Budget 2026 Income Tax Expectations: Middle-class relief likely as Budget 2026 eyes Section 80D under new tax regime

Vivek Ganesh, Regional Vice President at OutSystems India on Budget Expectations 2026

In the upcoming Union Budget, Indian businesses will be looking for clearer direction on AI, digital infrastructure, and technology modernisation under the national goal of Viksit Bharat 2047. To deliver on its vision of inclusive growth, it is especially crucial that AI adoption reaches our country’s established and highly regulated sectors, including BFSI, public services, and legal, where mission-critical systems underpin day-to-day services and citizen trust.

Support for the IndiaAI Mission, alongside incentives that accelerate cloud adoption and modern application development, will be instrumental in helping both public and private enterprises take AI from the experimentation phase to real-world deployment. India’s next phase of growth will depend not only on modernising legacy applications across all industries, but also on enabling businesses to build their own AI-powered systems – including agents – that streamline operations and unlock new revenue as we move toward an agentic future. Done in a secure and well-governed manner, such efforts can help India organically capture the next wave of innovation and translate AI investment into economy-wide productivity gains, while strengthening competitiveness as a global digital economy.

Tamanna Khanna Co-founder, Agram Konnect on Budget 2026 Expectations

India’s economy has quietly become service-dominant, but our fiscal structures haven't caught up with that reality. We have built the 'digital rails,' but the fixed cost of operating on them for businesses built on expertise, platforms, and IP, is disproportionately high.

As we look toward 2026, we are looking for a roadmap that moves beyond simple incentives and starts de-risking long-term intellectual capital. My expectation from the Budget is a shift in focus toward the 'Real Economy,' where policy explicitly recognizes intellectual investment as an engine of productivity.

To bridge the gap between our digital maturity and our physical reality, we need three strategic pivots:

· Incentivize 'Human + Machine' Synergies: Tax benefits should move beyond traditional R&D and apply to the creation of high-fidelity brand experiences.

· Build Innovation Moats: The government must lower the heavy tax and compliance friction on expertise-heavy sectors. A meaningful shift would be to recognize intellectual and brand investment as a capital asset, allowing founders to stop managing operational fatigue and start building Innovation Moats that are globally competitive and defensible.

· Strengthen the Consumer Wallet: Ultimately, strategy is an academic exercise without disposable income. We need a budget that puts real spending power back into the middle class, allowing them to choose quality over deep discounts and fueling a more resilient, high-margin economy.

Payas Agarwal, Director, Great Value Realty said,  “As we look ahead to the Union Budget 2026, it presents a timely opportunity to further unlock the potential of India’s real estate sector, particularly in the luxury housing segment. Rising household incomes and sustained consumer confidence are driving strong demand for luxury residences across the NCR. As lifestyle expectations evolve, luxury housing is increasingly viewed not as a discretionary purchase but as a long-term investment in quality living. We are expecting an introduction of a streamlined single-window approval system, along with measures to ease regulatory bottlenecks. This can significantly enhance project execution timelines and improve capital efficiency for both developers and homebuyers.”

We hope that the government will simplify compliance. Currently, the compliances form a tough maze for startups. From GST and other taxes to labor laws and data privacy rules, there’s a complex web of paperwork, and early-stage startups have limited resources. Moreover, with so many complexities, investors spend considerable time on due diligence, which delays funding. Additionally, easier access to credit is something we all want to ensure long-term growth and stability. For instance, the encouragement of alternative credit scoring for startups with strong tech but few assets and no credit history.

As India heads into Union Budget 2026, tax policy needs to move decisively beyond revenue mobilisation and focus on certainty, disciplined administration, and institutional credibility, says Gaurav Jain, Partner - Direct Tax, Forvis Mazars in India. With direct taxes contributing more than half of total government receipts in recent years, he notes that there is sufficient fiscal space to prioritise predictability, reduce disputes, and improve the quality of tax administration. Jain also points to the implementation of the Income-tax Act, 2025 from April 1, 2026, as a major structural reset of India's direct tax framework. Designed to be principle-based, self-contained, and predictable, the new law's success, he emphasises, will depend not just on its drafting but on disciplined administration and a restrained use of powers.

