Budget recap: How much income tax relief FM Nirmala Sitharaman gave taxpayers last year? What to expect in Budget 2026? in India
Budget Recap: How Much Income Tax Relief FM Nirmala Sitharaman Gave Taxpayers Last Year? What to Expect in Budget 2026?
Introduction
In India, the Union Budget is an annual financial statement that holds significant importance for every taxpayer. It not only outlines the government’s revenue and expenditure but also sets the tone for economic growth and fiscal policies for the financial year. Particularly, the income tax proposals within the Budget are closely scrutinized as they directly impact the disposable income of individuals and the profitability of businesses. In last year's Budget, Finance Minister Nirmala Sitharaman announced several measures that provided tax relief to Indian taxpayers. This article revisits those measures and explores what Indian taxpayers might expect in the forthcoming Budget 2026.
Last Year’s Income Tax Relief Measures
Simplification of Tax Regime
The introduction of a simplified tax regime was one of the key highlights. This regime aims to make tax compliance easier by reducing exemptions and deductions, offering lower tax rates instead. Under this regime, the tax slabs were as follows:
| Income Bracket (₹) | Tax Rate (Old Regime) | Tax Rate (New Regime) |
| ------------------ | --------------------- | --------------------- |
| Up to 2.5 lakh | Nil | Nil |
| 2.5 lakh - 5 lakh | 5% | 5% |
| 5 lakh - 7.5 lakh | 20% | 10% |
| 7.5 lakh - 10 lakh | 20% | 15% |
| 10 lakh - 12.5 lakh | 30% | 20% |
| 12.5 lakh - 15 lakh | 30% | 25% |
| Above 15 lakh | 30% | 30% |
The choice between the old and new tax regimes allows taxpayers to select the option that best suits their financial situation, enhancing flexibility.
Increase in Standard Deduction
The standard deduction for salaried individuals, introduced under Section 16 of the Income Tax Act, 1961, was increased from ₹40,000 to ₹50,000. This increase aimed to provide relief to salaried taxpayers by reducing their taxable income.
Extension of Tax Benefits on Affordable Housing
Under Section 80EEA, an additional deduction of ₹1.5 lakh was extended for interest on home loans for affordable housing. This measure was particularly beneficial for first-time homebuyers, encouraging investment in the housing sector.
Enhanced Benefits for Senior Citizens
Senior citizens saw favorable changes, with the exemption limit on interest income from deposits increased from ₹10,000 to ₹50,000 under Section 80TTB. This adjustment provided greater financial security to retirees relying on interest income.
Expectations for Budget 2026
Anticipated Adjustments in Tax Slabs
With inflation affecting purchasing power, there is a growing expectation that the government might revise the tax slabs. An increase in the basic exemption limit from ₹2.5 lakh to ₹3 lakh could be on the horizon, providing relief to lower and middle-income groups.
Focus on Digital Transactions
As part of the 'Digital India' initiative, Budget 2026 may introduce incentives for digital transactions. This could include tax rebates for businesses adopting digital payment methods, thereby promoting financial inclusion and transparency.
Incentives for Startups and MSMEs
Startups and Micro, Small, and Medium Enterprises (MSMEs) are vital to India’s economy. The forthcoming budget might introduce tax holidays or reduced corporate tax rates for these sectors to spur innovation and employment.
Expansion of Health Insurance Deductions
With the rising costs of healthcare, there may be an increase in the deduction limits under Section 80D for health insurance premiums. This move would encourage more individuals to secure health coverage for their families.
Practical Tax-Saving Strategies
Utilizing Section 80C Deductions
Investments in Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificates (NSC), and Equity Linked Savings Schemes (ELSS) can help taxpayers utilize the ₹1.5 lakh deduction under Section 80C.
Health Insurance Premiums
By claiming deductions for health insurance premiums under Section 80D, taxpayers can reduce their taxable income by up to ₹25,000 for self and family, and an additional ₹50,000 for senior citizen parents.
Leveraging Home Loan Interest
Taxpayers with home loans can benefit from deductions on interest payments under Section 24(b), with a maximum limit of ₹2 lakh for a self-occupied property. Combining this with Section 80EEA can further enhance tax savings.
Real-World Examples
Example 1: Salaried Employee
Rahul, a salaried employee, earns ₹9 lakh annually. Opting for the new tax regime, he saves on tax without needing to invest in tax-saving instruments, suitable for his immediate financial needs.
Example 2: First-Time Homebuyer
Priya, a first-time homebuyer, avails a home loan for ₹30 lakh. By utilizing Section 80EEA, she claims an additional ₹1.5 lakh deduction on interest, reducing her tax liability significantly.
Example 3: Senior Citizen
Mr. Sharma, a senior citizen, earns ₹4 lakh from pension and ₹60,000 from fixed deposit interest. Utilizing Section 80TTB, he claims a ₹50,000 deduction, lowering his taxable income effectively.
Conclusion
Last year's budgetary measures brought considerable relief to Indian taxpayers through strategic adjustments in tax regimes and enhanced deductions. As we look toward Budget 2026, expectations are high for further reforms that address inflationary pressures and promote economic growth. By staying informed and utilizing available tax-saving opportunities, taxpayers can optimize their financial planning and compliance. As Indian taxpayers, it is crucial to keep abreast of these changes and adjust financial strategies accordingly, ensuring maximum benefit from government policies.
For personalized tax advice and to explore how upcoming budget changes might affect you, consulting with a professional tax advisor is recommended. Stay proactive, stay informed, and make the most of the tax benefits available to you.
