Budget 2026 Expectations: Will India Announce Major Income Tax Relief This Year?

India’s Union Budget 2026 is speculated to bring income tax relief beyond standard deductions. Taxpayers hope for pension flexibility, clearer NPS rules, and insurance incentives under the new regime. This blog explores key Budget 2026 expectations that could reshape your tax planning and retirement savings strategy.

What Are the Major Expectations for Budget 2026?

Tax experts anticipate that Budget 2026 will focus on bridging gaps in the new income tax regime. Rather than changing tax slabs, the government is expected to expand what you can deduct and simplify compliance rules. Here are the 5 major expectations from people going into the budget for 2026.

Boosted NPS Contributions as Additional Deduction

The National Pension Scheme (NPS) contributions currently qualify for deduction up to ₹1.5 Lakh under Section 80CCD(1) within the overall ₹1.5 Lakh Section 80C limit, along with an additional ₹50,000 under Section 80CCD(1B) in the old regime.

A key Budget 2026 expectation is that a similar additional ₹50,000 NPS deduction may be explicitly allowed under the new regime, outside the 80C limit. This could encourage long-term retirement savings without forcing you back to the old regime’s complexity.

Also Read: Maximise Your Tax Deductions Under Section 80D

Simplified Regime Selection for Taxpayers

Ahead of Budget 2026, experts expect a built-in regime selection option within the ITR form. Before, the new tax regime was made the default option, and individuals had to file a declaration under Section 10-IE to opt for the old regime. Many taxpayers miss this step or make errors, creating complications during return filing. The built-in selection will help simplify regime choice and reduce mistakes.

Clarity on NPS Lump-Sum Withdrawal Taxation

Budget 2026 could clarify the tax treatment of higher NPS lump-sum withdrawals introduced under recent PFRDA (Pension Fund Regulatory and Development Authority) rule changes.

As per the revised norms, you can withdraw 100% of the NPS corpus at maturity if it’s up to ₹8 Lakh, and up to 80% if the corpus exceeds this limit, compared to the earlier 60% cap. But there is uncertainty around whether the additional 20% withdrawal will be tax-free or taxable.

Insurance and Health Deductions in the New Regime

The new regime excludes most deductions, but the Budget 2026 may allow term life insurance premiums and health insurance (Section 80D) as limited deductions. This encourages you to maintain adequate health and life cover without sacrificing tax savings, particularly valuable if you have dependents or significant health risks.

Joint Returns for Married Couples

Filing separate returns can create duplication and a higher aggregate tax liability for couples. Budget 2026 may introduce joint income tax returns, letting spouses file once with combined income.

If your spouse earns less, joint filing could place more income in their lower bracket, reducing total family tax. This is especially valuable for dual-earning households balancing loan EMIs and savings.

Also Read: ICAI’s Big Proposal of Joint Taxation for Married Couples

To Conclude

Budget 2026 is expected to make the new income tax regime more practical rather than to reshape tax slabs. These proposals could offer meaningful income tax relief, reduce household tax burdens, improve retirement readiness and simplify compliance.

FAQs

Will NPS get additional deduction outside Section 80C in Budget 2026?

Experts anticipate an optional ₹50,000 deduction for NPS contributions beyond the existing Section 80C limit under the new regime. This would let you save more for retirement without sacrificing other investment deductions.

How could Budget 2026 clarify the tax treatment of NPS lump-sum withdrawals?

The budget may confirm whether the additional 20% lump-sum NPS withdrawal, when the limit is exceeded, remains fully tax-free or becomes partially taxable. Clear rules would encourage more taxpayers to adopt NPS for post-retirement security.

Is Budget 2026 likely to introduce joint income tax filing for married couples?

Joint return filing for married couples is under consideration for Budget 2026, potentially reducing aggregate tax liability and filing duplication. This would especially benefit dual-earning households managing multiple financial responsibilities.