Union Minister Manohar Lal on Wednesday said cost-reflective tariff concept to reduce discoms' losses is introduced in Electricity Amendment Bill, which is likely to come up for discussion and passage in the forthcoming Budget Session. The cost-reflective tariff assumes significance in view of the long history of debt-ridden and loss-making power distribution companies (discoms) in the country. Addressing the first annual conference of All India Discoms Association (AIDA), 'EDICON 2026', Lal said discoms are an important component of the electricity supply value chain which involves generation, transmission and distribution.  - PTI

Finance Minister Nirmala Sitharaman may offer relief to middle-class taxpayers by extending health insurance deduction benefits to the new tax regime. At present, these deductions are available only under the old tax regime. Section 80D allows taxpayers to claim deductions on health insurance premiums and preventive health check-ups, with a limit of Rs 25,000 for self, spouse and dependent children (below 60 years), an additional Rs 25,000 for parents (below 60 years), and a higher limit of Rs 50,000 for senior citizens aged 60 and above. Under the existing structure, the total deduction benefit under Section 80D can go up to Rs 1 lakh.

If extended to the new tax regime, this move could significantly improve tax efficiency for salaried and middle-income taxpayers while encouraging wider health insurance coverage.

"India's dermatology-led, pharma-backed skincare segment is witnessing strong growth, driven by rising awareness around ingredient science and clinically proven formulations. In the upcoming Budget, continued support for domestic manufacturing, R&D, and formulation science will help Indian brands like ours build globally competitive, evidence-based skincare solutions" says, Ms. Shaily Mehrotra, founder at Fixderma and FCL

"We are optimistic about Budget 2026 and its potential to support D2C & homegrown brands. A key expectation is GST rationalisation for the lifestyle segment, which will help brands investing heavily in product development, branding, and customer experience." says, Mr. Tabby Bhatia, founder at Brune & Bareskin. "We also hope to see a stronger push under the Make in India initiative, with incentives for domestic manufacturing and sourcing. Lower import duties on specialised ingredients, premium packaging, and design-led components will help Indian brands match global quality standards. Simplified compliance norms and export-friendly policies can further enable D2C brands to scale across retail and international markets, positioning India as a global hub for fashion and lifestyle brands." Mr. Bhatia adds.

Ajay Kela, CEO & Board Member, Wadhwani Foundation: India is now the world’s third-largest startup ecosystem, but the next phase of high-value jobs and economic growth will depend on deep-tech innovation and how well research translates into enterprises and jobs. Budget 2026 should strengthen innovation ecosystems that move ideas from labs to markets, through translation support, including entrepreneurs' training of researchers, applied research, and clear commercialization pathways, so that innovation in AI and emerging technologies drives new ventures, productivity, and high-value employment.

"Ahead of the Union Budget 2026, the jewellery industry is looking for policy continuity that supports organised retail growth and sustains consumer confidence. Rationalisation of GST on gold and diamond jewellery, coupled with simplified compliance norms, would help strengthen transparency and ease of doing business." says, Piyush Gupta, director at PP Jewellers by Pawan Gupta. "Additionally, measures that encourage exports and skill development across the jewellery value chain can further enhance the sector's contribution to employment and India's economic growth" he adds.

Rising salaries may look good on paper but for many middle-class households, higher pay has not translated into greater purchasing power. As inflation pushes up the cost of housing, healthcare, education, and daily essentials, more taxpayers are being pushed into the 30 percent tax bracket without feeling any richer. Ahead of Budget 2026, the salaried consumers is wondering if tax slabs should rise with inflation to reflect real living costs. (Read More)

"As the industry shifts from traditional outsourcing to an innovation-led model, Budget 2026 presents an opportunity to strengthen India's position in deep-tech, cloud infrastructure and AI-driven services. With technology exports already at US$ 224 billion and domestic demand growing steadily, sharper policy focus is needed on commercialising R&D, funding next-generation digital capabilities, and building resilient cloud and data-centre infrastructure. Investment-linked incentives for high-performance computing, renewable-powered data centres and AI engineering will be critical as digital workloads expand. Equally important is a national skilling framework aligned to emerging roles in cloud, cybersecurity and product engineering. A forward-looking budget that simplifies tax rules for digital exports, strengthens innovation financing and supports infrastructure readiness can lay the foundation for India's next US$ 300-billion technology milestone."

