As India prepares for Budget 2026 on February 1, all eyes are on what provisions the government will announce for the salaried class. Experts indicate that while the old personal income tax regime is unlikely to be abolished suddenly, the government is expected to take steps to make the new tax regime more attractive. According to the Institute of Chartered Accountants of India (ICAI), this reflects a gradual policy shift, aimed at encouraging taxpayers to switch voluntarily rather than imposing abrupt changes.
Incentives expected for the new regime
According to NDTV, the central government's stance is clear: instead of forcibly eliminating the old regime, it aims to attract taxpayers to the new regime by offering incentives. This strategy ensures a gradual transition, avoiding sudden major changes. Potential incentives that may be included in the budget could include further increases in the standard deduction (especially in the new regime), an option for joint tax filing for married couples, and restoring limited deductions for certain essential expenses such as medical expenses, disability care, or other selected items.
Impact so far
In Budget 2025, the standard deduction under the new regime was raised from Rs 50,000 to Rs 75,000, effectively raising the tax-free income limit for salaried taxpayers to Rs 12.75 lakh. Experts believe that any further increases will only apply to the new regime, further widening the gap between the old and new regimes. Given rising inflation and daily expenses, an increase in the standard deduction can play a crucial role in increasing the disposable income of salaried families.
Government data shows the strategy is working: in FY 2023-24, 72 per cent of taxpayers (approximately 5.27 crore) opted for the new tax regime. This number is expected to increase further in the income tax year 2025-26, as slab rationalisation, rebates, and other benefits are proving advantageous for the middle class. However, about 28 per cent of taxpayers (approximately 2 crore) still remain in the old regime. The main reason for this is the availability of deductions such as HRA, health insurance (80D), home loan interest, education loan interest, and other deductions, which are available under the old regime.
What does it mean for salaried families?
Given rising inflation and everyday expenses, any increase in the standard deduction or other incentives will directly boost disposable income, offering tangible relief to the middle class. Overall, Budget 2026 is expected to strengthen the new tax regime rather than overhaul the system, continuing the government's strategy of a gradual transition.
Also Read: Union Budget 2026: Big relief for retirees? Minimum pension hike likely, millions to benefit
Also Read: When was India's first budget presented, and by whom? Interesting facts you should know
