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Something strange is happening in the Indian economy right now.
On one hand, the government’s official data says inflation has collapsed. As of December 2025, the Consumer Price Index (CPI) stands at a mere 1.33%—a figure we haven’t seen in years. Food inflation is actually negative.
On the other hand, Gold—the ultimate “fear gauge”—has shattered every record in history, trading at ₹1,39,799 per 10 grams as of January 14, 2026. That is a staggering 79.30% return in just one year.
Why is the market buying safety assets if inflation is dead?
As we approach the Union Budget 2026, this disconnect is the backdrop for your personal finance decisions. The Finance Minister faces a unique challenge: The 8th Pay Commission is looming, and while official inflation is low, the common man’s wallet feels lighter.
Will the new income tax regime finally bring the relief we need? Let’s look at the data, not the hype.
Key Takeaways (TL;DR)
- Standard Deduction Hike: Expect the limit to rise from ₹75,000 to ₹1,00,000 to align with the upcoming 8th Pay Commission.
- The “Zero Tax” Buffer: The Section 87A rebate ceiling may stretch to ₹13-14 Lakh, effectively making that income tax-free.
- Gold’s Warning: While Nifty gained ~12.8%, Gold jumped ~79%. The smart money is hedging against geopolitical instability, not just chasing tax cuts.
Budget 2026 Expectations
The New Tax Regime (NTR) is now the default. If you did nothing last year, you were automatically moved to it. For 2026, the government’s goal is simple: kill the Old Tax Regime (OTR) softly by making the NTR irresistible.
1. The Standard Deduction Play
Currently, salaried employees get a flat ₹75,000 deduction under the NTR. This was increased in the 2025 Budget.
The Expectation: With the 8th Pay Commission likely effective from early 2026, government salaries will jump. If tax slabs don’t move, these employees will lose a chunk of their raise to taxes.
- Likely Change: Standard Deduction increases to ₹1,00,000.
- Impact: A direct reduction in your taxable income without needing to buy insurance or specific products.
2. The Rebate Expansion
In 2025, income up to ₹12 Lakh became effectively tax-free due to the Section 87A rebate. However, the “marginal relief” trap is real—earn ₹1 more than the limit, and you face a steep tax bill.
The Expectation: Analysts at Motilal Oswal predict the rebate limit could be pushed to ₹13 Lakh or ₹14 Lakh.
- Why? To boost urban consumption. If you have more cash in hand, you buy more cars, phones, and homes.
3. The Housing Loan Twist
This is the dealbreaker for many. The OTR allows you to deduct ₹2 Lakh for home loan interest (Section 24). The NTR currently allows zero.
The Rumor: There is growing pressure to introduce a limited deduction for home loan interest under the New Regime—perhaps capped at ₹1.5 Lakh—to support the housing market. If this happens, the Old Regime becomes mathematically obsolete for 90% of Indians.
Current vs. Expected Tax Reality
Let’s look at how a salary of ₹16,00,000 might be taxed if the Standard Deduction hikes go through in Budget 2026.
| Component | Current NTR (FY 2025-26) | Expected NTR (FY 2026-27) |
| Gross Salary | ₹16,00,000 | ₹16,00,000 |
| Standard Deduction | ₹75,000 | ₹1,00,000 |
| Net Taxable Income | ₹15,25,000 | ₹15,00,000 |
| Tax Slab Rates | 5% to 20% (tiered) | 5% to 20% (adjusted) |
| Est. Tax Payable | ~₹1,45,000 | ~₹1,30,000 |
| Savings | — | ~₹15,000 |
Note: This assumes a rationalization of the slab rates similar to KPMG’s projections.
The Contrarian View: The “1.33% Inflation” Trap
Here is where I need you to be skeptical.
The government data says CPI inflation is 1.33%. But ask yourself: Does your life feel 1.33% more expensive than last year, or significantly more?
A recent RBI survey shows that household inflation perception is closer to 6.6%.
- The Trap: If the government uses the low 1.33% figure to justify lower interest rates, your Fixed Deposit returns might drop further.
- The Data: currently, SBI offers ~6.25% on 1-year FDs. If inflation “officially” stays low, expect these rates to fall below 6% soon.
This is why Gold is rallying. A 79% return in Gold isn’t just about jewelry; it’s the market screaming that it doesn’t trust the official currency stability in the long run.
My Take
I’ve been tracking these budgets for two decades. Budget 2026 feels different because the stakes are higher for the middle class.
Personally, I am not banking on tax cuts to build wealth. The Nifty 50 gave a decent 12.85% return over the last year, but it was crushed by Gold’s performance.
My Strategy:
- Stick to the New Regime for simplicity unless you have a massive home loan. The paperwork of the Old Regime isn’t worth the declining benefits.
- Hedge with Gold: I am keeping 10-15% of my portfolio in Gold (SGBs or ETFs). The disconnect between 1.33% inflation and ₹1.4L Gold price is too large to ignore.
- Lock in FDs Now: If you are a conservative investor, lock in that 7.05% Senior Citizen rate (or 6.05% for others) for 5 years before rates are cut.
Actionable Conclusion
- Review Your Regimes: Check your payslip. If you are still in the Old Regime, calculate if the increased Standard Deduction (if announced) makes the switch worth it.
- Audit Your Cash: With official inflation low, real rates are positive. It’s a good time to move idle savings account money into FDs or Liquid Funds before the RBI cuts rates.
- Watch February 1st: Don’t just watch the speech. Look at the fine print on Capital Gains Tax. There are whispers of “status quo,” but in personal finance, stability is often the best news.
Source Links
- CPI Inflation Data (PIB)
- SBI Fixed Deposit Rates (ClearTax)
- Gold Price Trends (Economic Times)
- Budget 2026 Expectations (Motilal Oswal)
- Nifty 50 Returns (Nifty Indices)
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Tax laws are subject to change. Please consult a Chartered Accountant (CA) or tax advisor before filing your taxes.