"As India's automotive sector moves steadily towards clean mobility, Budget 2026 will be crucial in sustaining this transition. The industry is witnessing a strong recovery in passenger vehicles and rising EV adoption, supported by policy measures and consumer demand. Going ahead, clarity and continuity-especially around PM E-Drive-will be vital, as it underpins charging infrastructure and EV uptake. Targeted tax incentives and priority sector lending can accelerate charging network expansion, strengthen the EV supply chain and enable localisation of critical components. Policy support for alternative fuels such as biofuels and green hydrogen will further diversify India's decarbonisation pathways while ensuring affordability and global competitiveness."

"With domestic and global demand rising, Budget 2026 offers an opportunity to scale India's food processing ecosystem through outcome-linked policy support. Measures such as PLI schemes for large-scale processors, export-focused incentives, investments in cold-chain infrastructure and support for backward integration can strengthen supply chains from farm to factory. These steps can attract greater entrepreneurial participation, unlock the growth potential of segments such as frozen foods, and help India emerge as a reliable global supplier of value-added food products."

"India's energy transition will require a stronger and more resilient power grid. Ahead of Union Budget 2026, sharper focus is needed on transmission expansion, faster project approvals and a single-window mechanism to address right-of-way challenges. Increased support for energy storage and timely structural reforms will be essential to enable large-scale integration of renewable energy. A consistent policy push towards grid modernisation and indigenous manufacturing of critical equipment such as transformers and storage systems will enhance energy security, improve competitiveness and accelerate progress towards clean energy goals."

"India's AI future will be shaped by execution at scale rather than intent alone. While the country has strong talent and applied engineering capabilities, innovation is constrained by uncertain data regulations, limited access to compute and infrastructure gaps. Making compute, power and trusted datasets predictable, affordable and widely available can be transformative. Coupled with outcome-based procurement and targeted compute credits linked to real deployments, such measures can help India move from experimentation to enterprise-grade AI leadership across both industry and government."

Budget 2026 is expected to play a decisive role in determining the future of the old income tax regime. The government could choose to reinvigorate it by enhancing deductions, or move towards a gradual phase-out by positioning the new tax regime as the default option. Taxpayers will be keenly following the budget announcements and live updates for clarity on the Finance Minister's stance.

In Budget 2025-26, the government delivered major relief to middle-income earners by exempting annual income up to Rs 12 lakh from tax under the new regime. The move, achieved through a combination of rebates and revised tax slabs, effectively reduced the tax burden for many salaried individuals to zero. As Budget 2026 approaches, expectations are building around whether this threshold will be pushed higher or maintained at current levels.

In the previous Union Budget, the Section 87A rebate was reworked to directly benefit low- and middle-income earners, effectively making income up to Rs 12 lakh tax-free. In Budget 2026, the government may revisit both the rebate threshold and its structure, with taxpayers hoping for a stronger and more expansive relief mechanism.

As India rapidly moves towards deeper digital inclusion, the upcoming Union Budget 2026 presents an excellent opportunity to accelerate the growth of the electronics industry through targeted interventions. Sustained and forward-looking policy support for semiconductors and high-end electronic components is critical towards reducing India’s import dependence - strengthening the domestic ecosystem and enhancing our global competitiveness.

With industry efforts underway to localize key components manufacturing under the ECMS policy, focused fiscal support can help build resilient and stable domestic supply chains aligned with the Government’s vision of making a Viksit and Atmanirbhar Bharat. A dedicated push for innovation through investment schemes and R&D linked incentives will go a long way towards enabling tech brands to design next-generation devices - democratizing technology for millions of consumers across Bharat.

