The Union Budget 2026 income tax proposals have brought significant changes for taxpayers across India. With the Income Tax Act 2025 coming into force from April 1, 2026, individuals and businesses need to understand how the new rules impact their finances. Finance Minister Nirmala Sitharaman, in her Union Budget 2026 speech, emphasized simplifying compliance, widening tax slabs, and providing relief to the middle class.
For many, the pressing question is: “How do I calculate income tax under the new budget?” This guide explains everything you need to know about the Union Budget 2026 income tax and how to plan your finances accordingly.
Key Highlights of Union Budget 2026 Income Tax
The Union Budget 2026 income tax changes focus on making the tax system simpler and more beneficial for the middle class. Here are the major points for Financial Year 2026-27:
Basic Exemption Limit: Increased to ₹4 lakh under the new tax regime.
Zero Tax Liability: Individuals with taxable income up to ₹12 lakh enjoy zero tax, thanks to the enhanced Section 87A rebate (up to ₹60,000).
Standard Deduction: Salaried employees can claim ₹75,000 as a standard deduction.
New Tax Regime (NTR): Now the default system, with simplified slabs and fewer deductions.
These changes make it crucial for every taxpayer to know how Union Budget 2026 income tax rules affect their net payable tax.
Step-by-Step Guide to Calculating Income Tax After Union Budget 2026
Calculating tax under the Union Budget 2026 income tax provisions can be done in a few structured steps:
Step 1: Determine Your Total Income
Start by calculating your gross income, which includes:
Salary Income: Basic pay, HRA, bonuses, and allowances.
Business or Professional Income: Profits from your business or freelancing.
Income from House Property: Rental income from owned properties.
Capital Gains: Earnings from selling stocks, mutual funds, or property.
Income from Other Sources: Interest from savings accounts, dividends, and fixed deposits.
The total of all these sources gives your Gross Total Income (GTI).
Step 2: Subtract Exempt Income
Some incomes are exempt from tax under Indian law and should be removed from your GTI:
Agricultural income.
Certain allowances for government employees.
Life insurance maturity proceeds under specific conditions.
After removing exemptions, you get taxable income before deductions.
Step 3: Claim Deductions
Depending on whether you choose the New Tax Regime or the Old Tax Regime, deductions vary:
New Tax Regime:
Standard deduction of ₹75,000 for salaried individuals.
Employer contributions to NPS (up to 14%).
Most other deductions, like 80C, 80D are not available.
Old Tax Regime:
Section 80C deductions (up to ₹1.5 lakh).
Section 80D for health insurance premiums.
Interest on home loans under Section 24.
Subtracting deductions from your GTI gives your Net Taxable Income.
Step 4: Apply Tax Slabs
The Union Budget 2026 income tax introduces new slabs under the New Tax Regime for FY 2026-27:
| Income Slab | Tax Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Tip: Taxable income up to ₹12 lakh becomes zero after applying Section 87A rebate.
Step 5: Add Surcharge (If Applicable)
High-income taxpayers must pay a surcharge:
10% for income between ₹50 lakh and ₹1 crore.
15% for income between ₹1 crore and ₹2 crore.
25% for income above ₹2 crore.
Marginal relief is applied to prevent sudden jumps in tax liability.
Step 6: Add Health and Education Cess
A 4% Health and Education Cess is applied on the total of tax + surcharge, not on your total income.
Step 7: Subtract Tax Already Paid
Throughout the year, some tax may already have been paid via:
TDS (Tax Deducted at Source) by your employer or bank.
Advance tax if your tax liability exceeds ₹10,000.
Self-assessment tax paid before filing ITR.
Deduct these from your total tax to calculate the balance payable or refundable.
Step 8: Pay Balance Tax or Claim Refund
Finally:
If liability > tax paid: Pay the balance before filing ITR.
If tax paid > liability: Claim a tax refund from the Income Tax Department.
Key Tips for Union Budget 2026 Income Tax Filing
Use the official income tax calculator to avoid mistakes.
Keep all documents ready: salary slips, Form 16, investment proofs, and bank statements.
Filing is mandatory even if your tax is zero under the new rebate.
Compare both regimes: the old regime may still save more for individuals with high deductions.
Conclusion: Planning Your Finances Under Union Budget 2026 Income Tax
The Union Budget 2026 income tax changes simplify tax compliance and increase benefits for the middle class. By understanding how to calculate income tax under the new rules, you can take control of your finances, plan investments, and avoid last-minute surprises during filing.
Whether you are a salaried professional, business owner, or investor, knowing these steps ensures smooth financial planning under the new Income Tax Act 2025.