Some of the expectations on the personal tax front from the Budget 2026 are as follows:
Under the prevailing income-tax framework, India follows an individual-based system of taxation, wherein each spouse is assessed separately, irrespective of marital status or the extent to which household income and expenditure are shared. While this system ensures individual tax accountability, it does not adequately reflect the economic realities of married households, where financial decisions relating to income, savings, and consumption are often made jointly.
Several developed and emerging economies recognise the household as an economic unit and permit joint or family-based taxation, thereby offering married couples flexibility in structuring their tax affairs. In contrast, the absence of an optional joint taxation framework in India may result in inequities, particularly in single-income or uneven-income households, where the higher-earning spouse is subject to a disproportionately higher tax burden.
The introduction of an optional joint taxation mechanism would better align the tax system with household-level economic realities, facilitate more efficient tax planning for families, and preserve individual choice within the existing framework. Such a mechanism could provide for aggregation or partial pooling of income for the purposes of determining applicable rates or rebates.
Accordingly, it is recommended that an optional joint taxation regime be introduced for married couples, allowing them to elect to file a joint return while retaining the existing system of separate taxation as the default option.
Section 80TTB of the Income-tax Act provides senior citizens with a deduction of up to Rs. 50,000 in respect of interest income earned from deposits. In furtherance of taxpayer relief, the Government has enhanced the threshold for non-deduction of tax at source on interest income under section 194A (corresponding to section 393(1) [Table: S. No. 5(ii)] of the ITA 2025) to Rs. 1,00,000, pursuant to the amendments introduced by the Finance Act, 2025.
However, the deduction limit under section 80TTB has not been correspondingly revised, resulting in a mismatch between the policy intent behind the enhanced TDS threshold and the continued tax incidence on senior citizens. This misalignment also increases the compliance burden for such taxpayers.
In view of the enhanced threshold for non-deduction of tax at source, it is recommended that the deduction limit under section 80TTB be increased to Rs. 1,00,000 so as to provide meaningful relief to senior citizens.
Section 80D (corresponding to section 126 of ITA 2025) provides a deduction in respect of medical insurance premiums paid or contributions made to the Central Government Health Scheme or any other notified scheme for self, spouse, dependent children, and parents. Additionally, senior citizens aged 60 years or above, who are not covered by health insurance, are allowed a deduction of up to Rs. 50,000 in respect of actual medical expenditure.
At present, the benefit of deduction for medical expenditure is restricted to senior citizens. Given the rising healthcare costs and limited insurance coverage for many individuals, it is recommended that this benefit be extended to individuals other than senior citizens as well.
Further, considering inflation and the increasing cost of medical care, the overall deduction limit under section 80D should be enhanced to Rs. 1,00,000. It is also suggested that the deduction under section 80D be made available under the new tax regime to ensure equitable relief across tax regimes.
Section 56(2)(x) of the Income-tax Act (corresponding to section 92(2)(m) of ITA 2025) provides that where a person receives any property without consideration, or for inadequate consideration, and the difference between the fair market value and consideration exceeds Rs. 50,000, such difference shall be taxable as income from other sources.
The threshold limit of Rs. 50,000 under this provision was last revised in the Budget of 2006 (earlier covered under section 56(2)(vi)). Given the significant inflation and rise in the cost of living since then, the existing threshold has become outdated and unduly restrictive.
Accordingly, it is recommended that the threshold limit under section 56(2)(x) be enhanced to Rs. 1,50,000 to reflect present-day economic realities and reduce hardship to taxpayers.
Under the Income tax Act, capital gains tax is levied on the transfer of capital assets. Section 47 (corresponding to section 70 of ITA 2025) excludes certain specified transactions from the definition of “transfer” and, consequently, from the levy of capital gains tax.
Capital assets are often transferred among family members pursuant to bona fide family settlements. While section 56(2)(x) excludes transfers between specified relatives from being treated as income, and judicial precedents have consistently held that genuine family settlements do not give rise to capital gains, section 47 does not explicitly provide an exemption for such transactions.
In order to provide statutory clarity, reduce litigation, and align the law with settled judicial principles, it is recommended that family settlements among relatives be expressly included within the scope of section 47 and excluded from the definition of “transfer” for capital gains purposes.
At present, the due date for filing a belated return under section 139(4) (corresponding to section 263(4) of ITA 2025) is 31st December of the relevant assessment year. Filing a belated return also attracts a late fee of Rs. 5,000, subject to a reduced cap of Rs. 1,000 where total income does not exceed Rs. 5 lakh.
Extending the due date for filing belated returns would provide taxpayers with additional time to compile necessary information and comply with their filing obligations. This, in turn, is likely to improve voluntary compliance and reduce instances of non-filing due to procedural or logistical constraints.
A more flexible timeline encourages compliance without compromising revenue interests and aligns with the broader objective of fostering a taxpayer-friendly and non-punitive tax administration. Accordingly, it is recommended that the due date for filing belated returns be extended to the end of the relevant assessment year, i.e., 31st March.
Certain categories of capital gains are taxed at special rates, including short-term capital gains on equity shares and equity-oriented funds under section 111A (corresponding to section 196 of ITA 2025) and long-term capital gains under section 112A (corresponding to section 198 of ITA 2025). The rebate under section 87A, however, is currently available only in respect of income taxed at normal slab rates and does not extend to income chargeable at special rates.
As a result, taxpayers whose income primarily consists of equity-linked capital gains may be unable to fully benefit from the rebate, even where their total income falls within the effective “no-tax” threshold. This leads to an unintended disparity, particularly affecting small and retail investors.
The Finance Act, 2025 enhanced taxpayer relief by increasing the effective tax-free income threshold to Rs. 12 lakh. However, the exclusion of income taxable under sections 111A and 112A from the scope of section 87A dilutes the intended benefit for a segment of taxpayers.
Accordingly, it is recommended that the rebate under section 87A be extended to include tax payable on income chargeable under sections 111A and 112A, at least up to the specified income threshold.
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