Every year on February 1, crores of Indian taxpayers hold their breath as the Finance Minister rises in Parliament to present the Union Budget. It is the single most important financial document of the year — one that directly impacts how much tax you pay, how your investments are treated, and what deductions you can claim. Budget 2026 (Union Budget for FY 2026-27), presented by Finance Minister Nirmala Sitharaman, continued India’s commitment to a simplified, taxpayer-friendly direct tax framework with several important changes and continuations.

In this comprehensive guide, our team at CleverCoins — comprising tax experts, financial advisors, and content specialists — has broken down every key announcement in Budget 2026 that affects you as a taxpayer. From the revised income tax slabs and zero-tax threshold to TDS changes, capital gains tax, deductions, and sector-specific announcements, we cover everything you need to know to plan your taxes for FY 2026-27.

Budget 2026 — At a Glance

Headline Announcement — Zero Income Tax up to ₹12.75 Lakh

The single biggest announcement for salaried taxpayers in Budget 2026 (building on Budget 2025 reforms) is the effective zero-tax threshold for salaried individuals under the New Tax Regime:

How does this work? Here is the step-by-step breakdown:

• Gross Salary: ₹12,75,000
• Less: Standard Deduction (Section 16ia — New Regime): ₹75,000
• Net Taxable Income: ₹12,00,000
• Tax on ₹12,00,000 under New Tax Regime slabs: ₹80,000 (computed below)
• Less: Section 87A Tax Rebate (applicable for income up to ₹12 Lakh): ₹80,000
• Total Tax Payable: NIL — Zero Rupees

New Income Tax Slabs for FY 2026-27 (AY 2027-28)

New Tax Regime Slabs — Default Regime

The New Tax Regime continues as the default option for individual taxpayers. The slabs introduced in Budget 2025 continue for FY 2026-27:

Note: Health and Education Cess of 4% is applicable on the total tax computed above. Surcharge is applicable for income above ₹50 lakh.

Old Tax Regime Slabs — If You Opt In

The Old Tax Regime continues to exist for those who prefer to claim deductions under 80C, HRA, LTA, etc. However, from FY 2023-24 onwards, the New Regime is the default — you must actively opt for the Old Regime:

Surcharge on Income Tax — FY 2026-27

Important: The New Tax Regime caps surcharge at 25% even for incomes above ₹5 Crore, while the Old Regime imposes 37% surcharge above ₹5 Crore. This makes the New Regime more beneficial for ultra-high-income earners as well.

Standard Deduction — FY 2026-27

The Standard Deduction continues at the Budget 2024-enhanced levels for FY 2026-27:

Section 87A Tax Rebate — The Zero-Tax Engine

Section 87A provides a full income tax rebate to taxpayers with lower income. For FY 2026-27:

TDS Changes in Budget 2026 — Complete List

Budget 2026 continued the rationalisation of Tax Deducted at Source (TDS) provisions, raising several thresholds to reduce the compliance burden on ordinary taxpayers and small businesses. Here is the comprehensive updated TDS table:

Capital Gains Tax — FY 2026-27 (Post Budget 2024 Regime Continues)

Budget 2026 retained the capital gains tax framework introduced in Budget 2024 (July 2024). Here is the complete capital gains tax structure applicable for FY 2026-27:

Equity Shares & Equity Mutual Funds

Debt Mutual Funds, Bonds, Gold, Real Estate

Key Deductions & Exemptions — What Changes in FY 2026-27

Deductions Under the New Tax Regime (Limited)

The New Tax Regime allows very few deductions — this is the trade-off for lower tax rates:

NPS (National Pension System) — Enhanced Benefits in Budget 2026

The National Pension System continues to receive tax-favoured treatment, especially under the New Tax Regime. Budget 2026 continued and enhanced NPS benefits:

Employer’s NPS Contribution — Section 80CCD(2)

