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By Ketan Vajani

India is currently preparing for the Union Budget 2026, and salaried taxpayers are searching for meaningful reforms that recognise rising living costs, evolving work patterns, and the requirement for fair treatment across tax regimes. The government’s push towards a simplified tax structure is widely appreciated, and the employees expect the budget to balance simplicity with equity and practicality. The following are some key expectations of salaried individuals from Budget 2026.

Increase in Standard Deduction Limits

In the current time, the standard deduction is at Rs 75,000 under the new tax regime and  Rs 50,000 under the old regime. The salaried employees, today, incur way higher work-related expenses like conveyance, professional networking, skill upgradation, and digital tools,  which are not directly reimbursed. Moreover, the current deduction limits are no longer connected to income levels, making them not appropriate for the higher earners. Several salaried taxpayers expect the standard deduction to be enhanced significantly, potentially up to Rs 3 lakh, to better reflect actual employment-related costs.

Housing Loan Interest Deduction under the New Regime

One of the biggest disadvantages of adopting the new tax regime is the denial of deduction for the interest paid on housing loans. Such a deduction is available under the old regime; disallowing it under the new regime creates an uneven playing ground. With the outflow of cash on loan interest remaining the same, salaried employees expect the budget to be permitted under both regimes. Even if the government wants to retain differentiation, allowing a lower cap under the new regime would be more equitable than denying the benefit altogether.

Enhancement of Housing Loan Interest Limits

The interest deduction on housing loans is capped at 2 lakh rupees, a limit which has remained unchanged since the assessment of 2015-16. With the sharp rise of property prices and interest costs over the last decade, this limit no longer reflects the economic reality. Salaried taxpayers expect the cap to be increased by at least Rs 3 lakh for non-metro cities and Rs 5 lakh for metro cities, where housing costs are significantly higher.

Extending HRA Benefits to Home Loan EMIs

The House Rent Allowance (HRA) exemption is currently available just to employees living in rented accommodation. Those wanting to buy a home and pay EMIs receive no similar benefit under HRA, making renting a lot more tax-efficient than ownership.  Salaried employees wish that the Budget 2026 allow HRA exemption to be adjusted against housing loan EMIs, with safeguards to avoid double benefits. A choice-based system, between HRA exemption and housing loan interest deduction, helps in promoting home ownership without complicating the law.

Improved Tax Administration and Faster Rectifications

The salaried taxpayers want better tax administration under the new policy. The rectification policies continue to remain unresolved for months despite a prescribed six-month time limit. Delays in correcting system-generated errors create unnecessary financial stress, especially when incorrect tax demands increase. Better and stricter timeline enforcement and better grievance redressal mechanisms enhance taxpayer confidence.

Rebate under Section 87A for Capital Gains

Salaried individuals rapidly want to invest in equity markets to increase their long-term wealth. However, the denial of a rebate under Section 87A against capital gains on listed shares discourages small investors. While earlier provisions allowed such rebate, recent amendments have expressly disallowed it from AY 2026-27. Reinstating this benefit would encourage equity participation and support retail investors who invest their hard-earned savings.

Salaried taxpayers do not seek complexity, but fairness. Union Budget 2026 presents an opportunity to address genuine concerns around housing, inflation, investments, and tax administration. A balanced approach, combining simplification with targeted relief, can ease the financial burden on the middle class while strengthening trust in India’s tax system.

(The author is L&R Committee Chairman and The Chamber of Tax Consultants Past President)