Kamal Ghorui
Budget 2026 income tax expectations (AI image)
By Surabhi MarwahThe Union Budget 2026 comes at an important moment, as taxpayers prepare for a major shift—the introduction of the Income-tax Act, 2025 (ITA 2025), effective April 1, 2026. This is one of the most significant updates in decades, and many individuals are hoping that the Budget will ease the transition with clarity and stability.With the new system ahead, households are likely to be looking for measures that offer predictability and simpler compliance so families can plan taxes with confidence.In recent years, India’s personal tax framework has steadily moved towards simplification. The concessional new tax regime became the default structure, with reduced slab rates and fewer exemptions. Capital-gains rules were also made more uniform across asset classes. For households, this shift meant ease of filing with lesser documentation to be maintained, clearer choices between regimes and lower chances of inadvertent errors. These reforms appear to have encouraged wider participation: ITR filings rose from 8.13 crore in FY 2023-24 to 8.68 crore in FY 2024-25, a 6.72% increase, and around 72% of taxpayers opted for the new regime in FY 2023-24.The ITA 2025 reduces the number of sections from 819 to 536 and cuts the overall word count nearly in half—from 5.12 lakh to 2.60 lakh. While this represents meaningful structural simplification, individuals will still need help interpreting what has changed. A plain-English FAQ, along with an “old-to-new” comparison and simple illustrations for salary, rent and capital gains, could convert this statutory rewrite into practical time saved for families.Digital ease continues to be a key expectation. Filing has already become smoother with prefilled returns, enhanced dashboards and faster processing. Strengthening these systems further, especially through more comprehensive prefill of capital-gains, dividend and interest information, would help individuals adapt to the new law with fewer follow-ups and less filing-related stress.Investments in Virtual Digital Assets (VDAs) seem to have grown, and more streamlining around loss set-off and cross-category VDA movements would be helpful especially for the younger investors who may dabble more in these asset classes. Likewise, retail participation in Futures and Options has risen, and many small investors face audit requirements designed for business traders. Simpler, more practical guidance in both areas would help individuals avoid misreporting and unnecessary compliance burdens.For many families, funds being blocked due to taxes being collected at source (TCS) on foreign remittances remains a routine challenge. While salaried taxpayers are now allowed to set-off the TCS against their salary withholding tax (TDS), not all taxpayers are able to avail this benefit especially where the taxpayer has only other sources of income like interest and dividend. This clubbed with backlog of tax disputes results in taxpayers having to wait for longer durations for refunds to be issued. Faster hearings, clearer procedures and more efficient disposal mechanisms would provide meaningful relief to individuals stuck in long pendency. Quicker closure of small-value appeals (on any issue), in particular, could significantly reduce household stress and unnecessary out-of-pocket costs.Households may also look for targeted relief at the lower end of the income spectrum. Under the new tax regime, the current rebate ensures that individuals with income up to Rs 12 lakh face no tax liability. For salaried taxpayers, the Rs 75,000 standard deduction effectively extends this relief to those with gross income up to Rs 12.75 lakh. A further calibrated enhancement, if considered, could help families manage inflationary pressures while keeping the system simple and aligned with the Budget’s broader focus on stability and taxpayer experience.A related development ahead of the Budget is the ICAI’s recommendation to introduce optional joint taxation for married couples, similar to systems in the US and Germany. Under the current law, each spouse files separately, which can disadvantage single-income households that cannot utilise the second spouse’s unused exemptions. Allowing couples to file a joint return could offer meaningful relief to families that pool incomes and plan finances together, particularly where income distribution between spouses is uneven. Overall, as households prepare for this major legislative transition, what they are seeking most is clarity, simplicity and stability. Straightforward rules, easy-to-understand guidance and stronger digital support can help individuals adjust to the new framework with confidence. Addressing administrative challenges, such as TDS/ TCS complexity and delays in dispute resolution, would further ease the transition. (Surabhi Marwah is Partner and Co leader Private Client Services, EY India. Ammu Sadanandhan, Director-Tax, EY India and Ojaswita Pathak, Senior Tax Professional, EY India contributed to the article)
