Budget 2026: Time to reboot tax breaks for long-term savings and retirement security

Union Budget 2026

• Experts urge Budget 2026 to raise Section 80C limit and boost long-term savings
• Calls for higher deductions for retirement products like PPF, NPS
• Reforms in capital gains, interest income taxes, and inflation-adjusted thresholds sought

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As the Union Budget 2026 approaches, tax experts are increasingly calling for a reset of India’s long-term savings incentives, arguing that existing provisions have failed to keep pace with inflation, rising living costs and evolving employment patterns.

A key area where taxpayers are demanding change is Section 80C of the Income-tax Act, which is available under the old tax regime, where the Rs 1.5 lakh deduction limit has remained unchanged for over a decade. Experts say this ceiling no longer reflects the financial realities of middle-class households that are simultaneously managing housing costs, education expenses and retirement planning. There is a strong expectation that Budget 2026 could raise this limit and extend enhanced deductions to the new tax regime as well, ensuring that long-term savings do not lose relevance as the simplified regime becomes the default.

According to SR Patnaik, the current structure of Section 80C mixes long-term savings instruments with other eligible payments, diluting its effectiveness as a retirement-focused incentive. He believes carving out a separate, higher deduction exclusively for long-term savings could strengthen retirement readiness across income groups.

Beyond deductions, experts are also pushing for reforms in capital gains and interest income taxation to revive investor confidence. Hari Raheja argues that long-term capital gains relief, preferential tax treatment for longer-tenure fixed deposits, and the reintroduction of tax-exempt dividends could meaningfully boost participation in financial markets. He also points to the need for innovative savings avenues, such as gold deposit schemes, and more liberal reinvestment limits in housing to channel household wealth into productive assets.

There is also growing support for separating genuine long-term savings from the crowded Section 80C basket. Ritika Nayyar notes that when multiple instruments compete for the same deduction limit, taxpayers often prioritise liquidity or deadline-driven options over long-term goals. A dedicated sub-limit for retirement-oriented products such as PPF, NPS and long-dated government bonds, she says, could encourage disciplined, goal-based saving and reduce the tendency for last-minute tax planning.

Balancing long-term lock-ins with flexibility for younger investors remains another policy challenge. With job mobility and gig work becoming more common, experts stress that tax incentives must reward patience without trapping capital indefinitely. Gradually increasing tax benefits with longer holding periods, allowing limited early withdrawals, and enabling portability across jobs are seen as practical ways to make long-term saving less intimidating for younger earners.

For B. Shravanth Shanker, inflation-adjusted thresholds are critical to restoring the relevance of tax exemptions. He highlights the need to raise interest income deductions for both individuals and senior citizens, revisit stagnant home loan interest limits, and introduce targeted long-term capital gains relief to encourage genuine wealth creation. Importantly, he also flags gaps in the new tax regime, where the absence of dedicated retirement deductions could inadvertently weaken future financial security if left unaddressed.

Taken together, these proposals point to a broader shift that experts hope Budget 2026 will initiate: moving tax policy away from fragmented, short-term incentives towards a clearer framework that rewards long-term commitment, supports retirement planning, and aligns household savings with India’s long-term growth needs.