Income Tax Change Expectations from Budget 2026 - Full List of Proposals by ICAI, FICCI, and Assocham

Union Budget 2026 is set to be a landmark event for salaried taxpayers, businesses, and investors. With multiple years of structural tax reforms behind us, this budget holds the promise of addressing longstanding concerns and simplifying the taxation framework. Every year, professional organisations such as ICAI, FICCI, and Assocham submit detailed proposals to the government, advocating for changes that aim to ease compliance burdens and improve taxpayer satisfaction. This article delves into the anticipated income tax changes in Budget 2026 and their potential impact on individuals and businesses alike.

Several factors have heightened the expectation of income tax reforms in Budget 2026. Taxpayers continue to face challenges such as inflationary pressures, confusion surrounding the transition to the new tax regime, and reduced deductions under the existing frameworks. Additionally, compliance requirements remain complex for individuals and businesses alike, making tax filing a cumbersome process.

The government has consistently expressed its intent to simplify tax laws to enhance the taxpayer experience. Budget 2026 is expected to address these issues by introducing measures that reduce financial strain, streamline compliance processes, and ensure fairness across tax regimes.

Key organisations like ICAI (Institute of Chartered Accountants of India), FICCI (Federation of Indian Chambers of Commerce and Industry), and Assocham (Associated Chambers of Commerce and Industry of India) play a pivotal role in shaping budget proposals. ICAI represents chartered accountants, who are integral to the taxation ecosystem, while FICCI and Assocham advocate for industries and trade bodies.

These organisations provide detailed recommendations to the government, focusing on simplifying tax structures, reducing compliance burdens, and promoting economic growth. While their proposals influence policy discussions, the final decisions rest solely with the government, ensuring a balanced approach to taxation reforms.

Budget 2026 is expected to bring forth significant changes in income tax policies, addressing the needs of various taxpayer groups, including salaried individuals, businesses, MSMEs, and investors. Proposals submitted by ICAI, FICCI, and Assocham outline reforms aimed at simplifying tax filing, reducing financial stress, and incentivising investments.

One of the most anticipated reforms in Budget 2026 is the revision of income tax slabs under the new tax regime. With inflation eroding purchasing power, taxpayers expect adjustments to tax brackets that align with current economic realities.

Current vs Expected Tax Slabs

These revisions aim to reduce the tax burden on middle-income groups, providing them with greater financial flexibility.

Expectation to increase basic exemption limit

There is a strong proposal to increase the basic exemption limit from Rs. 2.5 lakh to Rs. 3 lakh or higher. This change is expected to provide relief to lower and middle-income groups, enabling households to better manage their expenses amidst rising costs.

Demand for higher standard deduction

Salaried employees and pensioners are advocating for an increase in the standard deduction, which currently stands at Rs. 50,000. Enhancing this deduction would directly reduce taxable income, helping individuals offset inflationary pressures and improve their financial stability.

The coexistence of the old and new tax regimes has created confusion among taxpayers. Budget 2026 is expected to address this by simplifying choices or gradually phasing out the old regime. Aligning benefits across both regimes could ensure fairness and ease decision-making for taxpayers.

Request to restore key deductions in the new regime

There is a strong demand to reintroduce deductions under the new tax regime, including:

• Section 80C: Investments in PPF, ELSS, and other eligible instruments.
• Section 80D: Medical insurance premium deductions.
• Housing loan benefits: Interest deduction under Section 24(b).

These measures could incentivise savings and investments while reducing taxable income.

Capital gains taxation reforms are among the most awaited changes in Budget 2026. Taxpayers have requested simplification of holding periods, adjustments to tax rates, and clearer indexation rules. These changes could encourage long-term investments in real estate, equity, and debt instruments.

Expectation of uniform capital gains structure

A uniform framework for capital gains taxation across asset classes is expected to reduce disparities and simplify compliance. This would benefit taxpayers by providing clarity and fairness in tax calculations.

Salaried employees are hopeful for reforms that increase HRA limits, simplify perquisites taxation, and introduce relief measures for remote workers. These changes could improve affordability and address modern workplace challenges.

For MSMEs and businesses, Budget 2026 is expected to bring relief through reduced compliance obligations, simplified depreciation rules, and rationalised disallowances. Lower tax rates for MSMEs could further incentivise growth and innovation.

Expectation to simplify tax audit provisions

Increasing audit thresholds is a key recommendation aimed at reducing costs and complexity for businesses, particularly MSMEs. This change could ensure smoother operations and compliance.
 

The faceless assessment system, while innovative, has faced criticism due to delays and lack of transparency. Industry bodies have recommended quicker resolution timelines and fewer notices to improve taxpayer confidence in this system.

Complex TDS and TCS provisions remain a challenge for taxpayers. Budget 2026 is expected to simplify these rules, reducing errors and compliance burdens.

Summary of Expected Simplifications

Startups and investors anticipate reforms such as angel tax relief, ESOP taxation rationalisation, and policies that encourage early-stage investments. These changes could foster innovation and growth in the entrepreneurial ecosystem.

The government is expected to transition from the Income Tax Act 1961 to a simplified framework. This move could streamline compliance, reduce ambiguities, and make tax filing more accessible for all.

The anticipated reforms in Budget 2026 could alleviate financial stress for taxpayers, simplify compliance processes, and incentivise investments. These changes are likely to have far-reaching implications for individuals, businesses, and professionals, contributing to overall economic growth.

Budget 2026 holds the promise of addressing taxpayer concerns around simplicity, fairness, and reduced compliance burdens. With organisations like ICAI, FICCI, and Assocham advocating for reforms, the focus remains on promoting voluntary compliance and supporting economic growth. Taxpayers are advised to monitor official announcements closely and plan their finances accordingly.
 

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