From streamlining the two income tax slabs into one, to dropping the custom duty rates, industry experts expect some changes in the income tax scenario in the Union Budget 2026. However, not much change is anticipated in the Income Tax Act due to the introduction of the Labour Codes.
Speaking at the CNBC-TV18 Budget Vision 2026, during the ‘Expectations vs Reality’ panel, Vivek Johri, Former Chairman of Central Board of Indirect Taxes and Customs (CBIC) and Akhilesh Ranjan, Former Member of Central Board of Direct Taxes (CBDT), outlined what could be the expected changes and how they could impact the industry.
Addressing the expectations in the direct income tax, Akhilesh Ranjan said that a lot was done last year during the Budget 2025 when the government gave relief on income tax up to ₹12 lakhs. Hence, the scope of such tax give aways this year is less.
“A lot has been done last year, much more than expectations. There was a ₹1 lakh crore shortfall which was factored into the budget estimates on account of the changes in the personal income tax,” he said.
He said that now the situation that we see if we look at the figures for the current year, it seems that there is going to be a further shortfall primarily on the personal income tax front that could be around ₹75,000 crore or more.
“The space for giving further tax give aways is very small but that doesn’t mean that there should not be reforms. There are many distortions which can be corrected. Much more simplification can be done such as in the two regime personal income tax slabs.
“I think it’s high time that the government really thought about having just one regime in the income tax scenario. May be with a few more incentives such as the house rent allowance (HRA) and pension scheme thrown into the new regime. That would be a major simplification.”
No changes needed due to Labour codes
Addressing what could be the impact of new labour code on the industry, Ranjan said that he does not expect harmonisation of the Income Tax Act with the labour codes.
“I don’t think that any changes are directly necessitated by the introduction of the labour codes. There are a whole lot of things involved – more than just hire and fire – which might increase the cost for industries and how the business is being done,” Ranjan said.
“All that impact is already factored in the tax laws, so I don’t see the need for any particularly specific intervention in the tax policy,” he added.
Custom duty rationalisation expected in Budget 2026
Vivek Johri, Former Chairman of CBIC, said that there is a possibility of the moderation of custom duty rates in the Budget.
“I think that is something which we can quite reasonably expect would happen in this budget. We are down to about eight rates, not taking into account the outliers… Eight is a large number, and it’s accepted wisdom in tax policy that the larger the number of rates, more the arbitrage, and more disputes,” he said.
“We have come down from 21 (rates) in FY22-23, and I think there is an opportunity also because (this is one of the positive position of the rupee) with the depreciation of the rupee, there is some cushion available to the govt to drop the custom duty dates,” he added.
Johri said that he expects two things to happen: “There would be a moderation of rates, and my expectation is the number of rates would come down to four from eight.”
He added that there is a school of thought that you need not go into a complex structure and there is room to compress it even further. “If that has to happen, I think it will happen in a phased manner, not immediately.”
Protecting sunrise sectors important
Johri said that there may be some sectors deserving some attention, where it would be a good idea to announce a glide path.
“These are priority sectors, may be the govt could announce that there will be an enhanced rate for the next three-four years for whatever the plan they work out with industries and after that the rates would come down,”
“These sectors could be the ones that the govt has already identified as the future especially in manufacturing industry, such as drone, defence manufacturing, electronic hardware (that has been a success story with higher tariffs which you gradually brought down along a glide path). Protection for the sunrise sectors is essential, yes,” Johri remarked.
