New Delhi: The biggest question around Budget 2026 is whether the government will make changes to income tax. According to a recent report by Morgan Stanley, the government had reduced personal income tax rates in the previous budget, which directly affected tax collections. Due to these changes, income tax growth this year has remained much lower than expected.
This has raised doubts about how much more tax relief the government can offer this time. However, the report also suggests that the finance minister may still announce selective relief for certain groups, especially the middle class and salaried taxpayers.
Home Loan Borrowers May Get Major Relief
Home loan borrowers may receive big relief in Budget 2026. Experts believe that the tax deduction limit on home loan interest under Section 24(b) could be increased from the current Rs 2 lakh to Rs 3 lakh. If this happens, millions of home buyers will benefit as their taxable income will reduce.
There is also hope that this benefit will be extended to the New Tax Regime, especially for self-occupied houses. At present, this deduction is not available in the new system. If included, it will encourage more salaried people to opt for the new tax regime.
HRA Rules May Be Changed
Salaried employees are also expecting changes in HRA (House Rent Allowance) rules. Currently, people living in metro cities get tax exemption on HRA up to 50 percent of their basic salary, while those in non-metro cities get 40 percent.
Experts say this system is outdated because rents in many Tier-2 cities are now almost as high as metro cities. The government may either expand the list of metro cities or increase the HRA exemption limits. This will reduce the tax burden for employees facing high rental costs.
Old vs New Tax Regime Debate Continues
From the financial year 2025–26, the New Tax Regime has become the default option. This has increased speculation that the government may slowly phase out the old tax system. However, experts believe the old regime will not be removed in Budget 2026, as a large number of taxpayers still depend on it.
Small improvements are more likely in the new system, such as a higher standard deduction and limited benefits for health insurance and retirement savings.
Focus on the 30 percent Tax Slab
The biggest demand from the middle class is related to the 30 percent tax slab. Currently, anyone earning above Rs 24 lakh annually enters the 30 percent tax bracket. Many feel this limit is outdated due to rising living costs. There is a strong demand to raise this threshold to ₹40 lakh or even Rs 50 lakh, which would increase take-home income and boost spending.
