Budget 2026 | Union Budget 2026: Income Tax Changes Confirmed Today for Taxpayers

Union Budget 2026: Income Tax Adjustments Confirmed Today

Finance Minister Nirmala Sitharaman on February 1, 2026, confirmed income tax structure adjustments for salaried individuals in the Union Budget presented to Parliament. The proposals, detailed in the Budget speech and supporting documents, aim to provide targeted relief to middle-income groups while streamlining compliance mechanisms for the assessment year 2027-28.

Confirmed Income Tax Announcements for Taxpayers

As announced by Finance Minister Nirmala Sitharaman today, the basic exemption limit under the new personal income tax regime has been increased from ₹3 lakh to ₹3.25 lakh, effective for the financial year 2026-27. This adjustment is designed to enhance disposable income for individuals opting for the simplified tax structure that foregoes certain deductions.

Furthermore, the tax rate for income falling within the ₹9 lakh to ₹12 lakh bracket under the new tax regime has been reduced from 15% to 12.5%, as detailed in the official budget documents tabled in Parliament. This targeted reduction seeks to provide a greater take-home salary for a significant segment of salaried taxpayers.

The Finance Minister also confirmed that the maximum rebate under Section 87A for individuals with a taxable income up to ₹7 lakh under the new tax regime will remain at ₹25,000. This ensures zero tax liability up to this income threshold for those choosing the new regime, a provision carried forward from previous fiscal reforms.

Key Deductions and Rebates: What Was Announced

Today's Budget speech did not introduce any new major deductions for salaried individuals under the old tax regime beyond existing provisions. This omission aligns with the government's stated long-term objective of transitioning taxpayers towards a simplified, deduction-free new tax regime, as emphasized in recent policy discussions.

While no new exemptions were announced for specific investments, the budget documents confirm the continuation of existing provisions for housing loan interest under Section 24(b) and various investments under Section 80C for those who opt for the old tax regime. Details regarding any potential adjustments to the standard deduction for salaried employees under the new tax regime were not specified during the speech, with further clarifications awaited from the Finance Ministry.

Compliance and Procedural Changes

The Union Budget 2026 proposes a further simplification of the Income Tax Return (ITR) filing process for specific categories of taxpayers, with an aim to enhance user experience and reduce compliance burden. However, the Finance Minister stated that the detailed rules and the exact effective date for this streamlined process have not yet been notified by the Central Board of Direct Taxes (CBDT).

Moreover, the Budget confirmed the expansion of the scope of mandatory e-invoicing for business-to-business (B2B) transactions to cover more entities, lowering the turnover threshold. This measure, aimed at improving tax compliance and reducing evasion, is expected to be implemented with effect from October 1, 2026, as per the Finance Bill 2026.

Structural Differentiation and Fiscal Posture

The Union Budget 2026, as presented today, marks a discernible structural shift from immediate consumption-driven fiscal incentives towards a targeted approach emphasizing savings and investment within the middle-income segment. Unlike previous budgets that often introduced time-bound sectoral subsidies or broad-based infrastructure outlays, this budget notably refrains from significant across-the-board incentives. Instead, it focuses on calibrated adjustments to the tax framework for direct beneficiaries.

This deliberate omission of broad-based stimulus suggests a strategic reprioritization towards long-term fiscal prudence and domestic capital formation, aiming to stabilize the economy against potential global headwinds rather than stimulating short-term demand surges. The budget explicitly deprioritizes large-scale capital expenditure increases for state-level projects, opting instead for conditional support linked to reforms, reflecting a tighter fiscal posture at the federal level.

Macroeconomic and Policy Context

These income tax adjustments are aligned with the government’s broader macroeconomic objective of moderating inflation while sustaining growth, as outlined in the Economic Survey preceding the Budget. By offering targeted tax relief, the Finance Ministry aims to stimulate discretionary spending and savings without exerting undue pressure on consumer prices, a critical consideration given prevailing global inflationary trends and the Reserve Bank of India’s (RBI) cautious monetary policy stance.

The fiscal deficit target, projected at 5.7% of GDP for FY2026-27 in the budget documents, reflects a continued commitment to fiscal consolidation, influencing the scope of revenue-foregoing measures. This cautious approach is partially informed by global economic uncertainties, including volatile commodity prices and geopolitical tensions, which necessitate fiscal headroom. The budget's focus on domestic resource mobilization through calibrated tax changes rather than aggressive borrowing aligns with institutional constraints aimed at maintaining sovereign credit ratings and bond market stability.

Market and Institutional Reactions (Initial)

Initial reactions from financial markets, as observed during the Finance Minister's speech, indicate a cautious welcome to the fiscal prudence signaled by the budget. Equity markets reacted positively to the targeted tax reliefs and commitment to fiscal consolidation, with the Nifty 50 briefly gaining before stabilizing. Bond yields saw minor fluctuations as the government's borrowing calendar, detailed in the budget, largely met market expectations without significant surprises.

Economists from leading institutions have noted the budget's emphasis on stability over aggressive expansion, viewing it as a pragmatic approach given the current global economic landscape. Further detailed analysis from rating agencies and investment banks is awaited as the full implications of the budget proposals are absorbed.

What's Next: Awaited Details and Implementation

While the Finance Minister has announced the broad outlines of income tax changes, several key details are awaited. The official notification by the CBDT regarding the simplified ITR filing process, including specific eligibility criteria and an effective date, has not yet been released. Similarly, the final language of amendments to the Income Tax Act, which will be part of the Finance Bill 2026, will provide conclusive clarity on all provisions.

The effective dates for most income tax changes will be April 1, 2026, for the assessment year 2027-28, as is standard practice, but any specific exceptions or phased implementations will be detailed in subsequent official gazette notifications. Stakeholders will closely monitor ministry briefings and press conferences for further elaborations on implementation timelines and policy interpretation.

People Also Ask

• What are the new income tax slabs for FY 2026-27 under the new regime?

  For FY 2026-27, the basic exemption limit under the new tax regime has increased to ₹3.25 lakh. The tax rate for income between ₹9 lakh and ₹12 lakh is now 12.5%, down from 15%, as confirmed in the Union Budget today.

• How do the Budget 2026 income tax changes affect my take-home salary?

  Salaried individuals opting for the new tax regime may see an increase in their take-home salary due to the higher basic exemption limit and the reduced tax rate for income between ₹9 lakh and ₹12 lakh, as announced in today's Budget.

• Are there new deductions for salaried employees in the 2026 Budget?

  The Union Budget 2026 did not announce any new major deductions specifically for salaried employees beyond the existing provisions. The focus remains on simplifying the tax structure by promoting the deduction-free new tax regime.

• When do the 2026 Union Budget income tax changes come into effect?

  Most income tax changes confirmed in the Union Budget 2026 will come into effect from April 1, 2026, for the financial year 2026-27, which corresponds to the assessment year 2027-28, unless specified otherwise in official notifications.

• What is the fiscal deficit target announced in the 2026 Budget?

  The Union Budget 2026 projects a fiscal deficit target of 5.7% of GDP for the financial year 2026-27. This target reflects the government's continued commitment to fiscal consolidation, as stated in the budget documents today.