As the Union Budget 2026-27 approaches, tax experts expect the government to offer meaningful relief for middle-class taxpayers while keeping the direct tax framework stable and easier to comply with ahead of the rollout of the Income-tax Act 2025 from April 1, 2026. Industry professionals have outlined comprehensive expectations focusing on higher exemptions, simplified compliance, and predictable tax rules.

Higher Basic Exemption and Standard Deduction Take Priority

CA Deepak Ukidave, Adjunct Faculty (Finance & Law) at K J Somaiya Institute of Management, emphasized that the Budget should raise the basic exemption limit from ₹6 lakh for salaried employees. He noted that the new tax regime has removed most popular deductions and exemptions under the old regime, including Section 80C and Section 80D medical insurance premium deduction, which has discouraged investments in traditional tax-saving instruments.

Nehal Mota, Co-Founder & CEO of Finnovate, suggested the Budget may consider raising the standard deduction to ₹1 lakh to help salaried taxpayers manage rising living costs. Financial educator Sakchi Jain also called for meaningful tax relief through higher standard deduction and fairer slabs.

Housing, Health and Retirement Benefits Draw Focus

Experts flagged the need to strengthen deductions and benefits linked to housing, retirement and medical costs. CA Akshay Jain, Direct Tax Partner at NPV & Associates LLP, outlined specific expectations for taxpayers under the old regime, including higher home loan interest deduction and enhanced NPS contributions.

Mota suggested allowing home loan interest deduction for self-occupied property under the new regime, citing affordability pressures and the push for home ownership. He also proposed a higher TDS threshold for senior citizens on interest income and additional health insurance relief given medical inflation.

Capital Gains Tax Simplification Remains Key Priority

Several market-linked professionals pushed for a simpler, more predictable capital gains tax structure that supports long-term investing. Jugal Mantri, Director and CEO of Anand Rathi Global Finance, said the Budget should adopt simplified and progressive personal tax slabs and enhance deductions for housing, savings and insurance.

Vinayak Magotra, Product Head & Founding Team at Centricity WealthTech, noted that domestic retail investors seek confidence that the rules won't keep changing, particularly on equity taxation. He highlighted potential reforms including STT rationalization, buyback taxation efficiency, and restoring indexation benefits for debt mutual funds.

Fixed-Income and Mutual Fund Tax Efficiency

Nikhil Aggarwal, Founder & Group CEO of Grip Invest, said Budget 2026 can accelerate bond adoption by improving liquidity and reducing friction through better market-making frameworks. He noted that long-term bond investing remains constrained by tax asymmetries such as slab-rate taxation on interest, TDS inefficiencies and unfavorable capital gains treatment.

Swapnil Aggarwal, Director at VSRK Capital, explained that AMFI's Budget wishlist aims to remove tax inefficiencies and improve mutual funds as long-term investment options. Proposals include restoring indexation benefits for debt funds, tax equality for REITs/InvITs, and capital gains simplification to improve after-tax outcomes.

Income-Tax Act Transition and Compliance Concerns

With the Income-tax Act 2025 coming into force from April 1, 2026, several professionals called for clarity on transition rules and taxpayer guidance. Tax professionals also sought rationalization of TDS and TCS rates to reduce compliance friction and improve cash flows.

Amit Amlani, Executive Director – Direct Tax at Nexdigm, said Budget 2026 should mark a shift toward predictable and principled reform, with rationalization in personal taxation and simplification of enforcement-related processes, including foreign asset disclosure clarity. Ashish Nasa, MD & CEO of Universal Trustees, urged caution on inheritance or estate tax discussions, warning that sudden measures could disrupt family-owned enterprises and long-term capital formation.

Tax policy experts have presented comprehensive recommendations for Budget 2026 to enhance India's mergers and acquisitions environment, particularly with the Income-tax Act, 2025 scheduled for implementation from April 1, 2026. The suggestions aim to address existing regulatory gaps and improve the ease of doing business for M&A transactions.

Fast-Track Demerger Tax Neutrality

A primary recommendation involves extending tax neutrality to fast-track demergers under Section 233 of the Companies Act, 2013. Currently, the Income-tax Act, 2025 provides tax neutrality only to NCLT-approved demergers under Sections 230 to 232, excluding fast-track demergers that enable small or closely held companies to undertake demergers without court approval.

The finance ministry's rationale for excluding fast-track demergers centers on concerns about potential valuation manipulation without court oversight. However, experts argue this approach contradicts the ease of doing business agenda, forcing genuine taxpayers to choose between transaction efficiency and tax benefits.

Contingent Consideration Clarity

Experts emphasize the need for clear taxation guidelines on earn-out, profit-linked, or contingent consideration arrangements that have become increasingly common in M&A transactions. These arrangements tie part of the sale consideration to achieving specific profitability or financial milestones.

The current legal framework lacks clarity on:

• Taxability of contingent payments
• Timing of taxation for such arrangements
• Treatment of milestone-based considerations

Foreign Company Merger Anomalies

The recommendations address existing inconsistencies in foreign company merger taxation. While foreign companies enjoy capital gains tax exemptions on direct or indirect share transfers during mergers with other foreign companies, shareholders of the amalgamating company face potential capital gains liability on share swaps.

This creates an anomaly compared to domestic mergers, which provide exemptions at both company and shareholder levels.

Capital Gains Tax Rate Concerns

The recent capital gains tax regime rationalization introduced higher long-term capital gains tax rates, which experts suggest adversely impacts investor returns and exit efficiency. The increased rates potentially drive investors toward jurisdictions with more favorable tax regimes.

Key concerns include:

• Reduced post-tax returns for investors
• Decreased competitiveness with other investment destinations
• Impact on foreign capital attraction

Experts recommend reducing capital gains tax rates, suggesting restoration of the earlier 10.00% rate to improve India's competitive position in attracting foreign investment.

Strategic Implementation Timeline

With the Income-tax Act, 2025 set for April 1, 2026 implementation, Budget 2026 represents the final opportunity to incorporate these amendments before the new framework takes effect. The recommendations aim to position India as a preferred destination for cross-border M&A activities while maintaining regulatory integrity and supporting corporate growth objectives.