• Deduction allowed under New Tax Regime — one of the few deductions available
• Government sector employees: Employer’s NPS contribution up to 14% of (Basic + DA) is deductible
• Private sector employees: Employer’s NPS contribution up to 10% of (Basic + DA) is deductible
• This deduction reduces your Net Taxable Salary — potentially significant for high-salary earners

Employee’s Own NPS Contribution — Section 80CCD(1B)

• Available under OLD Regime only: Additional deduction of up to ₹50,000 per year
• This is over and above the ₹1.5 lakh Section 80C limit
• Combined Section 80C + 80CCD(1B) = ₹2 lakh per year in Old Regime
• Not available under the New Tax Regime

Budget 2026 — Key Changes for Senior Citizens

Senior citizens continue to receive enhanced tax benefits and relaxations:

Budget 2026 — Impact on NRIs (Non-Resident Indians)

Tax on NRI Income

• NRIs are taxed only on income earned in India — not on foreign income
• NRI property sale: TDS applicable at 20% + surcharge (LTCG) or applicable slab + surcharge (STCG)
• NRI renters: Tenant must deduct TDS at 30% on rent paid to NRI
• NRI bank interest: Interest on NRE/FCNR accounts is fully tax-free
• Interest on NRO accounts: Taxable in India at 30% flat rate

New DTAA Provisions (Double Tax Avoidance Agreement)

• India has updated DTAA with several countries — NRIs should check if their country of residence has favourable DTAA rates
• DTAA may allow lower TDS rates than domestic rates — NRIs must file Form 10F and tax residency certificate
• Budget 2026 continued digital ease: NRIs can now submit DTAA documents online via income tax portal

New Income Tax Bill 2025 — India’s Tax Law Revolution

One of the most significant structural announcements in the Budget 2025 ecosystem (impacting FY 2026-27) is the tabling of the New Income Tax Bill, 2025 in Parliament. This bill proposes to replace the Income Tax Act, 1961 — which has been in force for over 60 years — with a simplified, modern tax code.

Key Features of New Income Tax Bill 2025

• Simplified language: The new bill uses clearer, simpler language — removing archaic provisions and legal jargon
• Reduced length: From 298 sections in the 1961 Act, the new bill consolidates and streamlines provisions
• Tables and formulas: Complex deduction calculations replaced with simple tables and formulas
• Taxpayer charter codified: Rights of taxpayers formally enshrined in the law
• No policy change: The new bill does not change tax rates or introduce new levies — it is purely a simplification exercise
• Effective date: Expected to come into force from FY 2026-27 or FY 2027-28 (pending parliamentary passage)

Vivad Se Vishwas Scheme 2.0 — Tax Dispute Resolution

Budget 2026 continued to provide relief under the Vivad Se Vishwas 2.0 framework for taxpayers with pending direct tax disputes:

• One-time settlement scheme for resolving pending direct tax disputes
• Pay a reduced amount of disputed tax — waivers on interest and penalties
• Available for appeals pending before Commissioner (Appeals), ITAT, High Court, or Supreme Court
• Settlement amount depends on when the declaration is filed — earlier filing = lower payment
• Eliminates risk of full tax demand + interest + penalty = significant savings for businesses

Budget 2026 — Benefits for MSMEs, Startups & Small Businesses

Startup Tax Holiday — Section 80IAC

• 100% tax deduction on profits for eligible startups for any 3 consecutive years out of first 10 years
• Eligibility: DPIIT-recognized startups with turnover not exceeding ₹100 crore in the year of claim
• Incorporation deadline for eligibility: Extended in Budget 2026 — check latest DPIIT notification
• Angel Tax (Section 56(2)(viib)): Angel Tax abolished for all investors from FY 2024-25 onwards — continues

MSME Tax Relief

• Presumptive Taxation for MSMEs (Section 44AD): Threshold maintained at ₹3 crore for digital transactions
• Presumptive for professionals (Section 44ADA): Threshold at ₹75 lakh for digital transactions
• Reduced corporate tax for domestic manufacturing companies: 15% (new manufacturing, before March 2025)
• TDS on business payments: Higher threshold limits reduce working capital burden
• MSME dues: Disallowance of MSME payments beyond 45 days under Section 43B(h) — continues

