When Finance Minister Nirmala Sitharaman presents the Union Budget 2026-27 on February 1, the headline numbers will be about growth, fiscal deficit and spending priorities. But for India’s salaried class, the Budget’s most immediate impact is far more personal: From April, how much tax will deducted from the salary, and what’s the take-home.
This impact typically comes through changes to income-tax (I-T) slabs, the standard deduction, and the rules that determine what salaried taxpayers can claim as relief under the old and new I-T regimes. Budget choices can also influence real earnings indirectly, by shaping inflation and the cost of essentials. This means one's salary may feel bigger or smaller even if your payslip number remains unchanged.
This year, expectations are unusually high because Budget 2026-27 comes just weeks before the new I-T law framework sets in from April. Several tax experts believe the government may focus less on slab rewrites and more on making the system easier to comply with, especially for employees and employers managing tax deducted at source (TDS).
I-T slabs
The most direct way the Budget affects your monthly salary is via changes in I-T slabs. These determine how much of your income is taxed at each rate and even small tweaks can alter the annual tax outgo and the monthly TDS deducted by an employer.
In Budget 2025-26, the government made a major shift for those choosing the new tax regime, by making income up to Rs12 lakh effectively tax-free through an enhanced rebate. This was up from the earlier Rs7 lakh threshold. This increased expectations that the government could finetune the structure further in this year's Budget.
Brokerage Motilal Oswall, in its pre-Budget expectations note for salaried individuals, flagged the point at which taxpayers enter the highest slab under the new regime as a key pressure area. It noted that, under the current structure, individuals earning above Rs24 lakh reach the peak 30 percent tax rate, and argues this happens earlier for Indian professionals compared with global peers. Its stated demand is to raise the 30 percent slab threshold from Rs24 lakh to Rs40 lakh, a change that it says could boost discretionary spending.
Standard deduction
Another thing for salaried taxpayers to watch out for is the standard deduction. A standard deduction is a flat reduction allowed from salary income before tax is calculated. Unlike many deductions, it does not require proofs, paperwork or specific spending. It matters because an increase in the standard deduction would translate into lower taxable salary, lower TDS deducted by employers, and slightly higher take-home pay from April.
Old tax regime: Better if you claim deductions
The old-vs-new regime decision remains central for salaried Indians because the two systems reward different financial behaviours.
The old regime is still preferred by taxpayers who rely on exemptions and deductions such as:
Section 80C (up to Rs1.5 lakh for provident fund, PPF, ELSS, life insurance, etc.)
Section 80D (health insurance premium)
HRA (House Rent Allowance), where eligible
LTA (Leave Travel Allowance), where applicable
Section 24(b) (home loan interest on self-occupied property, subject to limits)
New tax regime: Lower rates, fewer deductions
The new regime is designed to be simpler, with fewer exemptions and deductions—but lower slab rates. This makes it attractive for taxpayers who don’t claim much under 80C/80D, or prefer minimal paperwork.
Ahead of Budget 2026-27, a big question is whether the government tries to make the new regime more balanced by allowing select deductions or whether it continues to push simplicity as the trade-off.
Tax benefits that change what you can save
Budget announcements also affect how salaried taxpayers plan savings, particularly through tax-linked products. The most watched areas include:
Retirement planning tools such as NPS (National Pension System)
Deduction ceilings under 80C and 80D
Employer-linked retirement benefits and exemptions
Even if slabs are unchanged, adjustments to deduction limits can reshape personal finance decisions. This is especially crucial for families balancing home loans, health insurance and long-term savings.
How Budget decisions affect job and wage trends
Budget announcements can also affect salaries indirectly through labour market conditions. Incentives and spending announcements aimed at industries, manufacturing, infrastructure or new-economy sectors can influence hiring momentum, wage growth in specific sectors, job stability, and new opportunities.
For salaried households, that can matter as much as tax relief as stronger job markets can improve bargaining power over time.
What to watch out for in Budget 2026-27
Tax professionals feel that the government may prioritise system upgrades over headline-grabbing tax changes. EY’s pre-Budget view suggests the Finance Minister may focus on building trust with taxpayers and using digitisation to make compliance simpler, particularly for employees and employers who deal with filings, TDS and refunds through the year. Instead of frequent rate changes, the emphasis could be on administrative improvements that reduce friction and uncertainty.
That could include:
Simpler tax return forms and clearer filing workflows
More timely updates on tax payment and refund status
Quicker processing of returns and refunds
Less anxiety-inducing last-minute compliance nudges, and more predictable communication
A pre-Budget expectations survey conducted by Grant Thornton Bharat for Budget 2026-27, flagged the transition to the new I-T Act as a major “pressure point”, with respondents asking for a longer adjustment window with softer penalties, dedicated support channels, and early FAQs to reduce compliance risk.
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On the personal tax front, the survey suggests salaried taxpayers still want changes to the new regime. Most respondents want the government to widen slab intervals or lower rates, while others want limited deductions or a progressive standard deduction linked to income levels.
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Meanwhile, businesses want the government to prioritise clarity and predictable implementation rather than pile on fresh announcements.
