Budget Expectations 2026: Between Hope, Hype and Hard Reality
By the time you read this column, the nation will be barely a week away from the annual ritual called the Union Budget. Offices will buzz, WhatsApp groups will explode, TV studios will turn into virtual trading floors of speculation, and every Indian-taxpayer or otherwise-will suddenly transform into a budget expert. After all, nothing unites India more than cricket and income tax discussions.
Every year, expectations are sky-high, and every year, reality politely reminds us that budgets are about balance, not miracles. Budget 2026 is no exception. Yet, this year carries an additional flavour-because it comes at a time when a brand-new Income-tax Act, 2025 is ready with its wings to take over from 1st April 2026
The biggest confusion doing the rounds is this: “If a new Income-tax Act is already enacted, will the Finance Minister even bother to make changes in it?” The short answer is-don’t underestimate the power of a Budget speech. The Income-tax Act, 2025, despite its shiny new label, is largely a renumbered and reorganized version of the old 1961 law. The core philosophy, structure, and even many of the provisions remain familiar, just wearing new section numbers like a wardrobe makeover. Therefore, some tinkering before it becomes operational is not only possible, but quite likely.
The irony, however, is delicious. The very objective of bringing a new Act was to simplify the law and reduce clutter. If amendments start raining even before the Act is implemented, we may end up recreating the same complicated monster-only with a different birth certificate. Whether the Government resists this temptation or walks down the same well-trodden path is something only time-and the Budget-will tell.
On the tax rates front, expectations should remain realistic. A dramatic overhaul of slabs or rates appears unlikely. The government has already invested considerable political capital in pushing the new tax regime as the default option. Frequent changes may dilute that message. However, one area where genuine relief may be possible is surcharge. Tax revenues have seen a sharp rise over the last five years, almost double in last 5 years. Direct tax collections have consistently exceeded estimates, and compliance levels have improved significantly due to technology-driven monitoring. In such a scenario, a rationalization or partial rollback of surcharge-especially at the higher income levels-would send a strong positive signal without disturbing the basic tax structure. For many taxpayers, surcharge feels like that extra spoon of salt which ruins an otherwise decent dish. Removing or reducing it could be a silent yet meaningful relief.
Another area where Budget 2026 could make a meaningful difference is capital gains taxation. Recent increases in equity STCG and the uniform approach to taxing long-term assets across classes may have been driven by policy consistency, but they have also dampened market sentiment. Equity markets thrive on confidence, liquidity and exit visibility. When markets remain weak, investments slow, valuable years are lost, and broader economic targets suffer. A calibrated rollback-such as restoring lower STCG on equities and offering meaningful relief in long-term capital gains-could revive participation across FIIs, DIIs and retail investors alike. Even a rationalization of Securities Transaction Tax deserves consideration; historically, STT was introduced when equity LTCG was exempt, based on the logic of having one levy, not two. Today, STT itself is a significant revenue source, and a modest reduction could deepen volumes and improve market depth without materially hurting collections. With global markets showing resilience while Indian equities underperform, improving post-tax, currency-adjusted returns may soon become a necessity.
Another issue that deserves serious attention-but rarely makes headlines-is notional taxation. Over the years, the tax law has increasingly moved towards taxing hypothetical income rather than actual cash flows. Be it deemed rent on vacant houses, taxation of notional interest, fair market value adjustments, or artificial income triggers without real receipt-taxpayers are often asked to pay tax on money they never actually received. Notional taxation may look elegant on paper, but it pinches hard for middle-class families and small businesses. Cash flow, not accounting fiction, justifies tax. If the Government is truly committed to “ease of living” and “ease of doing business,” rationalisation of notional income provisions would be welcome. Unfortunately, this is one expectation that taxpayers have learnt to keep modest-experience is a strict teacher.
One area where the Budget may continue its quiet but firm march is compliance tightening. Data is the new oil, and the tax department is sitting on a refinery. With SFT, TDS, AIS, and pre-filled returns becoming more sophisticated, the net is only getting wider. Budget 2026 may further expand reporting obligations, especially in sectors handling high-value transactions. The message is simple: if money moves, let the system track it.
Stricter compliance does not necessarily mean higher tax burden. In fact, better compliance often creates room for rate rationalization elsewhere. The Government appears to be betting on widening the base rather than squeezing the compliant taxpayer harder-a philosophy that deserves cautious optimism.
One area where genuine reform is expected-though it may not grab headlines-is tax dispute resolution. There is strong demand for faster and structured mechanisms, including mediation-based settlements, reduction in prolonged appeals, and quicker disposal of transfer pricing issues like APAs. This aligns with the government’s broader narrative of “trust-based taxation” and ease of doing business.
From a broader perspective, Budget expectations should also be viewed through the lens of political maturity. Big-bang announcements generate applause, but stability builds confidence. Taxpayers today value predictability more than surprises. A calm, consistent tax policy-even without fireworks-may actually be the most sensible outcome.
As for the Income-tax Act, 2025, the coming Budget could well be the last opportunity to fine-tune it before rollout. Whether this fine-tuning remains surgical or turns into cosmetic over engineering will define the law’s future. One hopes the Government remembers that simplicity is not achieved by rewriting sections, but by resisting the urge to over-legislate.
In conclusion, Budget 2026 may not deliver dramatic tax cuts or headline-grabbing exemptions. But it holds the potential to shape the tax ecosystem for the next decade. A lighter surcharge, restraint in notional taxation, disciplined handling of the new Income-tax Act, and continued trust in technology-led compliance could make this Budget quietly impactful. Budget Day, after all, is less like a Bollywood climax and more like a long-running web series-each season matters, but consistency keeps the audience hooked. As the Finance Minister rises to present the Budget on 1st February, taxpayers will watch with hope, caution, and just a little humour-because in India, even taxation is an emotional subject.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
