With the Union Budget around the corner, investors and taxpayers are once again watching closely for any changes that could influence sentiment and household wealth creation. However, after last year’s sweeping overhaul of personal taxation and capital gains rules, expectations of major new announcements appear muted.
In a conversation with CNBC-TV18, an tax expert, suggested that Budget 2026 may be less about dramatic tax cuts and more about fine-tuning, simplification, and addressing inconsistencies across investment products.
Lower Expectations After a “Big Year” for Personal Taxes
He pointed out that the previous Budget delivered unexpected relief for individuals, especially through changes in income tax slabs and rebates.
“To assume that up to ₹12 lakh there will be no tax… that was really amazing,” he said, adding that such a significant move has reduced the noise around personal tax expectations this year.
He also highlighted that last year’s cleanup of capital gains taxation—through clearer holding period categories for equity, property, and bullion—has made the system far easier for taxpayers to navigate.
“I think life became much simpler after that,” he noted.
New Tax Regime Now the Default Choice
Another major shift, according to him, is the rapid adoption of the concessional new tax regime, which has increasingly become the default option for most taxpayers.
“It’s become like a no-brainer… unless somebody really has a lot of deductions available,” he said, suggesting the old regime is losing relevance for the majority.
Capital Gains Hike Not a Major Concern for Long-Term Investors
Another tax expert, addressed investor concerns around the increase in long-term capital gains tax from 10% to 12.5%.
For serious long-term wealth creators, he believes the hike is not a deal-breaker.
“When someone expects to make double-digit or 15% returns annually, that 2% does not make a big dent,” he said.
However, he added that frustration tends to rise when returns are weak, making taxes feel like an additional burden.
Budget 2026 May Target Convenience and Product Parity
Rather than major rate changes, he expects the next phase of reform could focus on convenience and parity across investment structures.
One key area is the taxation of Category III Alternative Investment Funds (AIFs), which are currently taxed at the fund level, often at the highest slab rate.
“If I am a Category III investor… I will get taxed at the full rate,” He explained, calling for investor-level pass-through taxation similar to Category I and II AIFs.
Tax Friction in Switching Mutual Fund Options
He also flagged a practical issue faced by mutual fund investors: tax liability triggered when switching between dividend and growth schemes, or regular and direct plans.
“These are not actually taking out the money… it’s moving from one way to another,” he said, arguing that such switches should not create immediate tax costs.
He pointed to ULIPs, where fund switching is allowed without similar implications, suggesting mutual funds could be given comparable treatment.
Debt vs Equity: Tax Gap Influencing Risk Decisions
Both experts acknowledged the widening taxation gap between equity and fixed income products, which is increasingly shaping investor behaviour.
He warned that many investors, including senior citizens, may tilt excessively toward equity simply because it appears more tax-efficient.
“Tax is secondary — first is risk and income,” he stressed, cautioning against asset allocation decisions being driven purely by taxation.
He noted that while the idea of tax parity for fixed income is appealing, the government is moving towards broader simplification rather than introducing product-specific exemptions.
“A slab increase is a better answer,” he said, pointing out that income up to ₹24 lakh now remains below the highest tax bracket.
What to Watch For
As Budget 2026 approaches, experts believe the government may stay the course on stability while addressing smaller structural frictions in taxation—particularly around investment products, switching flexibility, and uniform treatment across asset classes.
For investors, his message remains clear: taxation should not override sound portfolio construction.
“A good balance of risk in every client portfolio is critical,” he said.
Source from: https://www.cnbctv18.com/budget/budget-2026-tax-expectations-simplification-parity-investments-19835096.htm
