Budget 2026: Top 5 income tax expectations of salaried, middle class taxpayers

Budget 2026 income tax expectations: Like every year, salaried taxpayers, middle class and common man will listen to FM Nirmala Sitharaman’s Union Budget speech in the hope of more tax relief. Last year, FM Sitharaman announced major changes in the new income tax regime, and while tax experts believe that there is little fiscal room in Budget 2026 for any big tax income tweaks, there is also a hope that some changes may be brought about to further boost consumption.

What do salaried taxpayers, middle class, and the common man want from Union Budget 2026 on the income tax front? We take a look at the top 5 expectations.

Income Tax Slabs FY 2026-27 & Rebate Under Section 87A

At present the income tax slabs under the new tax regime are:

• Income up to Rs 4 lakh is exempt from tax - so the basic exemption limit is Rs 4 lakh. There is an ask among taxpayers that this limit be hiked further to reduce compliance burden.
• Income in the Rs 4 lakh to Rs 8 lakh bracket attracts a 5% tax.
• Income in the Rs 8 lakh to Rs 12 lakh bracket attracts a 10% tax.
• Income ranging from Rs 12 lakh to Rs 16 lakh is taxed at 15%, rising to 20% for income between Rs 16 lakh and Rs 20 lakh. Those earning between Rs 20 lakh and rs 24 lakh are taxed at 25%.
• Any income above Rs 24 lakh is taxed at the highest slab rate of 30%. Salaried taxpayers want FM Sitharaman to raise the income threshold for 30% tax bracket to Rs 30 lakh.
• At present income up to Rs 12 lakh (Rs 12.75 lakh for salaried taxpayers) is tax free after availing rebate under Section 87A. Tax experts suggest that this limit can be hiked to Rs 15 lakh.

Several taxpayers continue to file tax returns under the old income tax regime. They want the government to reduce tax rates and hike basic exemption limit under that regime as well.

Standard Deduction

Standard deduction limits under the old and the new income tax regimes differ. Those filing tax under the old income tax regime get the benefit of Rs 50,000 standard deduction, while those under the new income tax regime can avail a higher standard deduction of Rs 75,000. Tax experts are of the view that there is a case to hike the standard deduction limit, especially under the new tax regime which offers very few deductions and exemptions.

Home Loan Interest

Individual taxpayers can avail tax deduction on the interest paid on a home loan under the old income tax regime. The interest you pay on a home loan for your self-occupied residential property can be deducted from your taxable income up to ₹2 lakh per year (or actual interest paid if less). Tax experts are of the view that to encourage housing sector, this benefit should also be available under the new tax regime.

Section 80C

Section 80C is a popular exemption available under the old income tax regime, but its limit of Rs 1.5 lakh has remained unchanged for many years now. The exemption is for investments made in Provident Fund, Public Provident Fund (PPF), mutual funds and other popular investment options. Tax experts believe that to incentivise savings, there is a case to not only hike this limit, but also include this exemption benefit under the new income tax regime to encourage adoption.

Tax Filing Compliance

The government has been focusing on ease of income tax return filing, but taxpayers believe that e-filing of returns still needs to be made easier. The tax compliance mechanism, grievance redressal system, and tax queries related to mismatches in the Annual Information Statement (AIS), Form 16, Form 26AS needs to be made less complicated, say tax experts.