Every year, the Union Budget brings expectations from taxpayers. Budget 2026 is especially important for the middle class. Recently, the government has given relief by making income up to ₹12 lakh effectively tax-free under the new tax regime. This is a good step, but some important improvements are still needed.
The Main Issue Today
At present:
- Income up to ₹12 lakh does not attract tax.
- But deductions like Section 80C and Section 80D do not give real benefit to many taxpayers.
- This is because when basic income itself is tax-free, these deductions become useless.
As a result:
- People feel less motivated to save.
- Investment in PPF, LIC, ELSS and health insurance is getting discouraged.
- The purpose of tax-saving sections is slowly getting lost.
What Should Change in Budget 2026
Basic Exemption and Deductions Should Be Separate
The government should consider this structure:
- Keep ₹12 lakh as basic tax-free income
- Allow 80C, 80D and NPS deductions over and above ₹12 lakh
This will give real benefit only to those who actually invest and insure.
How This Will Work (Simple Example)
| Particulars | Amount |
|---|---|
| Annual Income | ₹17,00,000 |
| Basic Tax-Free Income | ₹12,00,000 |
| 80C (PF, LIC, ELSS) | ₹1,50,000 |
| 80D (Health Insurance) | ₹50,000 |
| NPS (80CCD(1B)) | ₹50,000 |
| Total Tax-Free Income | ₹17,00,000 |
This means a person earning ₹17 lakh can pay zero tax, but only if he or she saves and invests properly.
Why This Change Is Important
✔ Encourages Saving Habit
Tax benefits push people to save for retirement and future needs.
✔ Supports Health Insurance
Medical costs are rising. Giving proper 80D benefit will increase insurance coverage.
✔ Fair for the Middle Class
Due to inflation, ₹12–15 lakh income is no longer very high, especially in cities.
✔ Controlled Tax Benefit
Only disciplined taxpayers get the benefit. No unnecessary revenue loss.
Making the New Tax Regime Better
If the government wants more people to choose the new tax regime, it should:
- Keep the system simple
- Allow limited but meaningful deductions
- Reward responsible financial planning
Removing all deductions completely is not the right long-term approach.
Conclusion
Budget 2026 is a good chance to balance tax relief and financial discipline.
If the government allows 80C, 80D and NPS deductions separately over the ₹12 lakh exemption, effective tax-free income can go up to ₹17 lakh for genuine taxpayers.
As a Chartered Accountant, my view is clear:
A good tax system should not only reduce tax, but also encourage savings, insurance and long-term financial planning.
We hope Budget 2026 moves in this practical direction.
Frequently Asked Questions (FAQs) – Budget 2026
1. What is the current tax exemption limit discussed in this blog?
The blog discusses an effective tax exemption of up to ₹12 lakh under the new tax regime.
2. Why are Sections 80C and 80D not very useful at present?
Because when income up to ₹12 lakh is already tax-free, deductions under 80C and 80D do not reduce tax further for many taxpayers.
3. What change is suggested for Budget 2026?
It is suggested that 80C, 80D and NPS deductions should be allowed separately over and above the ₹12 lakh exemption.
4. How much income can become tax-free if this change is made?
If deductions are allowed separately, income up to ₹17 lakh can become tax-free for disciplined taxpayers.
5. Will everyone get tax-free income up to ₹17 lakh?
No. Only those who actually invest in savings, insurance and NPS will get the benefit.
6. Which deductions are mainly discussed in the blog?
Section 80C (₹1.5 lakh), 80D (health insurance) and 80CCD(1B) – NPS (₹50,000).
7. Is this suggestion only for salaried employees?
No. This suggestion is useful for salaried individuals, professionals and small business owners.
8. Will this change cause major revenue loss to the government?
Not significantly, because the benefit is linked to actual investment and financial discipline.
9. Does this blog suggest bringing back the old tax regime?
No. The blog supports improving the new tax regime, not replacing it.
10. Why is encouraging savings important in tax policy?
Savings help in retirement planning, medical security and long-term financial stability.
11. Is this proposal confirmed for Budget 2026?
No. This is a professional expectation and recommendation, not an official announcement.
12. Who should read this blog?
Anyone who pays income tax or plans financial investments—especially middle-class taxpayers.