Budget 2026: This year, the budget session will begin on 28 January 2026, and the budget will be presented on Sunday, 1 February 2026, at 11:00 AM. This time, several important changes are expected in the budget, including possible changes to the Income Tax Act. The government is preparing to replace the Income Tax Act, 1961 with the new ‘Income Tax Act, 2025.’ Although the final decision will come only after the Finance Minister’s speech in Parliament on 1 February, here’s a look at the likely changes in taxes, HRA, and other rules in Budget 2026.
Historic Changes in the Income Tax Act
Old Act to Be Replaced: The government may completely scrap the old 1961 law. From 1 April 2026, the new and simplified ‘Income Tax Act 2025’ is likely to come into effect. Until now, tax exemptions were available under separate sections (like 80C, 80D), but under the new act, these may be moved to a schedule system, making the rules easier to understand and filing ITR simpler.
Major Update on HRA (House Rent Allowance) and Metro City Expansion
Currently, only Delhi, Mumbai, Kolkata, and Chennai are considered ‘metro cities,’ where employees can claim 50% of their salary as HRA. In Budget 2026, cities like Bengaluru, Hyderabad, and Pune may also be added to the metro city list, which could result in significant tax savings for millions of employees living there.
HRA in the New Tax Regime
Currently, under the new tax regime, HRA exemptions are not available. Experts suggest that the government may include limited HRA relief to make the new regime more attractive.
Budget 2026: Standard Deduction Limit
Currently, the standard deduction under the new regime is ₹75,000. Considering rising inflation, there is a strong demand to increase it to ₹1,00,000. This would directly reduce the taxable income of salaried employees and pensioners by ₹25,000.
Possible Changes in Tax Slabs (New Tax Regime)
The government’s full focus is now on making the ‘new tax regime’ the default and more attractive. Currently, income up to ₹7.75 lakh (including standard deduction) is effectively tax-free. This could be increased to ₹8.5–9 lakh. The ranges for the 5% and 10% tax slabs may also be widened, leaving more disposable income for the middle class.
80C and Home Loan (Old Tax Regime)
The investment limit under Section 80C is expected to be increased from ₹1.5 lakh to ₹2.5 lakh, as it has not changed since 2014. The deduction on home loan interest could be raised from ₹2 lakh to ₹3 lakh to promote the real estate sector.
