As February 1, 2026, approaches, millions of Indian taxpayers eagerly await Finance Minister Nirmala Sitharaman’s Budget announcement. This year’s Union Budget 2026 carries heightened expectations for tax relief, particularly around income tax slabs, standard deduction limits, and Section 80C benefits. With inflation affecting household budgets and economic recovery in focus, will the government deliver the relief taxpayers seek? Here’s everything you need to know about Union Budget 2026 predictions.
The Big Question – Will Standard Deduction Increase in Budget 2026?
Current Standard Deduction and Expected Increase
Currently, salaried employees enjoy a standard deduction of ₹50,000 under both tax regimes. This deduction was raised from ₹40,000 in Budget 2019 and has remained unchanged since. For a middle-class employee earning ₹8 lakh annually, this translates to a tax saving of approximately ₹15,000 per year.
Industry experts predict Finance Minister Nirmala Sitharaman may boost the standard deduction to either ₹75,000 or ₹1 lakh. Tax consultants suggest such a move would directly benefit 5 crore salaried taxpayers across India. If the standard deduction jumps to ₹1 lakh for someone earning ₹10 lakh per year, their taxable income drops from ₹9.5 lakh to ₹9 lakh, saving an additional ₹10,000 annually at the 20% tax bracket.
The government’s push to popularize the new tax regime makes this increase likely. More taxpayers will switch from the old regime if benefits like higher standard deduction become available. With state elections approaching and GDP growth projected at 6.5-7% for FY 2025-26, putting more money in taxpayers’ hands through deductions could stimulate consumption and win middle-class support.
Income Tax Slab Revisions – Budget 2026 Income Tax Slabs Expectations
Current Tax Slabs and Predicted Changes
Under the new tax regime, income up to ₹3 lakh is tax-free. The ₹3-7 lakh bracket is taxed at 5%, ₹7-10 lakh at 10%, ₹10-12 lakh at 15%, ₹12-15 lakh at 20%, and above ₹15 lakh at 30%. The old regime starts taxation at ₹2.5 lakh but allows multiple deductions.
One of the most anticipated changes is raising the basic exemption limit from ₹3 lakh to ₹5 lakh under the new regime. Tax experts from Deloitte and PwC have suggested this in pre-budget consultations. If implemented, anyone earning up to ₹5 lakh annually would pay zero tax. For someone earning exactly ₹5 lakh, the current tax liability is ₹12,500 after rebates—this entire amount would go back into their pocket.
Impact on Different Income Groups
Let’s examine the impact with examples. If the exemption limit rises to ₹5 lakh, someone earning ₹6 lakh would see taxable income drop from ₹6 lakh to ₹1 lakh, saving ₹10,000 annually. Add a higher standard deduction of ₹1 lakh, and their tax could approach zero.
For a taxpayer earning ₹12 lakh, current tax liability under the new regime is approximately ₹1.08 lakh. With slab revisions and higher standard deduction, this could drop to ₹80,000-90,000, saving ₹15,000-20,000. Higher earners at ₹25 lakh would see savings of ₹30,000-40,000—significant in absolute terms but representing only 1-2% of income. The real winners would be lower and middle-income earners.
Will the 80C Limit Hike Expectations Be Met?
The Decade-Old Cap
Section 80C allows taxpayers using the old tax regime to deduct up to ₹1.5 lakh from taxable income through investments like PPF, ELSS, life insurance, and tuition fees. This limit has remained at ₹1.5 lakh since 2014—over a decade without revision. For a taxpayer in the 30% bracket, maxing out Section 80C saves ₹46,800 in taxes.
FICCI has suggested raising the 80C limit to ₹2.5 lakh, arguing it would encourage savings and boost insurance penetration. A conservative estimate suggests ₹2 lakh. For someone who already invests ₹1.5 lakh, an increase to ₹2.5 lakh could save an additional ₹31,200 in taxes.
However, there’s uncertainty. The government has been promoting the new tax regime, which doesn’t allow 80C deductions. Increasing the 80C limit might incentivize people to stay with the old regime, contradicting the Finance Ministry’s goal. This makes predictions challenging.
Other Deduction Changes Expected
Section 80D for medical insurance (currently ₹25,000 for self and family, ₹50,000 for senior citizens) might rise to ₹50,000 and ₹75,000 respectively, given skyrocketing healthcare costs. Section 80E for education loan interest could extend to vocational training loans. The theme for Budget 2026 appears to be making both regimes attractive while gradually shifting taxpayers to the simplified new regime.
Additional Tax Reforms and Compliance Measures
Capital Gains and Other Tax Adjustments
Nirmala Sitharaman’s Budget 2026 may address long-term capital gains tax on equity. Currently, gains above ₹1 lakh are taxed at 10%. Market participants want this threshold raised to ₹2 lakh. There’s discussion about reintroducing indexation benefits for property sales, which could revive the housing market.
TDS thresholds might increase—raising the limit on interest income from ₹40,000 to ₹50,000 or ₹1 lakh would reduce compliance burden. Budget 2026 may also introduce further tax filing simplification, with more pre-filled data and expanded faceless assessments. In FY 2024-25, average refund processing time dropped to 16 days from 93 days in 2013-14.
Preparing for Union Budget 2026
Union Budget 2026 holds significant promise, with expectations running high for standard deduction increases to ₹75,000-₹1 lakh, income tax exemption limit hikes to ₹5 lakh, and potential 80C limit increases to ₹2-2.5 lakh. Finance Minister Nirmala Sitharaman faces the challenge of balancing fiscal discipline with boosting consumption and voter confidence.
While nothing is confirmed until February 1, 2026, signals are positive. Here’s what taxpayers should do: Don’t make major financial decisions based on speculation—wait for the actual announcement. Review your current tax regime choice, as the new regime may become more attractive. Continue maxing out existing deductions until changes are official.
Track official announcements from the Ministry of Finance and consult a tax advisor for complex situations. Mark February 1, 2026, on your calendar when the India Budget highlights will be revealed. Join millions discovering what Budget 2026 has in store for taxpayers nationwide!