Union Budget 2026: What Changed for Your Income Tax

The Union Budget 2026 delivered what many salaried Indians had been hoping for: a meaningful restructuring of income tax slabs under the new tax regime. The headline change is that income up to ₹12 lakh is now effectively tax-free thanks to the enhanced Section 87A rebate, and slab rates above that level have been rationalised into a more graduated structure. For a detailed slab-by-slab breakdown of both regimes, see our income tax slabs explainer.

The old tax regime remains untouched — the government continues to incentivise migration to the new regime, which has been the default since FY 2023-24. If you are still evaluating which regime suits you better, our old vs new tax regime guide walks through the crossover points at every salary level. You can also plug in your numbers directly in the Tax Regime Comparator calculator.

This article covers every income-tax-related announcement from the Budget speech, explains who benefits and by how much, and provides worked examples so you can estimate your own savings.

Revised New Tax Regime Slabs for FY 2026-27

The new tax regime slab structure announced in Budget 2026 introduces more granular brackets and lower rates at mid-income levels. Here is the complete slab table:

Standard Deduction: ₹75,000 Continues

Budget 2025 had raised the standard deduction from ₹50,000 to ₹75,000 for salaried individuals under the new regime. Budget 2026 retains this at ₹75,000 — there is no further increase. This deduction is available automatically to all salaried taxpayers and pensioners opting for the new regime. Under the old regime, the standard deduction remains ₹50,000.

Section 87A Rebate: Zero Tax Up to ₹12 Lakh

The Section 87A rebate has been enhanced so that individuals with taxable income up to ₹12 lakh pay zero tax under the new regime. The computed tax on ₹12 lakh under the new slabs (₹20,000 on 4-8L at 5% + ₹40,000 on 8-12L at 10% = ₹60,000) is fully offset by the rebate. This is a substantial benefit for middle-income earners.

Note that the rebate applies only to the new regime. Under the old regime, the 87A rebate threshold remains at ₹5 lakh (₹12,500 rebate), which has not been changed since FY 2019-20.

Worked Examples: Tax Savings at Different Salary Levels

₹10 Lakh Gross Salary

With ₹75,000 standard deduction, taxable income = ₹9.25 lakh. Tax under new regime: ₹20,000 (on 4-8L at 5%) + ₹12,500 (on 8-9.25L at 10%) = ₹32,500. After Section 87A rebate (since taxable income is under ₹12 lakh), tax = ₹0. Previously, the rebate threshold was lower, and taxpayers at this level paid approximately ₹30,000-₹35,000 in tax.

₹15 Lakh Gross Salary

Taxable income = ₹14.25 lakh (after ₹75,000 standard deduction). Tax: ₹20,000 (4-8L) + ₹40,000 (8-12L) + ₹33,750 (12-14.25L at 15%) = ₹93,750 + 4% cess = ₹97,500. This is a saving of approximately ₹25,000 compared to the pre-Budget slab structure.

₹20 Lakh Gross Salary

Taxable income = ₹19.25 lakh. Tax: ₹20,000 + ₹40,000 + ₹60,000 (12-16L) + ₹65,000 (16-19.25L at 20%) = ₹1,85,000 + 4% cess = ₹1,92,400. Compared to previous slabs, annual savings are approximately ₹50,000.

₹25 Lakh Gross Salary

Taxable income = ₹24.25 lakh. Tax: ₹20,000 + ₹40,000 + ₹60,000 + ₹80,000 (16-20L) + ₹1,00,000 (20-24L at 25%) + ₹7,500 (24-24.25L at 30%) = ₹3,07,500 + 4% cess = ₹3,19,800. The graduated 25% slab between ₹20-24 lakh provides relief compared to the previous structure where 30% kicked in earlier.

Old Regime: No Changes

The old tax regime slabs, deduction limits (Section 80C at ₹1.5 lakh, 80D, HRA, home loan interest under Section 24(b) at ₹2 lakh, etc.), and surcharge rates remain exactly as they were in FY 2025-26. The government has not enhanced any deduction ceiling or changed any slab rate under the old regime. This is consistent with the policy direction of making the new regime more attractive to encourage voluntary migration.

If you have substantial deductions — 80C + NPS + HRA + home loan interest exceeding ₹3.75-4.25 lakh — the old regime may still result in lower tax. Check with our Tax Regime Comparator to compare your specific numbers.

Other Income Tax Changes in Budget 2026

TDS Rationalisation

The Budget proposes to consolidate and rationalise several TDS provisions. Multiple TDS sections with similar thresholds are being merged to reduce compliance burden. The threshold for TDS on interest from bank deposits (Section 194A) has been raised, providing relief to senior citizens and small depositors.

Updated ITR Filing Timeline

The deadline for filing updated income tax returns (ITR-U) has been extended from 24 months to 48 months from the end of the relevant assessment year. This gives taxpayers more time to correct errors or report omitted income, albeit with additional tax payment.

Presumptive Taxation Limits

The turnover threshold for presumptive taxation under Section 44AD (for businesses) and Section 44ADA (for professionals) has been enhanced, benefiting small business owners and freelancers.

What Should You Do Now?

The new slabs take effect from FY 2026-27 (April 2026). For the remainder of FY 2025-26, the existing slabs continue to apply. Here is your action plan:

• Compare both regimes: Use the Tax Regime Comparator with FY 2026-27 slabs to decide which regime works better for you.
• Inform your employer: If you want to opt for the old regime, submit Form 10-IEA to your employer before the start of FY 2026-27. The new regime is the default.
• Review your investment plan: If the new regime saves you more, you may not need to chase 80C investments purely for tax saving. Redirect those funds to higher-return options instead.
• Check your salary structure: NPS employer contribution (80CCD(2)) is the one major deduction available under the new regime. If your employer offers NPS, it is worth maximising this.