budget 2026 income tax expectations: What can FM do for the next phase of tax simplification?
- Income Tax Department Portal for official tax slabs and forms: https://www.incometax.gov.in/
- Section 87A Rebate Details: [[12], [16]]
- New vs Old Tax Regime Analysis: [[21], [22], [24]]
- Budget 2026 Expectations from Industry: [[3], [4], [6]]