Budget 2026: A major change related to income tax is underway just before Budget 2026. This change isn’t just on paper, but will directly impact the daily tax planning of salaried individuals, middle-class families, and small taxpayers.
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Budget 2026: Just before Budget 2026, a major change related to income tax is going to take place. This change is not just on paper, but will directly impact the daily tax planning of salaried individuals, middle-class families, and small taxpayers. Significantly, this time the government is going to revise the new Income Tax Act 2025, not the old Income Tax Act 1961.
Why is the 1961 law being abolished?
In fact, the government has already made it clear that the Income Tax Act 1961 will be completely abolished from April 1, 2026. The new Income Tax Act 2025 will be implemented in its place. This new law received Presidential assent in August 2025, but it has not yet been implemented. Therefore, making changes to a law that is set to expire in a few months through Budget 2026 would be futile. This is why the government will now revise the new Act directly.
The tax system will now be governed by schedules, not sections.
The biggest change in the new Income Tax Act 2025 is its structure. Until now, tax exemptions and deductions were available under different sections, such as 80C, 80D, HRA, and LTA. However, the new law has placed these under a schedule system instead of sections.
For example, deductions like tax-saving investments, NPS, and mediclaim will now fall under a specific schedule. This will make the law easier to read and understand, and will also make it easier for the government to amend the rules in the future.
HRA and LTA are not being abolished.
Many taxpayers fear that exemptions like HRA and LTA will be abolished. But this is not the case. These exemptions will continue to be available as before. The only difference is that their rules will now be written in a fixed schedule, rather than in different sections. This will give the government more scope to amend the rules if needed.
Home Loans and the New Tax Regime
Homebuyers also benefit from this relief. The tax exemption on home loan interest on their own home has been clearly spelled out in the new law. This means the benefit will remain, but the conditions will be more clear.
The new tax regime, currently operating under Section 115BAC, will continue under the new Act. Its structure will remain largely the same, but will be adapted to the new law.
Changes in Rebate Rules
The new Income Tax Act has also clarified the rebate system. The new tax regime provides for rebates on incomes up to ₹12 lakh, while the old tax regime provides for rebates on incomes up to ₹5 lakh. This will directly benefit middle-class taxpayers, especially.
Clear Signals from Budget 2026
The key message of Budget 2026 is that the government intends to simplify the tax system and reduce conflicts in the long term. Instead of repeatedly amending the old law, the new structure is being strengthened.
