India's budget may raise tax-free income to Rs 17 lakh Finance Minister Nirmala Sitharaman is set to present the Union Budget 2026-27 on February 1, with taxpayers and industry groups anticipating further relief under the new income tax regime. Following last year's decision to exempt income up to Rs 12 lakh from taxation, experts believe the upcoming budget could push the effective tax-free threshold to approximately Rs 17 lakh through a combination of enhanced deductions. The move would mark the second consecutive year of tax relief for India's middle class, building on reforms that have driven a shift toward the simplified new tax regime. According to official data, approximately 72 percent of income tax returns, some 52.7 million of 72.8 million filings in assessment year 2024-25, were submitted under the new regime. Industry Bodies Push for Deductions The Institute of Chartered Accountants of India (ICAI) , along with chambers like FICCI and Assocham , have submitted pre-budget memoranda calling for targeted relief. ICAI's most prominent recommendation involves allowing health insurance premium deductions under Section 80D for taxpayers who have adopted the new regime. "Medical expenses have been rising steadily, and the absence of mediclaim deductions under the new tax regime is a clear gap," said Nitin Baijal, Executive Director at Deloitte India. ICAI has also proposed raising the standard deduction from Rs 75,000 to Rs 1.5 lakh and the basic exemption limit from Rs 4 lakh to Rs 8 lakh. Experts at Grant Thornton and Vialto Partners have suggested the government may consider increasing the standard deduction to Rs 90,000 and potentially allowing deductions for home loan interest and employer NPS contributions to make the new regime more attractive. The surcharge threshold for individuals could also be raised from Rs 50 lakh to Rs 75 lakh to prevent middle-income earners from crossing into higher tax brackets prematurely. How the Rs 17 Lakh Figure Is Calculated According to industry analysis, if the government accepts proposals for a Rs 1 lakh standard deduction, Rs 2 lakh deduction on home loan interest, Rs 1.5 lakh on home loan principal, and Rs 50,000 for health insurance, combined with the existing Rs 12 lakh direct exemption, the total effective tax-free income could reach Rs 17 lakh. Senior citizens may receive special attention, as many continue to prefer the old tax regime due to limited relief in the new system. ICAI has called for provisions addressing their medical expenses and the lower basic exemption limits that currently apply to them. The budget will also implement the new Income Tax Act 2025, which comes into force on April 1, 2026, replacing the six-decade-old 1961 statute with a streamlined framework that shifts key exemptions into schedules and consolidates provisions.
