As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2026 on February 1, personal income tax once again stands at the centre of public attention. This year’s Budget comes against the backdrop of a decisive shift by the government towards the New Tax Regime, which has now been positioned as the primary tax system for individual taxpayers.
Over the past few years, the Centre has gradually moved away from the old, exemption-heavy tax framework. Union Budget 2025 marked a major turning point, introducing sweeping changes that made the new regime simpler, more predictable, and—crucially—more attractive for a large segment of taxpayers.
The New Tax Regime is a simplified personal income tax system designed to offer lower tax rates in exchange for giving up most exemptions and deductions available under the old regime. It was introduced with the objective of reducing compliance burden, paperwork, and complexity in tax calculations.
From FY 2024–25 onwards, the new regime became the default tax option for individual taxpayers. Those who wish to continue under the old system must actively opt out each year.
The old regime rewarded savings through deductions such as Section 80C, HRA, and LTA
The new regime focuses on clean tax slabs and minimal adjustments
Fewer deductions mean easier filing and faster tax computation
This shift reflects the government’s broader push towards a low-complexity, transparent tax structure.
Union Budget 2025 significantly strengthened the new regime by restructuring income slabs. One of the most notable changes was the expansion of slab ranges, which helped reduce tax pressure on middle- and upper-middle-income earners.
The highest tax rate of 30% now applies only to income above Rs 24 lakh, compared with Rs 15 lakh earlier. This eased the tax burden for individuals earning between Rs 15 lakh and Rs 24 lakh, making the transition to the new regime far more attractive.
Another landmark reform was the enhancement of the Section 87A rebate.
Under the new regime, resident individuals with taxable income up to Rs 12 lakh are now eligible for a rebate of up to Rs 60,000
Earlier, this zero-tax benefit was capped at Rs 7 lakh
This effectively means no income tax liability up to Rs 12 lakh under the new regime.
The standard deduction for salaried employees and pensioners was increased to Rs 75,000 and retained under the new regime.
As a result:
Salaried individuals earning up to Rs 12.75 lakh (before deduction) pay zero income tax
This removes a tax burden of up to Rs 80,000 for someone earning Rs 12 lakh, compared with earlier years
Under the New Tax Regime, income is taxed progressively as follows:
Up to Rs 4 lakh – Nil
Rs 4–8 lakh – 5%
Rs 8–12 lakh – 10%
Rs 12–16 lakh – 15%
Rs 16–20 lakh – 20%
Rs 20–24 lakh – 25%
Above Rs 24 lakh – 30%
This slab design ensures gradual tax progression, avoiding sharp jumps in tax liability as income increases.
To prevent sudden spikes in tax liability just above the rebate limit, marginal relief continues to apply for incomes slightly exceeding Rs 12 lakh. This ensures that additional tax payable never exceeds the incremental income earned.
Budget 2025 also reduced the maximum surcharge under the new regime to 25%, significantly improving post-tax income for high-net-worth individuals and senior professionals.
While most popular exemptions are excluded, the new regime continues to allow a few targeted and policy-driven deductions, including:
Employer contributions to National Pension System (NPS) under Section 80CCD(2)
Contributions to the Agniveer Corpus Fund
Select incentives linked to employment generation
These deductions align with long-term savings, defence reforms, and job creation goals.
With the core structure of the new regime firmly in place, Budget 2026 is expected to focus on fine-tuning rather than structural overhauls.
Possible areas of attention include:
Further simplification of compliance rules
Minor slab rationalisation
Greater clarity for first-time taxpayers and freelancers
The government is widely expected to continue positioning the new regime as a low-tax, low-complexity system suitable for a broad taxpayer base.
The New Tax Regime has clearly emerged as the Centre’s preferred framework for personal income taxation. Through slab rationalisation, higher rebates, a larger tax-free threshold, and lower surcharges, the government has reshaped the system to offer clarity, simplicity, and meaningful relief.
As Budget 2026 approaches, taxpayers can expect incremental improvements rather than dramatic changes. For millions of individuals, the new regime now represents a transparent and predictable alternative to the old exemption-driven system—one that aligns better with modern income patterns and evolving workforce dynamics.