Union Budget 2026 Ahead: Key Income Tax Changes Introduced in Budget 2025
The Finance Minister Nirmala Sitharaman is set to present the Union Budget 2026 on February 1. Last year, the Budget 2025 gave major income tax relief to taxpayers. Keeping this in mind, the taxpayers are expecting a relief in the Union Budget 2026 as well.
Currently, the income tax rules follow the changes introduced in Budget 2025, which made the current tax system easier for middle-income people. Let us take a look at the existing income tax rates.
Current Income Tax Slabs Under the New Tax Regime
- Up to Rs 4 Lakh: Nil
- Rs 4 Lakh to Rs 8 Lakh: 5%
- Rs 8 Lakh to Rs 12 Lakh: 10%
- Rs 12 Lakh to Rs 16 Lakh: 15%
- Rs 16 Lakh to Rs 20 Lakh: 20%
- Rs 20 Lakh to Rs 24 Lakh: 25%
- Above Rs 24 Lakh: 30%
Under the Budget 2025, the taxpayers’ income up to Rs 12 lakh was tax-free under the new tax regime because of the enhanced rebate, which offset the tax liability. Also, the salaried individual gets a standard deduction of Rs 75,000, which makes the income up to Rs 12.75 lakh tax-free.
Other Tax Relief Introduced Under Budget 2025
The current tax system introduced under Budget 2025 gave many other major reliefs, such as:
- TDS Rationalisation: The TDS (Tax Deducted at Source) limit on rent was increased to Rs 6 lakh per annum.
- TCS Relief: The TCS (Tax Collected at Source) on remittances for education funded by education loans was removed. Also, the TCS exemption limit under the Liberalised Remittance Scheme was raised to Rs 10 lakhs, and the TCS on the sale of goods was removed.
- Increased TDS Exemption Limit on Bank Interest: The TDS deduction limit on interest income of senior citizens was increased from Rs 50,000 to Rs 1 lakh.
- Extended Time Limit for ITR-U Filing: The government extended the time limit for filing an updated return from two years to four years, giving more time to the taxpayers to correct errors.
- Second Self-Occupied Interest Income: From April 1, 2025, starting April 1, 2025, taxpayers are allowed to have two self-occupied homes without paying tax on notional rental income.
Implementation of the Income Tax Act 2025
The new Income Tax Act, 2025, is set to take effect from April 1, 2026, replacing the old Income Tax Act, 1961. The primary objective of the new law is to remove the unnecessary provisions, simplify the law language, and align with the changing technology.
Under the new law, there will be simplified procedures, updated forms, and the use of technology. With the new law taking effect, the taxpayers are also preparing themselves for the transition.