Last year’s Union Budget was historic not only because Finance Minister Nirmala Sitharaman presented her 8th consecutive budget, but also because it marked one of the most decisive shifts in India’s personal income tax framework in recent years.
Budget 2025 delivered meaningful relief to a large section of salaried taxpayers, sharply narrowed the gap between the old and new tax regimes, and set the direction for how personal taxation would evolve going forward.
As Union Budget 2026 approaches, those income tax changes continue to shape how individuals assess relief, choose between tax regimes, and plan their finances.
A year later, last year’s tax measures now serve as the reference point for what may realistically be in focus this time.
BUDGET 2025 AS A TURNING POINT FOR PERSONAL TAXATION
Amit Baid, Head of Tax at BTG Advaya, described last year’s Budget as a decisive shift in approach.
“Budget 2025 marked an inflection point in India’s personal tax framework. It reshaped the new tax regime through revised slabs and a higher rebate, effectively exempting income up to Rs 12 lakh and up to Rs 12.75 lakh for salaried taxpayers after the standard deduction,” Baid said.
He added that the gap between the old and new regimes narrowed sharply after these changes.
“This narrowed the gap between the old and new regimes to a point where ease of compliance began to outweigh the appeal of exemptions. For salaried taxpayers without large deductions for housing loans or other legacy incentives, the new regime increasingly emerged as the rational choice,” he said.
According to Baid, the old regime now plays a limited role.
“The old regime, left largely untouched, continued to exist but more as a transitional option than a policy priority,” he said.
WHAT EXACTLY CHANGED IN LAST YEAR’S BUDGET
Santhosh Sivaraj, Partner – Global Mobility Services, Tax and Regulatory Advisory at BDO India, outlined the key income tax changes announced in Budget 2025.
“Some major changes in the 2025 Budget were no tax burden under the new tax regime for taxpayers up to an income of Rs 12.75 lakh after considering Section 87A rebate of Rs 60,000 and a standard deduction of Rs 75,000 for salaried taxpayers,” he said.
He also pointed to relief on housing taxation.
“Allowing two properties to be declared as self-occupied property where the gross annual value of the property can be declared as nil brought relief to taxpayers, whereas under the earlier law, the other properties were either declared as deemed let out or let out,” Sivaraj said.
RELIEF THAT WAS ACTUALLY FELT ON THE GROUND
On which changes truly delivered relief, Sivaraj said the impact was clearly visible.
“For Rs 12.75 lakh, having no tax burden was very realistic and this helped a lot of salaried taxpayers increase their net take-home. It was a very good move by the government,” he said.
Baid also said middle-income earners saw tangible benefits.
“For middle-income earners, this translated into real and visible tax savings, reflected in slightly higher monthly take-home pay through lower TDS or a reduced year-end tax outgo,” he said.
Alongside relief, Sivaraj said Budget 2025 also brought structural changes.
“Few structural changes which we saw last year were the new Income Tax Act effective from April 2026, extended window of filing updated tax returns (ITR-U), and clarification on ULIPs to be considered as capital assets and taxed as capital gains depending on the holding period,” he said.
WHO BENEFITED MOST AND WHO DID NOT
Sivaraj said lower- and middle-income earners benefited the most.
“Owing to no tax burden up to Rs 12.75 lakh inclusive of standard deduction for the salaried class, people earning up to around Rs 1 lakh a month were made tax-free. This was a significant change which provided meaningful tax relief,” he said.
However, he added that higher earners saw limited benefit.
“The higher income groups, whether under the old or the new tax regime, did not find much tax relief,” Sivaraj said, adding that surcharge relief could be an area to watch.
CA (Dr.) Suresh Surana echoed this view.
“Middle-income taxpayers emerged as the biggest beneficiaries of the recent income-tax changes. The restructuring of slab rates under the new tax regime significantly reduced the effective tax burden for this segment,” he said.
But Surana pointed out that relief was uneven.
“Individuals with a substantial portion of their income taxed at special rates such as short-term or long-term capital gains did not see a corresponding reduction in their overall tax outgo, as the Section 87A rebate cannot be applied against income taxed at special rates,” he said.
HOW THE OLD VS NEW REGIME EQUATION CHANGED
Surana said the choice between the two regimes has become more calculation-driven.
“The choice between the old and the new income-tax regimes should be made after a careful evaluation of an individual’s income profile, eligibility for deductions and exemptions, and overall financial planning objectives,” he said.
He added that the new regime suits those without major deductions.
“The new tax regime is generally more suitable for taxpayers who do not claim significant deductions or exemptions,” Surana said.
He also pointed to a surcharge advantage.
“High-income salaried taxpayers may also find the new regime more attractive, as the surcharge on income exceeding Rs 5 crore is capped at 25%, compared to 37% under the old regime,” he said.
Surana said the impact was noticeable for many salaried employees.
“For taxpayers who opted for the new tax regime, the impact was clearly perceptible. Many salaried employees witnessed a modest yet tangible increase in their monthly take-home pay driven by lower TDS deductions,” he said.
WHAT MAY BE IN FOCUS IN BUDGET 2026
Expectations from Budget 2026, however, are more measured.
“With substantial relief already extended in the previous Budget and recent GST reductions easing consumer costs, the government is unlikely to introduce additional cuts to income tax slabs this year,” Baid said.
He added that only limited tweaks may be possible.
“Some incremental adjustments such as a modest increase in the standard deduction under the new regime remain possible, particularly to offset inflation,” he said.
Sivaraj said certain old-regime deductions may come up for review.
“The government could consider increasing the deduction limit on interest on housing loans from the current Rs 2 lakh limit and increasing the 80C deduction limits, as existing thresholds have become less effective,” he said.
Surana said Budget 2026 will be critical because it coincides with the rollout of the new tax law.
“Budget 2026 is expected to place strong emphasis on facilitating a smooth transition to the new Income-tax Act, 2025, with a focus on legislative alignment and removal of ambiguities,” he said.
COMPLIANCE AND DISPUTE RESOLUTION IN SPOTLIGHT
Beyond tax rates, Baid said compliance and litigation remain key concerns.
“Despite digitisation and faceless assessments, dispute volumes remain high, with multi-year backlogs creating prolonged uncertainty for taxpayers,” he said.
He added that targeted dispute resolution could deliver more impact than fresh tax cuts.
“Past settlement schemes have demonstrated that targeted dispute resolution can unlock revenue and restore confidence, often delivering far greater impact than marginal tax cuts,” Baid said.
As Budget 2026 draws closer, last year’s income tax changes have clearly set the direction. The focus this time appears less about sweeping relief and more about fine-tuning, smoother implementation, and reducing friction in the tax system.
