Ahead of Budget 2026, the government is preparing to introduce major changes in the income tax system. These changes are not just technical amendments but will have a direct impact on the tax planning of salaried individuals, middle-class families and small taxpayers.

The most important aspect of this year’s budget is that changes will not be made to the old Income Tax Act, 1961, but directly to the Income Tax Act, 2025, which will come into force from April 1, 2026.

The government has already clarified that the Income Tax Act, 1961 will cease to exist from April 1, 2026. In its place, the new Income Tax Act, 2025 will be implemented. This law received the President’s assent in August 2025 but is yet to be enforced.

Since the old law is nearing its end, making changes to it through Budget 2026 would serve little purpose. This is why the government has decided to introduce revisions directly in the new income tax law.

One of the biggest structural changes in the Income Tax Act, 2025 is the replacement of traditional “sections” with a schedule-based system.

Currently, tax deductions and exemptions are spread across multiple sections such as:

• Section 80C




• Section 80D




• HRA




• LTA

Under the new law, these benefits will be grouped under specific schedules. Tax-saving investments, NPS contributions and health insurance deductions will fall under designated schedules, making the law easier to read and simplifying future amendments.

Many taxpayers fear that popular exemptions like House Rent Allowance (HRA) and Leave Travel Allowance (LTA) may be removed. However, this is not the case.

• HRA and LTA benefits will continue




• Only their placement will change—from individual sections to predefined schedules

This move gives the government more flexibility to tweak rules without rewriting multiple sections of the law.

The deduction under Section 80C will also continue under the new framework, though it will be shifted to a schedule-based structure. Investments and expenses covered under it include:

• Public Provident Fund (PPF)




• ELSS mutual funds




• Life insurance premiums




• Children’s tuition fees




• Home loan principal repayment

Whether the deduction limit under 80C will be increased in Budget 2026 will be announced in the budget speech.

Homebuyers can breathe easy, as tax benefits on interest paid on self-occupied house property are clearly mentioned in the new law. While the benefit continues, the conditions are expected to be more clearly defined.

The new tax regime, currently governed by Section 115BAC, will also remain in force under the Income Tax Act, 2025. Its structure will largely remain the same, aligned with the new legal framework.

The rebate structure has also been clarified under the new income tax law:

• Under the new tax regime, rebate will be available for income up to ₹12 lakh




• Under the old tax regime, rebate will continue for income up to ₹5 lakh

This is expected to provide direct relief to middle-class taxpayers.

Budget 2026 sends a clear message that the government wants a simpler, more transparent and dispute-free tax system. Instead of repeatedly amending the old law, the focus is now on strengthening a modern tax structure designed for the long term.

All eyes will now be on Finance Minister Nirmala Sitharaman as she presents the Union Budget on February 1, which will reveal how much real relief taxpayers can expect in the coming financial year.

Bottom Line:
With the rollout of the Income Tax Act, 2025, the way taxpayers plan their taxes will evolve. However, key benefits like HRA, LTA, Section 80C and home loan deductions are here to stay. Budget 2026 marks the beginning of a more streamlined and future-ready tax system in India.