Union Budget 2026: Budget 2026 Call For Major Changes In Income Tax Act What Is In Store For The Middle Class

Union Budget 2026: With the Union Budget 2026 just around the corner, individual taxpayers are keenly pushing for reforms. As the new Income Tax Act, 2025 is set to be rolled out, expectations are high for a smoother transition facilitated by tweaks in the upcoming budget. With inflation eroding purchasing power and the middle class feeling the pinch, the focus is squarely on easing transitions, boosting disposable income, and fostering equity.

Experts suggest that fiscal policy needs to be adjusted to match current economic realities. The primary goals should include tackling administrative hurdles and ensuring that taxpayers have more disposable income in their hands.

Streamlining the Shift to the New Tax Framework

The impending enforcement of the Income Tax Act, 2025 has amplified calls for smoother integration between the old and new tax regimes. Taxpayers are seeking budgetary measures that bridge the gaps, minimizing disruptions during the switch.

SR Patnaik, Partner (Head-Taxation) at Cyril Amarchand Mangaldas, stated, “As the new Income Tax Act, 2025 is set to come into effect, the taxpayers are expecting that the budgetary changes in 2026 would make the transition easier from the old law to the new.”

Tushar Kumar, a practitioner in the Supreme Court, highlighted a strong push for simplifying tax administration. This includes streamlining TDS procedures, clarifying capital gains rules, and providing protection against unnecessary disputes.

Making Slabs Inflation-Proof

A key demand is to revamp income-tax slabs and thresholds to tackle “taxation by inflation,” a phenomenon where individuals are pushed into higher tax brackets even if their real wages haven’t grown.

• Middle-Class Squeeze: Households are being squeezed by the rising costs of essentials and are anticipating further slab simplifications or exemptions.
• Rising Expenses: SR Patnaik noted that this issue has worsened with the increase in prices of goods and services. While the government did revise slab rates in the previous budget, taxpayers in an aspirational economy expect further relief as household spending continues to rise.

Tax experts emphasize the need for a meaningful recalibration of personal income-tax slabs, including the rationalization of surcharge and cess, to account for sustained inflation and the rising cost of living.

Restoring Deductions and Regime Parity

Experts have also called for the revival of key deductions under Sections 80C, 80D, and housing-linked incentives, urging for their uniform application across all regimes. This parity would promote savings and homeownership without coercing taxpayers into a specific tax structure.

Tushar Kumar mentioned, “Such expansions would prevent fiscal disincentives for long-term savings, health security, and home ownership.” These tweaks promise to augment disposable income, thereby fortifying consumption amidst economic pressures.

Equating Individual and Corporate Tax Burden

Shobha Jagtiani, Partner at DM Harish & Co, pointed out a significant disparity. She said, “There are no justifications for burdening individuals with gross tax rates of 42 percent when companies are paying tax at significantly lower rates.”

This inequity hampers asset-building in skilled fields such as law, medicine, and design, stifling expansion and job creation. Aligning individual tax rates with corporate rates would level the playing field, enabling better retirement planning and legacy transfers.

Easing Charitable Trust Rules

Philanthropy is currently facing barriers due to complicated regulations. Many individuals wish to set up trusts for education, hospitals, and healthcare to give back to society, but complex rules are a deterrent.

“Tax laws, exemptions, and IT department clearances are a nightmare, causing litigation and stopping trusts from functioning smoothly,” said Jagtiani. There is a strong expectation for the Budget 2026 to simplify these rules to encourage philanthropic activities.

Disclaimer: This article is for informational purposes only. Please consult a qualified tax expert or financial advisor before making any financial decisions or investments.