"The upcoming Budget can accelerate bond adoption by reducing friction and improving liquidity. Key steps include incentivising secondary-market trading, strengthening repo and market-making frameworks, and expanding credit enhancement mechanisms so issuances are not restricted only to top-rated entities. These measures would make bonds more competitive with equities as scalable, long-term investment options. A recent report by Niti Aayog on Deepening the Bond Market clearly identifies tax asymmetries such as slab-rate taxation of interest, TDS inefficiencies, and unfavourable capital-gains treatment as major deterrents to long-term bond investing. Rationalising these, especially for long-tenor listed bonds and retail-focused fixed-income products, would materially improve household participation. Digital platforms are also essential to expanding retail participation, which remains below 2%. The Budget can support this by backing standardised disclosures, real-time bond data infrastructure, and strong suitability and risk-labelling norms, allowing platforms to democratise access while preserving investor protection by design. A further reduction in the minimum investment amount for highly rated issuers will also help broaden the investor base. Over the long term, India needs a sustained shift toward market-based financing through coordinated regulation, deeper secondary markets, broader issuer participation beyond AAA credits, and stronger recovery and enforcement mechanisms. This will gradually reduce over-reliance on bank credit and enable the bond market to fund infrastructure, MSMEs, and long-duration assets at scale."

“We extend our sincere gratitude to the Government for the strategic tax reliefs provided to the FMCG sector; these measures have been instrumental in driving a visible recovery and fuelling a robust resurgence in consumer demand across the nation. It will be helpful if the upcoming Union Budget continues to focus on a consumption-driven framework that strengthens affordability and market access. We request for targeted manufacturing support to bolster the "Make in India" mission. This can be achieved by facilitating measures such as capital subsidies and land at concessional rates to bolster rural production and consumption, alongside providing critical tax relief through Input Tax Credits. To maximize the growth of the FMCG sector, we request the government to implement a comprehensive support framework that helps Indian companies going global to successfully navigate the complex global environment and set up robust presence across the globe.”

Overall, Budget 2026 is seen as an opportunity for the government to balance fiscal stability with targeted tax relief, aimed at supporting consumption, investment, and inclusive economic growth.

Additional demands include rationalisation of employee stock option taxation, enhanced incentives for retirement savings through schemes such as the NPS, and a more streamlined structure for insurance-related tax benefits.

Attention is also on the future of the old and new tax regimes. While the government has consistently encouraged a shift to the new system, Budget 2026 could offer clearer guidance on its long-term roadmap, including a possible gradual transition to reduce taxpayer confusion.

Senior citizens and retirees are looking for better tax treatment on interest income, pensions, health insurance premiums, and low-risk investment options. These instruments form a critical part of post-retirement financial security, and targeted relief is high on the wish list.

The budget is also expected to underline the importance of private capital expenditure and ease of compliance. Simplification of tax rules for individuals and non-resident Indians is among the anticipated reforms to reduce complexity and improve transparency.

Housing is likely to be a major focus area, particularly to revive demand in the residential and affordable segments. Homebuyers are seeking higher deductions on home loan interest, wider coverage of rent-related benefits, and rationalisation of costs such as stamp duty and other transaction levies.

Key discussions revolve around a possible restructuring of tax slabs under the new regime, tweaks to existing rebates, and revisions to fixed deductions. The standard deduction, currently at Rs 75,000, is widely expected to be reviewed. There are also calls to update income thresholds that many see as outdated and to create a simpler, more predictable capital gains tax framework.

As urban consumption shows signs of slowing and economic growth needs a fresh push, there is an expectation that Budget 2026 may prioritise measures that increase disposable income. Experts believe the government could look at steps that encourage spending and savings, while still adhering to fiscal discipline.

Union Finance Minister Nirmala Sitharaman will present the Union Budget for FY 2026-27 on Sunday, February 1, 2026, at 11 am. With the budget approaching, individual taxpayers are closely tracking announcements that could reduce their tax outgo, especially through changes in the new income tax regime.