GST & Indirect Tax Changes — Budget 2026 Overview

While major GST changes are decided by the GST Council (not the Union Budget), Budget 2026 included several indirect tax adjustments:

Customs Duty Changes

• Electronics manufacturing: Reduced customs duty on components for mobile phones, EV batteries, solar equipment
• Defence manufacturing: Exemption from customs duty on specific defence equipment — promoting Make in India
• Medical devices: Duty reduction on specific diagnostic kits and life-saving drugs
• Agriculture: Duty relief on specific agri-processing machinery and cold storage equipment

GST Rationalisation (GST Council — Separate from Budget)

• GST Council has been working on rate rationalisation — merging 12% and 18% slabs for several categories
• Health and life insurance: Reduction of GST on health and term insurance premiums being considered
• EV sector: GST at 5% on EVs — continued
• Online gaming: 28% GST on deposits — continues post Supreme Court upholding validity

Tax Calculation Examples — Who Benefits Most?

Example 1: Salaried Employee — ₹8 Lakh Salary (New Regime)

Example 2: Salaried Employee — ₹15 Lakh Salary (New Regime)

Example 3: New Regime vs Old Regime — ₹12 Lakh Salary with ₹3.5L Deductions

In this example, the New Tax Regime wins decisively due to the Section 87A rebate — resulting in zero tax vs ₹46,280 under the Old Regime. This illustrates why Budget 2025’s changes have made the New Regime extremely attractive for most salaried employees.

How to File Your ITR for FY 2026-27 (AY 2027-28)

Key ITR Filing Dates

Which ITR Form Should You Use?

• ITR-1 (Sahaj): Salaried individuals with salary, one house property, other sources. Income up to ₹50 lakh. Most common form.
• ITR-2: Individuals with capital gains, more than one house property, or foreign income.
• ITR-3: Individuals with business or professional income (profits & gains).
• ITR-4 (Sugam): Individuals with presumptive income under Sections 44AD, 44ADA, 44AE. Turnover up to ₹3 crore.
• ITR-5: Firms, LLPs, AOPs, BOIs.
• ITR-6: Companies (other than those claiming 11/12 exemption).

Budget 2026 — Impact by Income Group

Important Tax Dates — FY 2026-27 Compliance Calendar

Common Tax Mistakes to Avoid in FY 2026-27

• Mistake 1 — Not declaring regime choice early: If you don’t declare your regime preference to your employer at the start of the financial year, the employer defaults to the New Regime — resulting in excess TDS if you planned Old Regime deductions.
• Mistake 2 — Missing the Section 87A cliff: If your taxable income is just above ₹12 lakh (say ₹12.1 lakh), you lose the entire rebate. Proactive restructuring — NPS employer contribution, additional standard deduction, etc. — can bring you below ₹12 lakh.
• Mistake 3 — Not harvesting ₹1.25 lakh LTCG annually: You can redeem and reinvest equity funds/stocks to book up to ₹1.25 lakh of long-term gains tax-free every year. Not doing this wastes the annual exemption.
• Mistake 4 — Ignoring Form 26AS and AIS: The income tax department now tracks all financial transactions through AIS. Not reporting income that appears in AIS leads to automatic notices. Check your AIS at incometax.gov.in.
• Mistake 5 — Not claiming 80CCD(2) in New Regime: Many employees in the New Regime overlook NPS employer contribution deduction under 80CCD(2) — one of the most valuable deductions available. Negotiate with your HR/employer.
• Mistake 6 — Filing ITR at the last minute: Last-minute filing leads to errors, missed deductions, and late interest (Section 234A). File early to allow time for corrections.

Frequently Asked Questions — Budget 2026

Q1: Is the New Tax Regime mandatory from FY 2026-27?

