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As the Union Finance Minister prepares to present the Budget for FY 2026–27 on February 1, expectations are running high among individual taxpayers. As the government seeks to balance fiscal consolidation with growth, the middle class hopes for reforms that ease compliance, reduce tax burdens, and encourage savings and investment.
One of the most pressing demands is a reduction in personal income tax rates, particularly for those earning up to INR 15 lakh annually. Taxpayers are looking for rationalisation of tax slabs under both the old and new regimes, along with an increase in the basic exemption limit to provide meaningful relief. Such measures would not only reduce tax outgo but also lower compliance costs by reducing the obligation to file returns for smaller taxpayers. For high-income earners, a reduction in surcharge rates is equally important to bring down the maximum marginal tax rate, which currently feels punitive.
The new tax regime, though simplified, still lacks the appeal of the old regime because of limited deductions. Taxpayers expect the government to make it more attractive by introducing progressive standard deductions for salaried individuals and allowing essential deductions for health insurance, home loan interest, and life insurance. These changes would create parity between salaried and non-salaried individuals and make the regime more inclusive.
Compliance simplification is another area where reforms are overdue. When a property seller is a resident, the TDS process is simple and can be completed using a single challan-cum-statement in Form 26QB. However, when the seller is an NRI, the process becomes cumbersome. Taxes are withheld at higher rates, and the buyer must obtain a TAN and file e-TDS returns after depositing the tax. Since property transactions are usually one-time events, obtaining a TAN solely for this purpose often results in numerous inactive TANs. Introducing a mechanism similar to that for resident sellers would significantly ease this burden.
Another expectation towards ease of compliance is an increase in the threshold for advance tax compliance. Currently, taxpayers must pay advance tax if their annual liability exceeds INR 10,000. Raising this limit to INR 50,000 would reduce the compliance burden for small taxpayers and allow them to focus on their core financial priorities.
Similarly, tax payments and refunds through overseas bank accounts should be allowed for NRIs and others living abroad. Taxpayers without Indian bank accounts often face challenges in paying taxes or receiving refunds, as payments can currently be made only through Indian banking channels such as NEFT, RTGS, net banking, or UPI.
Tax policy changes that promote sustainability are also on the radar. Under Rule 3(2) of the Income Tax Rules, the valuation of perquisites for employer-provided motor cars is based on engine capacity, which applies only to conventional fuel vehicles. There is no specific provision for electric or hybrid cars. Amending this rule to include battery capacity as a valuation criterion would bring much-needed clarity.
Additionally, reinstating the deduction for interest paid on loans for electric vehicles under Section 80EEB, with a higher limit of INR 2,00,000, would encourage wider adoption of green mobility.
Finally, taxpayers are seeking measures to reduce litigation and improve certainty. Automated systems have led to a surge in notices triggered by minor mismatches between AIS, TDS records, and returns. Introducing materiality thresholds and stronger reconciliation mechanisms would prevent unnecessary scrutiny. Strengthening the appellate process and ensuring timely disposal of pending appeals would also help restore confidence in the system.
As Budget 2026 approaches, the middle class hopes for reforms that address rising costs of housing, healthcare, and education while simplifying compliance and reducing litigation. A budget that delivers clarity, fairness, and convenience will not only ease taxpayer hardships but also strengthen trust in India’s tax system.
This article first appeared in the Moneycontrol on 31 January 2026.
