Budget 2026 vs 2025: No new tax cuts; gains and misses for middle class

Budget 2026 vs 2025 Tax Slab: Budget 2026 keeps tax slabs unchanged, focuses on compliance relief and builds on last year's middle-class tax reset

If Budget 2025 was about reducing the income tax burden on the middle class, Budget 2026 is about continuity and building on what was done last year.

 

“Budget 2026 continues the shift away from headline tax cuts towards improving how the income-tax system works,” said Sakchi Jain, CA and financial educator.

 

“From a middle-class and taxpayer perspective, Union Budget 2026 represents a calibrated adjustment rather than a structural shift from Union Budget 2025. While last year’s Budget focused on continuity in tax slabs and compliance simplification, the 2026 proposals introduce limited changes that modestly improve post-tax income visibility rather than deliver broad-based relief,” said Adhil Shetty, CEO, BankBazaar.

 

Jain said the changes are more visible in processes than in rates. “The real changes lie in execution and compliance like TCS on overseas travel, education and medical expenses has been reduced to 2 per cent, TDS treatment for manpower services has been clarified, and small taxpayers can now obtain lower or nil TDS certificates through an automated process instead of manual applications,” she said.

 

“From a common man’s perspective, Budget 2026 in juxtaposition with Budget 2025 did not propose any substantial relief under the new tax regime, including no-tax income up to ₹12 lakh and broader slabs,” said Amit Gupta, Partner at Saraf and Partners. “The Budget did not propose rate cuts and instead rests on tax regime stability and continuity.”

 

Gupta said the focus is on compliance relief. “Budget 2026 moves towards refinement for ease of living and easing the compliance burden on taxpayers through rationalised TCS rates, relief for motor accident victims, an electronic and automated process for lower or nil withholding certificates, removal of the TAN requirement for TDS deposit while buying property from non-residents, staggered ITR filing timelines, extended periods for revision of returns, conversion of penalties into fees, and decriminalisation of certain offences,” he said.

 

Budget 2026: Tax slabs remain unchanged

 

Unlike Budget 2025, which overhauled the personal income tax regime by raising the rebate threshold so that incomes of up to about ₹12.75 lakh could effectively be tax-free under the new regime, Budget 2026 keeps income tax slab rates unchanged for FY 2026–27.

 

This means the same rates and income brackets applicable this year will continue next year, offering predictability but little direct relief through headline tax cuts.

 

Income tax slabs under the new tax regime for FY 2026–27

 

Income up to ₹4 lakh is exempt from tax

2. ₹4 lakh to ₹8 lakh is taxed at 5 per cent

3. ₹8 lakh to ₹12 lakh is taxed at 10 per cent

4. ₹12 lakh to ₹16 lakh is taxed at 15 per cent

5. ₹16 lakh to ₹20 lakh is taxed at 20 per cent

6. ₹20 lakh to ₹24 lakh is taxed at 25 per cent

7. Income above ₹24 lakh is taxed at 30 per cent

 

In effect, an individual earning around ₹1 lakh a month pays nil tax under the new regime, while those earning above ₹2 lakh a month fall into the highest tax slab.

 

Old tax regime remains unchanged

 

The old income tax regime has remained unchanged and now needs to be explicitly opted for while filing returns. If a taxpayer fails to file the income tax return before the July 31 deadline, the return is processed under the new regime by default.

 

Under the old tax regime:

 

1. Income up to ₹2.5 lakh is exempt from tax

2. ₹2.5 lakh to ₹5 lakh is taxed at 5 per cent

3. ₹5 lakh to ₹10 lakh is taxed at 20 per cent

4. Income above ₹10 lakh is taxed at 30 per cent

 

These rates apply to resident individuals up to 60 years of age. For senior citizens aged between 60 and 80 years, the basic exemption limit is ₹3 lakh, while for super senior citizens above 80 years, it is ₹5 lakh.

 

The old regime continues to allow several deductions and exemptions, including:

 

Standard deduction

House rent allowance

Leave travel allowance

Section 80C deductions such as PPF, provident fund, equity-linked savings schemes and NPS, with an additional ₹50,000 under NPS

Section 80D for medical insurance

Section 80TTA for savings account interest

Section 80G for donations

Home loan interest benefit

 

Standard deduction and rebates

 

Budget 2025 raised the standard deduction to ₹75,000 and enhanced rebates under the new regime. Budget 2026 does not change these thresholds, keeping effective tax-free and low-tax bands at last year’s levels.

 

New income tax law from April 2026

 

Budget 2026 announces the rollout of the Income-tax Act, 2025, which will replace the 1961 law from April 1, 2026. The focus is on simpler language and compliance processes rather than immediate changes in tax rates.

 

Compliance and process-related relief

 

Budget 2026 introduces several measures aimed at easing compliance for taxpayers:

 

> Extended window for filing revised income tax returns

> Automated issuance of lower or nil TDS certificates

> Rationalised Tax Collected at Source rates for select transactions

 

Lower TCS on key remittances

 

Individuals sending money overseas for education, medical treatment or travel will see lower upfront costs, with TCS reduced to 2 per cent for these categories.

 

One-time disclosure and penalty relief

 

The Budget provides a one-time foreign assets disclosure scheme for small taxpayers and rationalises certain penalties and prosecution provisions, which could reduce compliance pressure for individuals with limited overseas exposure.

 

What Budget 2025 had done

 

Budget 2025 reshaped personal taxation by expanding the tax-free range under the new regime and increasing standard deductions. These changes led to lower tax outgo for many middle-class households in the current financial year.

 

“Return filing has been made more practical through staggered due dates and an extended revised-return window till 31 March with a nominal fee. The Budget also softens the prosecution framework for certain procedural lapses, allows deduction of inter-cooperative society dividend income under the new regime, widens overseas investment access for non-residents, and confirms the rollout of the Income Tax Act, 2025 from April 2026,” Jain said.

 

“Budget 2026 is a mature balancing act between long-term investments and immediate deficits, employment generation and capital expenditure, and the needs of the real economy and capital markets,” said Jairam Sridharan, MD and CEO, Piramal Finance.

 

“For salaried taxpayers in the ₹7–15 lakh income range, the effective tax burden remains largely unchanged. Any benefit is incremental and comes from marginal rate rationalisation and improved cash-flow timing, translating into an estimated 2–3 per cent improvement in disposable income for many taxpayers,” Shetty said.

 

“After a year that delivered income-tax relief and a clearer tax framework, this Budget focuses on holding that ground and avoiding disruption. By keeping income-tax slabs, standard deductions and rebate limits unchanged, the government is signalling a stable tax environment as the transition to the new Income Tax Act begins in April 2026,” said Somdutta Singh, serial entrepreneur and founder and CEO, Assiduus Global.

 

“The expansion of urban housing through metro and PPP projects benefits taxpayers by increasing affordable housing options and improving property values for middle-class families,” said Vijay Raundal, Managing Director, Teerth Realties.