Budget 2026 : Major changes in Income Tax Act! What will change? Find out

The budget session of Parliament is starting from January 28, 2026. On Sunday, February 1, 2026, at 11 AM, Finance Minister Nirmala Sitharaman will present the country's budget. This year's budget is expected to bring the biggest change in the Income Tax Act. The central government has started preparations to replace the old 1961 law with the 'Income Tax Act 2025'. A detailed review of what important changes might be in this budget for salaried employees, the middle class, and pensioners is as follows

1. Historical Change: The 1961 Act to Become History

The 'Income Tax Act 1961', which has been in place for the past six decades, will be completely repealed and replaced with a simpler and more streamlined 'New Income Tax Act 2025' from April 1, 2026. Currently, sections like 80C and 80D have made the tax system complex. In the new law, these exemptions will be streamlined to make the process of filing ITR (Income Tax Return) faster and simpler.

2. Big HRA Benefit for Residents of Pune, Bengaluru, Hyderabad

According to the current rules, only Delhi, Mumbai, Kolkata, and Chennai are considered metro cities. Employees in these cities can claim 50% of their basic salary as House Rent Allowance (HRA) for tax exemption. For other cities, this limit is 40%. Cities like Pune, Bengaluru, and Hyderabad are likely to be included in the 'metro' list in the 2026 budget. This will increase tax savings for millions of employees in these cities.

3. Standard Deduction from 75,000 to 1 Lakh?

Considering rising inflation, the standard deduction of 75,000 rupees in the New Tax Regime could be increased to 1,00,000 rupees. This would directly reduce the taxable income of salaried individuals and pensioners by 25,000 rupees, increasing the in-hand salary.

4. New Tax Regime to Become More Attractive

The government's main focus is on the new tax regime. Currently, income up to 7.75 lakh rupees is effectively tax-free. This limit could be increased to 8.5 lakh to 9 lakh rupees. Additionally, the government may attempt to provide relief to the middle class by expanding the scope of the 5% and 10% tax slabs.

5. Increase in 80C and Home Loan Interest Limit

Section 80C: The exemption of one and a half lakh available under 80C has not changed since 2014. There is a demand to increase it to 2.5 lakh. Home Loan: To boost the real estate sector, the exemption on home loan interest can be increased from 2 lakh to 3 lakh.

These proposed changes will be finalized only after the Finance Minister's speech on February 1. However, it is clear that the government is preparing for these historic changes to boost the economy and provide relief to the middle class.