Budget 2026: 10 major changes in Income Tax that will impact salaried employees, middle class taxpayers

New Delhi, February 3, 2026 — The Union Budget 2026-27, presented by Finance Minister Nirmala Sitharaman on February 1, brought a mix of disappointment and relief for salaried employees and middle-class taxpayers. While expectations ran high for direct tax rate cuts or slab adjustments to ease the burden amid rising living costs, no changes were made to income tax slabs or rates under either the old or new regimes. Instead, the focus shifted to structural reforms, simplification of compliance, reduced litigation, and targeted ease for everyday taxpayers.

The most significant announcement was the rollout of the new Income Tax Act, 2025, set to replace the six-decade-old Income Tax Act, 1961, effective from April 1, 2026. Simplified rules and redesigned forms will soon be notified, aiming to make compliance easier for ordinary citizens and reduce disputes.

Here are 10 major income tax-related changes from Budget 2026 that will impact salaried employees and middle-class taxpayers:

1. No changes to income tax slabs or rates — Both old and new regimes remain unchanged. Under the new regime (default for many), income up to ₹4 lakh is tax-free, with graduated rates up to 30% beyond ₹24 lakh. Salaried individuals benefit from a ₹75,000 standard deduction, making income up to ₹12.75 lakh effectively tax-free in practice due to rebates.

2. Implementation of the new Income Tax Act, 2025 — Effective April 2026, this overhauled law promises simpler language, fewer complexities, and reduced litigation, benefiting salaried taxpayers who often face routine compliance issues.

3. Extended deadline for filing revised/updated ITRs — Taxpayers now have more time to correct returns, with the window extended (subject to nominal fees in some cases), reducing pressure on salaried individuals who discover errors post-filing.

4. Staggered ITR filing deadlines — For non-audit cases, deadlines are adjusted (e.g., up to August 31 for some categories), giving salaried taxpayers more flexibility and reducing last-minute rush.

5. Automated NIL or lower deduction certificates for small taxpayers — A new rule-based scheme allows automatic issuance of lower or nil TDS certificates, easing cash flow for middle-class earners with multiple income sources or deductions.

6. Exemption on interest from motor accident claims — Interest awarded by Motor Accident Claims Tribunals (MACT) is now tax-exempt and free from TDS for individuals or heirs, providing relief in compensation cases.

7. Rationalized TCS rates — Lower TCS on certain items (e.g., 2% on specific goods like alcoholic liquor, scrap, minerals, and tendu leaves) reduces the compliance burden and upfront tax outflow for middle-class buyers.

8. Simplified forms and reduced penalties for genuine errors — Emphasis on trust-based administration with lighter penalties for honest mistakes, helping salaried taxpayers avoid undue harassment during assessments.

9. No change in standard deduction — Remains ₹75,000 under the new regime (₹50,000 under old), maintaining predictability but leaving some middle-class hopes for a hike unmet.

10. Other compliance reliefs — Measures like extended time for revised returns and automated processes aim to cut disputes and make the system more taxpayer-friendly, indirectly benefiting salaried employees who form the bulk of individual filers.

While the absence of slab tweaks or higher deductions disappointed many in the middle class—who had hoped for broader relief—the Budget prioritizes long-term simplification over short-term rate cuts. Experts note that the new Act and compliance easing could reduce overall tax hassles, potentially saving time and money for salaried taxpayers in the long run.