Union Budget 2026: Can You Keep More of Your Earnings?

As India prepares for the Union Budget 2026‑27 on 1 February 2026, expectations are high that household finances could improve through tax relief. With direct and indirect tax collections remaining strong, analysts, employers and middle‑class taxpayers alike hope for measures that ease the income‑tax burden and increase take‑home pay.

Reforming tax slabs and exemptions has become a recurring theme as inflation persists and disposable incomes feel squeezed. There is widespread anticipation that budget announcements may include higher exemption thresholds and revised deduction limits, potentially benefiting salaried and self‑employed individuals.

Why Higher Exemptions Matter

Under the new tax regime introduced in Budget 2025, income up to ₹4 lakh attracts no tax, followed by progressive rates from 5 per cent to 30 per cent for higher brackets. 

mportantly, a full rebate under Section 87A means that individuals with taxable income up to ₹12 lakh effectively pay zero tax in many cases. These changes took effect from 1 April 2025 and apply in the assessment year 2026‑27.

Taxpayers have already seen relief under this structure. For instance, someone earning ₹12 lakh might otherwise have a tax liability around ₹60 000 but this is offset entirely by the expanded rebate. In effect, most of the middle class pays next to nothing in direct tax at these income levels.

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Proposals ahead of Budget 2026 suggest further raising exemption limits or enhancing deductions such as standard deduction, home loan interest caps, and long‑term capital gains relief – all of which can increase disposable income.

Wider Slabs and Their Practical Impact

Tax slabs determine how much you pay as income rises. Broader slabs reduce the “bite” of tax on incremental income, which means less of your marginal earnings go as tax. The 2025 reforms widened slabs compared with earlier structures and made the tax schedule more progressive for most earners.

For many taxpayers, especially those earning in the ₹4 lakh to ₹20 lakh range, the revised slabs have already increased take‑home pay significantly compared with older frameworks. Budget 2026 discussions include suggestions to continue this trend and possibly adjust thresholds for inflation, a long‑standing demand of salaried employees.

Tax experts have pointed out that aligning slab thresholds with inflation reduces “bracket creep,” where taxpayers get pushed into higher tax brackets even if their purchasing power hasn’t increased. This adjustment alone can mean several thousand rupees retained annually depending on income.

What Taxpayers Are Expecting Now?

Multiple stakeholders have floated ideas ahead of Budget 2026. Among the most discussed are:

• An increase in the standard deduction (from the current ₹75 000) to further cushion salaried taxpayers.
• Higher limits for deductions like deductions on home loan interest and long‑term capital gains.
• Equalising incentives between new and old tax regimes to make compliance simpler and fairer.

While these remain expectations rather than confirmed measures, the momentum ahead of the Budget has been building for meaningful relief for individual taxpayers.