Union Budget 2026-27: Middle Class Hopes Rise, But Can Govt Afford Big Tax Relief?
The middle-class is looking for ways that can offer respite from rising costs, reduce tax stress and help rebuild their savings.
Published : January 25, 2026 at 5:53 PM IST
By Saurabh Shukla
New Delhi: With the Union Budget scheduled to be presented by Finance Minister Nirmala Sitharaman on February 1, expectations are steadily rising across the country. As the date approaches millions of middle class households and salaried taxpayers are watching closely, with growing concerns over taxation, inflation and the possibility of relief measures. These anxieties come at a time when the Indian economy is facing multiple headwinds, marked by sharp fluctuations and external pressures.
The rupee has recently touched a record low of 92 against the US dollar, while global trade conditions remain strained due to the impact of steep US tariffs. In this challenging environment the focus is firmly on the government’s next move, whether it will ease the tax burden or whether inflationary pressures will intensify further. Ahead of the Budget the middle class is looking for many steps that can offer respite from rising costs, reduce tax stress and help rebuild their savings amid ongoing economic uncertainty.
Hopes on Tax Relief
Talking to ETV Bharat, Noida-based professional Madhur Rai, who works in the service sector said he expects the tax burden to ease further in the upcoming Budget. The 32-year-old pointed out that personal and family responsibilities are increasing steadily while salary growth has not kept pace. "Our expenses are going up every year, but income growth is limited. If the finance minister can offer some additional tax relief, it will not only leave more money in our hands for daily expenses but also allow us to save something for the future," he said.
Echoing a similar demand for tax relief Swapnil Srivastava, an IT professional, said that while the government announced significant benefits under the new tax regime last year the old tax regime also needs attention. "The old tax system encourages savings and gives a sense of financial security. With bank deposit interest rates coming down, many of us are increasingly worried about long-term financial stability. The government should consider measures that strengthen savings under the old tax structure as well, he said.
Meanwhile Aditya Shukla, a Central government employee, raised concerns over post retirement security and called for a pension system similar to the old pension scheme. "We are willing to pay taxes today, but with life expectancy increasing and future medical and living expenses becoming uncertain, there is a lot of anxiety about retirement. The government should work out a mechanism to support employees' future needs and consider a scheme on the lines of the old pension system," he said.
While the demands of the public are understandable the bigger question is whether the government has the fiscal room to meet these and what direction it is actually considering. To get clarity on this, we spoke to experts. Here’s what they had to say.
Global Trade Pressures Limit Fiscal Space
According to Sameer Gupta, National Tax Leader, EY India said the upcoming Union Budget should focus on stimulating private investment by expanding policy support to emerging technology sectors. To encourage long term private investments, the government may consider extending the existing PLI scheme to new age sectors such as Artificial Intelligence (AI), space and robotics. At the same time, increased public spending on futuristic infrastructure in areas like AI, GenAI, robotics and space technology can act as a strong catalyst for private capital. Targeted incentives for these emerging industries will be critical to drive innovation and attract both domestic and foreign investors, he said, adding that businesses are also looking for a clear commitment to tax certainty and simpler compliance processes.
On taxation reforms, Gupta said Budget 2026 presents an opportunity to improve ease of doing business through greater predictability and dispute reduction. "On the indirect tax front, measures such as a one-time customs dispute resolution scheme, extension of advance rulings validity and simplification of the customs tariff structure can significantly reduce litigation and compliance burden. From a direct tax perspective, smooth implementation of the New Income Tax Act, rationalisation of TDS rates, incentives for manufacturing, employment generation and clarity on international taxation are key expectations. Providing certainty on transfer pricing, decriminalising minor tax offences and bringing clarity on taxation of virtual digital assets will go a long way in building trust, improving compliance and strengthening India’s investment climate," he said.
Expert's View On Income Tax
While Talking to ETV Bharat, Chartered Accountant Yogendra Kapoor said that the Focus of the government in Union Budget 2026 should be to drive all four growth engines of our GDP namely Government Expenditure, Consumption, Private Investment and Net Foreign Exchange earnings. It is necessary that in order to achieve above ,more money needs to come into the hands of individuals and industry.
Government can increase standard deduction for salaried employees to Rs 1 Lakh and allow deduction for interest on housing loan under the new tax regime by further revising interest limit for self-occupied to Rs 3 lakh from Rs 2 lakh as it's static for last 10 years. It can reduce the cost of doing business by reducing and taking out excessive regulatory compliances for businesses specially MSME to drive private investment and give tax concession to MSMEs and corporates employing a minimum number of employees to further create job opportunities. In nutshell , government must come up with innovative and unconventional mechanisms to drive the pace of growth of the rconomy, he added.
Cautious Approach Over Populist Measures
Another Chartered Accountant D K Mishra told ETV Bharat, there is very little likelihood of any major tax exemptions in this year’s Budget, noting that the government has already extended significant relief in recent years. A lot has been done on the taxation front earlier, and only a few months ago the government took several steps on the GST side as well. Those measures have helped put more disposable income in people’s hands, he said.
Mishra also added that under the current global and domestic economic conditions the government may prefer a cautious approach. This is a year to wait and watch rather than make big populist announcements. With external pressures such as the Trump-era tariff environment still impacting global trade sentiment and the continued depreciation of the rupee, there is very limited fiscal space, he said, adding that these factors leave little room for a highly populist Budget this time.
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