The Union Budget is just days away, and expectations are running high among the middle class and salaried taxpayers. Finance Minister Nirmala Sitharaman will present the budget on February 1, with income tax relief expected to remain a key focus. In last year’s budget, the government provided significant relief by making income up to Rs 12 lakh tax-free under the new tax regime. Experts now believe Budget 2026 could go a step further, potentially raising the tax-free income limit to around Rs 17 lakh.

New Tax Regime Emerged as the Default Choice

In Budget 2025, the government raised the tax exemption limit under the new tax regime to Rs 12 lakh. This move helped make the new regime the default option, with more than 90% of taxpayers choosing it. As Budget 2026 draws closer, hopes have risen once again that further changes could make the new tax regime even more attractive for salaried individuals and the middle class.

Five Major Changes Could Be Announced

The new tax regime was introduced to provide a simpler tax structure with fewer deductions. While this simplicity appealed to many taxpayers, home loan borrowers, and senior citizens still find the old tax regime more beneficial. For a long time, taxpayers have been advocating for the inclusion of specific deductions in the new system. Experts believe the upcoming budget may announce five major changes.

Possible Areas of Relief

Long-Term Investments

Experts say that although most taxpayers have shifted to the new regime, long-term investments have lost momentum due to limited incentives. The government may increase the long-term capital gains exemption limit from ₹1 lakh to ₹1.3 lakh to encourage higher participation in the stock market.

HRA and Health Insurance

At present, the new tax regime does not offer benefits for House Rent Allowance (HRA) or health insurance. With medical expenses rising, experts suggest including health insurance and mediclaim deductions to ease the burden on the middle class.

Home and Education Loans

There has been strong demand to allow tax benefits on home and education loans under the new regime, similar to the old system. Experts believe these additions would not complicate the structure and would offer meaningful relief.

Standard Deduction

The standard deduction under the new tax regime was increased from ₹50,000 to ₹75,000. Considering rising inflation and living costs, experts recommend raising this limit further to ₹1 lakh or even ₹1.25 lakh.

Special Relief for Senior Citizens

Despite the growing popularity of the new tax regime, many senior citizens continue to prefer the old system due to lower exemption limits and the absence of medical deductions. Experts expect Budget 2026 to introduce special provisions for senior citizens.

How High Can the Tax-Free Income Go?

If the government accepts these proposals:

• Rs 1 lakh standard deduction
• Rs 2 lakh deduction on home loan interest and Rs 1.5 lakh on principal
• Rs 50,000 deduction on health insurance
• Existing Rs 12 lakh tax-free income

The total tax-free income could go up to Rs 17 lakh, offering major relief to salaried taxpayers and the middle class.