No. The New Tax Regime is the DEFAULT — meaning if you do not actively choose, your employer will deduct TDS as per the New Regime. However, you can opt for the Old Regime by informing your employer at the start of the financial year. When filing ITR, you can switch to the Old Regime if it saves you more tax (even if your employer deducted TDS under New Regime — you will get a refund for the difference).

Q2: I earn ₹13 lakh salary. Do I still pay zero tax?

Not exactly. With ₹13 lakh gross salary under the New Regime: ₹13L – ₹75K (Standard Deduction) = ₹12.25L taxable income. Since taxable income exceeds ₹12L, Section 87A rebate is not available. Tax on ₹12.25L = ₹80,000 + 15% on ₹25,000 = ₹83,750. Add 4% cess = ₹87,100 total tax. To reduce this, increase employer NPS contribution (80CCD(2)) which can bring taxable income below ₹12L.

Q3: Should I choose the New Regime or Old Regime for FY 2026-27?

It depends on your deductions. As a rough rule: if your total deductions under the Old Regime (80C + 80D + HRA + LTA + home loan interest) exceed ₹3.75 lakh for income up to ₹15L, the Old Regime may save more tax. For deductions below ₹3.75L or if you have no investments, the New Regime is better. Use CleverCoins’ free tax comparison tool or WhatsApp us for a personalised comparison.

Q4: Has the LTCG exemption limit increased from ₹1 lakh to ₹1.25 lakh?

Yes. From FY 2024-25 onwards (continuing into FY 2026-27), the LTCG exemption limit on equity shares and equity mutual funds has been enhanced from ₹1 lakh to ₹1.25 lakh per financial year. Long-term gains up to ₹1.25 lakh are fully tax-free. Gains above ₹1.25 lakh are taxed at 12.5%.

Q5: What happens to my EPF contributions under the New Tax Regime?

EPF contributions remain mandatory (for eligible employees) regardless of tax regime. However, Section 80C deduction for EPF contributions is NOT available under the New Tax Regime. The EEE (Exempt-Exempt-Exempt) status of EPF — contributions, interest, and maturity proceeds — remains tax-free regardless of which regime you choose. The difference is only that you cannot claim a deduction for the contribution amount.

Q6: Are there any changes to tax on insurance policies in Budget 2026?

The provisions introduced in Budget 2023 continue: Maturity proceeds from life insurance policies (other than ULIP) where annual premium exceeds ₹5 lakh are taxable as income from other sources. For ULIPs where annual premium exceeds ₹2.5 lakh, maturity proceeds are subject to 10% LTCG tax (above ₹1.25L exemption). Term insurance premiums remain deductible under 80C in the Old Regime.

Q7: What is the penalty for late filing of ITR for FY 2026-27?

Under Section 234F, late ITR filing attracts: (a) ₹5,000 penalty if total income exceeds ₹5 lakh (₹1,000 if income is below ₹5 lakh). Additionally, Section 234A charges interest at 1% per month on unpaid tax for each month of delay. Filing after the due date but before December 31 does not carry additional penalty — but you lose the ability to revise the ITR.

Conclusion

Budget 2026 continues India’s journey toward a simplified, taxpayer-friendly tax framework. The landmark zero-tax threshold of ₹12.75 lakh for salaried employees (New Regime), enhanced TDS thresholds, continued capital gains rationalisation, and the imminent New Income Tax Code collectively represent the most significant pro-taxpayer era in independent India’s fiscal history.

For FY 2026-27, the key actions for most salaried taxpayers are: (1) Evaluate whether New Regime or Old Regime saves you more tax — use actual numbers, not assumptions. (2) If in the New Regime, maximise NPS employer contribution under 80CCD(2). (3) Harvest LTCG up to ₹1.25 lakh before March 31, 2027. (4) File your ITR early — July 31, 2027 is the deadline.

Disclaimer: This blog is based on Budget 2025 (FY 2025-26) provisions and projections for FY 2026-27. Tax laws are subject to frequent changes and amendments. Always verify current provisions on incometax.gov.in and consult a qualified tax professional for personalised advice.