Budget 2026: There will be major changes in the Income Tax Act! From Tax Slab to HRA; What will change? find out

• Major changes in the Income Tax Act!
• From Tax Slab to HRA
• What will change? find out

New Delhi: The budget session of Parliament is starting from 28 January 2026. Finance Minister Nirmala Sitharaman on Sunday, February 1, 2026 at 11 am Budget of the country will present. It is predicted that the biggest change in this year’s budget will be in the Income Tax Act. The Central Government has started preparations to replace the old Act of 1961 with ‘Income Tax Act 2025’. Following is a detailed overview of the key changes this budget could have for salaried employees, middle class and pensioners

1. Historic change: The 1961 Act will become history

The ‘Income Tax Act 1961’, which has been in place for the past six decades, can be completely repealed and replaced by a simpler and more relaxed ‘New Income Tax Act 2025’ from April 1, 2026. Currently, the tax system is complicated by many sections like 80C and 80D. The new law will streamline the process of filing ITR by streamlining these exemptions.

2. People living in Pune, Bangalore, Hyderabad get huge benefit in HRA

As per the current rules, only four cities namely Delhi, Mumbai, Kolkata and Chennai are considered metro cities. Employees in these cities can claim 50% of their basic salary as House Rent Allowance (HRA) for tax relief. For other cities the limit is 40%. Developed cities like Pune, Bangalore and Hyderabad are likely to be included in the ‘metro’ list in Budget 2026. This will increase the tax savings of lakhs of employees in these cities.

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3. Standard deduction from 75 thousand to 1 lakh?

Considering the rising inflation, the standard deduction of Rs 75,000 in the New Tax Regime can be increased to Rs 1,00,000. This will directly reduce the taxable income of salaried class and pensioners by Rs 25,000 and increase the in-hand salary.

4. New Tax Regime will be more attractive

The government’s main focus is on the new tax system. Currently, income up to Rs 7.75 lakh is effectively tax-free. This limit can be increased from Rs 8.5 lakh to Rs 9 lakh. Besides, the government may try to provide relief to the middle class by increasing the scope of the 5% and 10% tax slabs.

5. 80C and increase in home loan interest limit

Section 80C: Since 2014, the exemption of Rs 1.5 lakh under 80C has not changed. There is a demand to increase it to 2.5 lakhs.

Home Loan: To boost the real estate sector, the home loan interest exemption may be increased from Rs 2 lakh to Rs 3 lakh.

The proposed changes will be sealed only after the Finance Minister’s speech on February 1. However, it is clear that the government is preparing for these historic changes to boost the economy and provide relief to the middle class.

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