With Finance Minister Nirmala Sitharaman set to unveil the Union Budget 2026 on February 1, taxpayers are eyeing potential tweaks to income tax slabs, deductions, and the ongoing debate between the old and new regimes. The new tax regime, default since FY 2023-24, offers simplified rates with relief up to Rs 12 lakh via an enhanced Section 87A rebate, while the old regime appeals to those leveraging exemptions like 80C and HRA.
New Tax Regime: Key Slabs and Benefits
The new regime for FY 2025-26 (AY 2026-27) features progressive slabs post-Budget 2025 updates, making income up to Rs 4 lakh tax-free and up to Rs 12 lakh effectively zero-tax after rebate.
| Income Range (Rs) | Tax Rate |
|---|---|
| 0 – 4,00,000 | Nil |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Key perks include a Rs 75,000 standard deduction for salaried individuals, NPS contributions up to 14% of basic salary under Section 80CCD(2), and a Rs 60,000 rebate under Section 87A for incomes up to Rs 12 lakh, slashing liability significantly.
Old Tax Regime: Deduction-Driven Appeal
Taxpayers with heavy deductions prefer the old regime, which retains exemptions but higher effective rates for many.
Slabs (Individuals under 60):
- Rs 0-2.5 lakh: Nil
- Rs 2.5-5 lakh: 5%
- Rs 5-10 lakh: 20%
- Above Rs 10 lakh: 30%
Senior citizens (60-80) get Rs 3 lakh exemption; super seniors (80+) up to Rs 5 lakh. Popular deductions: Rs 1.5 lakh under 80C (ELSS, PPF), HRA, home loan interest (Section 24), and Rs 50,000 standard deduction.
| Category | Basic Exemption (Rs) |
|---|---|
| Under 60 years | 2,50,000 |
| 60 to <80 years | 3,00,000 |
| 80+ years | 5,00,000 |
Budget 2026 Expectations and Debates
Experts anticipate hikes like standard deduction to Rs 1 lakh, LTCG exemption to Rs 2 lakh, and enhanced 80D for health insurance amid inflation. Debate rages on phasing out the old regime for simplification, though no changes hit FY 2025-26 slabs yet; belated returns lock into new regime. Sitharaman’s ninth Budget could prioritize middle-class relief, with zero tax up to Rs 12.75 lakh possible under new slabs including standard deduction.
