Budget 2026 Income Tax Changes: What Changed for Salaried Employees
All income tax changes from Union Budget 2026 that affect salaried individuals — new slab rates, revised rebate limits, updated standard deduction, and NPS employer contribution rules.
Key Tax Changes at a Glance
| Item | FY 2025-26 | FY 2026-27 | Change |
|---|---|---|---|
| 87A Rebate (New regime) | ≤ ₹12L taxable | ≤ ₹12L taxable | No change |
| Standard deduction (New) | ₹75,000 | ₹75,000 | No change |
| Standard deduction (Old) | ₹50,000 | ₹50,000 | No change |
| 80C limit | ₹1,50,000 | ₹1,50,000 | No change |
| 80D (self + family) | ₹25,000 | ₹25,000 | No change |
| 80CCD(2) private employer NPS | 10% of basic | 14% of basic | ↑ Enhanced |
| Surcharge (>₹50L) | Unchanged | Unchanged | No change |
New Tax Regime Slabs — FY 2026-27 (Unchanged)
| Taxable 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% |
4% cess on tax. Section 87A: zero tax if taxable income ≤ ₹12L (after ₹75K standard deduction, so gross salary ≤ ₹12,75,000 pays zero tax).
The One Big Change: NPS Employer Contribution Limit
The most significant change for salaried employees in Budget 2026 is the enhancement of the 80CCD(2) deduction for private sector employees.
- Before Budget 2026: Private sector employees could deduct employer NPS contribution up to 10% of basic salary under 80CCD(2).
- After Budget 2026: The limit is enhanced to 14% of basic salary — matching the benefit already available to Central Government employees since 2024.
This is separate from and in addition to the ₹1.5L 80C limit and the ₹50K 80CCD(1B) limit. The 80CCD(2) deduction has no upper cap in rupee terms — only the 14% of basic ceiling.
What This Means for a ₹20L CTC Employee
| Scenario | Deduction | Tax Saved (30%) |
|---|---|---|
| Employer NPS at 10% of basic (₹8L basic) | ₹80,000 | ₹24,960 |
| Employer NPS at 14% of basic (₹8L basic) | ₹1,12,000 | ₹34,944 |
| Additional benefit from enhanced limit | ₹32,000 more deduction | ₹9,984 extra saved |
Based on ₹20L CTC, ₹8L basic, 30% tax bracket, new tax regime. Actual savings depend on employer NPS offering and basic salary.
What Did Not Change (Despite Expectations)
- 80C limit stays at ₹1.5L: No increase despite 12 years of no change and significant inflation erosion since 2014.
- No new HRA for new regime: HRA exemption remains unavailable under the new tax regime.
- Home loan interest (Section 24b): ₹2L cap for self-occupied property unchanged. No expansion to new regime.
- No change in LTCG on equity: Long-term capital gains on equity above ₹1.25L continue to be taxed at 12.5% (changed from ₹1L to ₹1.25L threshold in July 2024 budget, not touched in Budget 2026).
- Tax-free LTCG threshold (equity): ₹1.25L per year — unchanged from the FY 2024-25 revised level.
Action Items for FY 2026-27
- Check if your employer offers NPS: If you are in the 30% bracket, ask HR to enroll in employer NPS. The new 14% limit means up to ₹9,984 extra annual tax saving for a ₹20L CTC.
- Re-evaluate old vs new regime: Slabs are unchanged. Run the comparison fresh for your FY 2026-27 expected income, especially if your salary, HRA, or home loan changed.
- Front-load 80C by April: If you are on old regime, invest ₹1.5L in ELSS/PPF early in the year rather than in the March rush — units bought in April grow 11 extra months.
- Declare regime preference to employer in April: The new regime is the default. If you want old regime for higher HRA/home loan deductions, inform HR before the first payslip.
Use the Income Tax Calculator to compare your FY 2026-27 tax liability under both regimes with your actual deductions.
The stagnant ₹1.5L trap: ₹1.5 lakh invested in 2014 (when the limit was set) would be worth ₹2.6L in today's money at 4% inflation. The real value of 80C has quietly eroded 40% over 12 years. If the government's goal is to encourage savings, the limit needs an urgent update — but Budget 2026 deferred this again.
Use These Calculators
Sources: Income Tax Dept of India, Reserve Bank of India, AMFI India, SEBI. All content is for educational purposes only — not financial advice. Last updated: 1 February 2026.