6 min read | Updated on January 27, 2026, 11:03 IST
SUMMARY
Budget 2026 top tax expectations: Some experts believe the government already stretched its fiscal space in 2025 due to personal income tax and GST rate cuts, and that any major tax relief may be on hold for now. However, there is still room for improvements to various tax provisions.
Finance Minister Nirmala Sitharaman will present Budget 2026 speech on February 1, 2026. | Image source: Shutterstock
Top Budget 2026 expectations for taxpayers: After the blockbuster Budget 2025, taxpayers' expectations from Finance Minister Nirmala Sitharaman have grown manifold as we head towards another Budget presentation on February 1, 2026.
Some experts believe the government already stretched its fiscal space in 2025 due to personal income tax and GST rate cuts, and that any major tax relief may be on hold for now.
However, many other experts and industry bodies argue that there is still room for improvements to various tax provisions rather than another round of major rate cuts.
Here's a list of some of the top tax changes expected for the common taxpayers, including the middle-class and salaried employees, by various industry bodies and experts in the lead-up to Budget 2026:
1. HRA benefit
Currently, HRA exemption is capped at 50% of salary for metros and 40% for non-metros, a structure increasingly out of sync with reality. Experts suggest revising HRA provisions to reflect current rental realities, especially in Tier-2 cities where rents are comparable to metros. (read more)
2. 182-day residency rule for NRIs
Experts have suggested restoring the 182-day residency rule for visiting NRIs and PIOs. The current rules, they say, have resulted in adding more complexity to the extended residency rule for visiting NRIs and PIOs, leading to various issues and confusion for taxpayers. (read more)
3. Higher standard deduction
Salaried taxpayers and pensioners get a standard deduction of ₹75,000 under the new tax regime. Experts believe this amount should be increased to at least ₹1 lakh, if not ₹1.5 lakh. (read more)
4. Tax rebate on capital gains
Budget 2025 made the normal income up to ₹12 lakh tax-free as Section 87A rebate was hiked to ₹60,000. But this rebate is not allowed to a taxpayer having capital gains from equity shares and mutual funds, even if his/her total income is not more than ₹12 lakh. Experts suggest that the rebate should be extended to equity. (read more)
Homebuying is slipping out of reach for many taxpayers due to rising prices and limited tax relief. Experts have suggested raising the home loan interest deduction to ₹5 lakh. They have also recommended providing this relief under the new tax regime as well. (read more)
7. Simplified rental income calculation
Experts have suggested that taxpayers should be taxed on actual rent income in case of let out properties, against which standard deduction of 30% and full deduction for municipal/local taxes and interest expenditure should be allowed. (read more)
8. Only Two TDS rates
TDS is not intended for revenue collection. It is supposed to serve as an audit trail. However, currently there are six TDS rates: 0.1%, 1%, 2%, 5%, 10% and 20%.
ICAI has suggested that there could be only two rates of TDS: 1% and 5%. (read more)
9. Real-time income tax refund tracking
Many taxpayers suffered from delayed income tax refunds in 2025. For Budget 2026, experts have suggested the following:
Real-time refund tracking dashboard on the taxpayer portal as part of recommendations for Budget 2026–27.
Interest on income tax refund at par with interest on tax dues
Surcharge threshold has not been rationalised despite changes in tax slabs under new regime. As surcharge is based on total income, it is always higher for those in the new regime which doesn't offer any deduction. Even a small increase above ₹50 lakh (e.g., ₹2 lakh) triggers surcharge @10% on the entire tax liability
Therefore, experts have proposed increasing the threshold income for surcharge to ₹75 lakh from ₹50 lakh under the new tax regime. (read more)
11. Reduced holding period for gold and silver
Currently, gold ETFs become long-term after just one year, while physical gold and gold mutual funds are only considered long-term assets if they are held for more than two years. Experts have suggested reducing the holding period of physical gold to 1-year, to bring it at par with ETFs. (read more)
12. Joint taxation option for married couples
ICAI has proposed introducing an optional joint taxation system for married couples in India.
Currently, married couples are treated as separate taxpayers and must file individual returns. This structure works well for dual-income households.
However, the current system is less rewarding for single-income families or households where one spouse earns substantially more than the other. In such cases, the entire tax burden falls on one individual, often pushing income into higher tax slabs.
ICAI has suggested that joint taxation could create a fairer tax framework by recognising the household as a single economic unit.
Such a system is already available in the US and UK. (read more)
13. NPS changes
Contribution to NPS accounts of the employee is includible in the taxable income of an employee-assessee as 'salary' in view of provisions of section 17(1)(viii) of the Act.
However, Finance Act, 2020, amended the definition of 'perquisite', allowing inclusion of such contribution also in certain circumstances. Experts say this has created confusion and can lead to double taxation. Budget 2026 should end this. (read more)
14. Easy ESOP taxation as perquisite
Experts and industry bodies have urged the finance ministry to allow deferment of ESOP taxation as perquisite across industries. They have also sought clarification with regard to taxation of ESOPs of mobile employees. (read more)
15. Special income tax slabs for senior citizens
Under the new tax regime, senior citizens receive the same basic exemption limit as younger taxpayers, despite higher medical expenses. Tax experts suggest that Budget 2026 should provide an additional tax support to senior citizens, especially in the context of rising healthcare costs. Increasing the basic exemption limit and allowing medical deductions beyond Section 80D could be meaningful steps in this regard. (read more)
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Disclaimer: This article is written purely for informational purposes and should not be considered investment advice from Upstox. Securities mentioned are illustrative and not recommendations. Investors should do their own research or consult a registered financial advisor before making investment decisions.
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