Budget 2026: Since the new tax regime will legally become the default option from April 2026, the Budget 2026 is expected to focus on refinements rather than major overhauls. Potential changes include rationalization of slabs, selective recognition of long-term savings, and greater parity in the choice of regime across all categories of taxpayers.
With the new income tax law coming into effect from April 1, 2026, the Union Budget 2026 is expected to introduce thoughtful but deliberate changes to the new tax regime. The focus will not be on redesigning the framework, but rather on addressing the apparent structural shortcomings that have emerged since the regime was made the default option.
The most likely area of change is the slab structure itself. “While lower rates have been effective in principle, the current progression creates significant perception problems for middle and upper-middle-income taxpayers. A smoother transition in rates through rationalization of slabs is a logical next step and will address adoption concerns without reintroducing exemptions. This would be consistent with the government’s stated objective of reducing arbitrariness between the old and new regimes,” says Shubham Jain, Director, SVAS Business Advisors.
Secondly, the complete lack of recognition for long-term social security-oriented savings has proven to be a practical weakness. Budget 2026 is expected to introduce limited, clearly defined deductions for retirement and health-related contributions under the new tax regime. This will not compromise simplicity but will align the regime with the economic behavior that the government itself wishes to encourage.
Most importantly, these changes are expected to be incorporated into the new income tax law itself, rather than being introduced as temporary concessions. “With the law coming into effect on April 1, 2026, the government has very little time to ensure that the default regime is also the preferred one. Therefore, the Union Budget 2026 is likely to see a shift from promoting the new tax regime to strengthening it, supported by structural reforms rather than incentives or temporary relief,” Jain explains.
Neeraj Agarwal, Partner, Nangia & Co. LLP, points out that currently, the option to choose between the old tax regime and the new concessional tax regime introduced under Section 115BAC is not uniform across all categories of taxpayers. This disparity has become a growing cause for concern, especially for professionals, freelancers, and business owners.
Salaried taxpayers have the flexibility to choose between the old and new tax regimes each financial year. They can select the system that best suits their income structure, deductions, and exemptions for that particular year, and then switch options again the following year. This annual flexibility allows salaried taxpayers to adjust to changes in income levels, investment patterns, or personal circumstances.
“In contrast, taxpayers with income from business or profession face a far more restrictive framework. Such taxpayers are allowed to switch from the old tax regime to the new tax regime only once. If a taxpayer with business or professional income opts for the new tax regime, they will not be allowed to revert to the old tax regime in any subsequent year, unless their business or professional income ceases entirely,” says Agarwal. “This effectively makes the decision irreversible for those engaged in continuous business or professional activities.”
The rationale behind this restriction appears to be administrative convenience and preventing frequent switching between systems. However, in practice, it creates difficulties for entrepreneurs, freelancers, and self-employed individuals whose income is often volatile and can fluctuate significantly from year to year.
This disparity between salaried taxpayers and those engaged in business or profession limits thoughtful tax planning and reduces flexibility for a segment that already operates in an uncertain economic environment. As the tax system evolves, taxpayers increasingly expect a more flexible and equitable framework that grants business and professional taxpayers the same annual choice available to salaried individuals.