Targeted tax changes for middle-class taxpayers in the budget 2026

February 5, 2026 Finance Talk Valli Sarvani

Union Budget 2026 does not announce major tax cuts, but it includes several targeted measures affecting middle-class taxpayers.

The focus remains on continuity in tax relief, procedural simplification, and reduced compliance burden. These changes aim to provide stability while addressing specific areas of concern.

One of the key features of Budget 2026 is the continuation of existing personal income tax relief. The Finance Bill, 2026, does not alter the income tax slab structure under the concessional new tax regime.

Individuals with taxable income up to ₹12 lakh continue to be exempt from paying income tax due to the existing rebate mechanism.

Tax rates under the old tax regime also remain unchanged, allowing taxpayers who rely on deductions and exemptions to plan their finances without disruption.

The Budget also extends the time limit for filing revised income tax returns. Taxpayers can now revise their original or belated returns within 12 months from the end of the relevant tax year, compared to the earlier limit of nine months.

However, a fee will apply for revised returns filed after nine months. The fee is set at ₹1,000 for taxpayers with income up to ₹5 lakh and ₹5,000 for those with income above ₹5 lakh. These provisions will apply from April 1, 2026.

Another change relates to Tax Collected at Source on overseas tour packages. Budget 2026 replaces the earlier tiered TCS structure with a uniform rate of 2%, regardless of the cost of the tour package.

The removal of the ₹10 lakh threshold simplifies compliance and lowers upfront tax collection for travellers.

In addition, TCS under the Liberalised Remittance Scheme has been rationalised for education and medical purposes.

For remittances towards education loans and medical treatment, the TCS rate has been reduced from 5% to 2%, while the ₹10 lakh annual threshold remains unchanged.

For other remittances under LRS, the existing 20% TCS rate continues to apply on amounts exceeding ₹10 lakh.

Finally, Budget 2026 provides a tax exemption on interest from motor accident compensation. Interest received on compensation awarded by Motor Accident Claims Tribunals will be fully exempt from income tax.

No TDS will be deducted on such interest income, irrespective of the amount. This provision will also come into effect from April 1, 2026.

Thus, Budget 2026 focuses on maintaining existing tax benefits while introducing selective measures to simplify tax compliance and reduce procedural complexity for taxpayers.

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Image Published on January 18, 2017