Income Tax Budget 2026 Expectations Highlights: Middle-Class Eyes Further Tax Relief, Investors Seek LTCG Exemption

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After last year's changes, the new tax structure increases the threshold for the highest tax rate, so the 30% rate now applies only to incomes above Rs 24 lakh, up from Rs 15 lakh. The basic exemption limit has been raised from Rs 3 lakh to Rs 4 lakh.

The standard deduction has been increased from Rs 50,000 to Rs 75,000. A significant change is the higher tax rebate under Section 87A. Taxpayers with a net taxable income of up to Rs 12 lakh can now claim a rebate of Rs 60,000, reducing their tax to zero.

For salaried individuals, a standard deduction of Rs 75,000 makes incomes up to Rs 12.75 lakh tax-free. The deduction for the employer's contribution to the National Pension System has been raised to 14% of the basic salary.

Revised Slabs For FY26 (Assessment Year 2026-27)

• Income up to Rs 4 lakh: No tax payable.
• Rs 4 lakh to Rs 8 lakh: Taxed at 5%.
• Rs 8 lakh to Rs 12 lakh: Taxed at 10%.
• Rs 12 lakh to Rs 16 lakh: Taxed at 15%.
• Rs 16 lakh to Rs 20 lakh: Taxed at 20%.
• Rs 20 lakh to Rs 24 lakh: Taxed at 25%.
• Above Rs 24 lakh: Taxed at 30%.

''The short term and Long Term Capital gain space has been simplified to a large extent in Finance Act (No 2) of 2024. As those reforms are settling down, there are certain ancillary reforms which arise out of them and which are expected in this budget.

Gold and Silver prices are shooting up everyday. However, in case these asset classes are sold between one to two years, then they are taxed as Short Term Capital gain at 20%. This is in contrast to listed securities which would be taxed at 12.5% during the same period as Long Term Capital gain,'' said Vivek Jalan, Partner at Tax Connect Advisory Services, A Multi-disciplinary PAN India Taxation Firm.

''This unevenness in treatment of different asset classes is due to the fact that the holding period for the purpose of computing capital gains is different for different asset classes i.e. 12 months and 24.

Since the indexation has already been withdrawn for all asset classes including property, there is not much reason to keep such an unevenness and corresponding complexity. It is thus expected that the holding period for the purpose of computing capital gains for all asset classes may be set as 12 months in Union Budget 2026,'' added Jalan.

Currently, short-term capital gains (STCG) and long-term capital gains (LTCG) are taxed differently depending on the holding period. The tax rates also vary widely by asset class. Equities, such as stocks and mutual funds, are taxed under one system, while capital gains from gold and property come under different structures.

This can make investment planning and compliance more complicated for investors. As a result, there have been demands to introduce a more consistent taxation system and enhanced exemption limits for capital gains in the Union Budget 2026.

One key expectation from the upcoming budget is increase in basic exemption limit for long-term capital gains on equities. Mutual funds industry body AMFI has proposed to increase the exemption limit for LTCG tax on equity and equity-oriented schemes to at least Rs 2 lakh. READ FULL STORY HERE

Dhiraj Relli, Managing Director and Chief Executive Officer of HDFC Securities, said stakeholders have proposed keeping the Securities Transaction Tax (STT) on cash equity trades lower than that on derivatives to encourage long-term investing over speculative trading.

He also suggested taxing only the profit component of share buybacks and aligning dividend tax rates for domestic investors with those applicable to non-resident Indians (NRIs).

Tejas Khoday, Chief Executive Officer of FYERS, said the government should refrain from raising STT any further. He added that reducing both long-term and short-term capital gains tax to 10 per cent would significantly boost retail investor participation.

Khoday also expressed hope that import duties on gold and silver are not increased further, as these assets remain important hedging instruments against equity market volatility and rupee depreciation.

Gurmeet Chadha, CIO, Complete Circle on an 'ideal LTCG slab' scenario:

There is a fundamental issue in keeping equity taxation at par with gold and real estate.

A Investor bought a 20 cr plot in Delhi/ noida . Pays 10 cr in cash and 10 cr in cheque..

After 2 years , sells the entire thing in cheque… converts 10 cr into white at 12.5% tax (…

— Gurmeet Chadha (@connectgurmeet) January 29, 2026

Market sentiment, in particular, hinges on several factors, including the tax structure. According to Anand Rathi Group Founder Anand Rathi, reducing transactional taxes such as the Securities Transaction Tax (STT) and lowering personal income tax rates would help trigger a market rally. He flagged a key friction point in the current tax regime - the overlap of STT with the reintroduced capital gains tax.

Rathi argued that to boost investor confidence, the government should rationalise capital gains tax and reduce personal income tax in the upcoming budget. He also pointed out that STT was originally introduced as a substitute for capital gains tax. However, even after capital gains tax was reinstated - at a higher rate - STT continues to remain in place. READ FULL STORY HERE

Market stakeholders also demanded enhancement of the tax-free exemption limit on long-term capital gains (LTCG) from equity investments to provide greater relief to retail and long-term investors. In its budget wishlist, JM Financial Services recommended that the government should raise the tax-free exemption limit for equity LTCG from Rs 1.25 lakh to Rs 2 lakh.

The firm also sought to standardise the definition of 'long term' to 12 months across all asset classes, including equity, debt, gold and real estate, to reduce complexity and improve tax clarity. Additionally, it called for allowing capital losses to be set off against income under other heads. Market participants have also cautioned against any further increase in transaction-related taxes. READ FULL STORY HERE

According to Rajeev Gupta, Executive Vice President & Business Head - Third Party Products, Religare Broking Ltd over the decades, India transform from a nation of savers to a powerhouse of investors. ''While the 2025 Budget was a landmark victory for the middle class, effectively making income up to Rs 12.75 lakh tax-free, the Union Budget 2026 must now address the "Aspiration Drain."

Our highest earners (Rs 2 Cr ) currently face a peak tax rate of nearly 39% to 43%. This isn't just a tax; it's an exit trigger. We are seeing a quiet migration of our best entrepreneurs to hubs like Dubai, where personal income tax is Nil. To keep Indian capital at home, we must rationalize surcharges and cap the effective tax rate at a competitive 30%,'' he said.

Income Tax Budget 2026 Expectations Live: The Income Tax slabs under the new tax regime were overhauled, in a bid to provide massive relief to the middle class. A taxpayer in the new regime with an income of Rs 12 lakh will get a benefit of Rs 80,000 in tax for assessment year 2025-26, which is 100% of tax payable as per existing rates, FM Sitharaman had said.