At Motilal Oswal, our decades of experience in the Indian capital markets have taught us one fundamental truth: the Indian taxpayer is the silent engine of our economy. As we approach the Union Budget for 2026-27, the stakes have never been higher. India is currently in a Goldilocks phase, a rare convergence of high growth and stabilizing inflation and the 30th Annual Motilal Oswal Wealth Creation Study suggests we are on a path to a $16 trillion GDP by 2042.

However, to reach that milestone, the Wealth Effect must trickle down to the individual. For the 2026 Budget, taxpayers aren't just looking for concessions; they are looking for rationalization, simplification, and fairness.

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Here is the comprehensive wishlist from the taxpayer’s perspective, analyzed through our lens of long-term wealth creation.

The Core Demand: Relieving the Middle-Income Trap

Under the current tax structure, the jump to the highest tax bracket happens far too early. As of 2025, any income above ₹24 lakh attracts a 30% tax rate. In a world of rising urban living costs and a 7-8% GDP growth rate, a ₹24 lakh annual salary is increasingly becoming the mid-tier rather than the elite-tier.

What Taxpayers Want:

• The 50 Lakh Milestone: There is a growing demand to push the 30% tax slab to incomes above ₹50 lakh.
• Rationalization of Surcharges: For high earners, the effective tax rate can climb near 39% to 42%. Taxpayers are seeking a cap on surcharges to ensure that working harder doesn't result in earning less in real terms.

The Taxpayer's Ideal vs. Current Scenario

Housing: Reviving the Dream of Home Ownership

Real estate is a critical asset class for Indian households. However, with property prices in metros like Mumbai and Bengaluru rising significantly in 2025, the existing tax incentives have lost their punch.

The Wishlist:

1. Section 24(b) Enhancement: The ₹2 lakh deduction on home loan interest has remained stagnant for years. Taxpayers are hoping for this to be raised to ₹4 lakh to reflect the reality of modern EMIs.
2. Removal of Reinvestment Caps: In 2023, a ₹10-crore cap was placed on capital gains reinvestment in residential property (Section 54/54F). High-net-worth taxpayers are seeking the removal or doubling of this cap to encourage larger ticket-size investments in the luxury housing segment, which fuels construction jobs.

Healthcare: Fighting Medical Inflation

Our internal research at Motilal Oswal shows that medical inflation in India is often double the headline CPI inflation. For a family of four, a standard ₹5 lakh insurance cover is no longer sufficient.

Taxpayer Expectations:

• Higher Section 80D Limits: Currently, the deduction is capped at ₹25,000 for self/family and ₹50,000 for seniors. Taxpayers want this doubled to ₹50,000 and ₹1,00,000, respectively.
• GST on Insurance: There is a massive outcry to reduce the 18% GST on health insurance premiums to 5% or Nil. Taxpayers feel that taxing a protection tool is counterproductive to the goal of universal healthcare.

The 8th Pay Commission Factor

With the 8th Pay Commission expected to be implemented from January 1, 2026, over 1.1 crore central government employees and pensioners are set to see a salary hike of approximately 25% to 35%.

The Catch: Without slab adjustments, this salary hike will simply push millions of employees into higher tax brackets, neutralizing the real gain in their pockets.

Motilal’s Insight: The government must align the 2026 tax slabs with the 8th Pay Commission’s fitment factor to ensure that the Consumer Discretionary sector gets the boost it deserves from this massive liquidity infusion.

Capital Gains: Simplicity Over Complexity

The Indian investor is currently navigating a maze of different holding periods (12, 24, 36 months) and different rates for various asset classes.

The Investor’s Wishlist:

• Unified Holding Periods: A simple classification Long Term (1 year+) and Short Term (less than 1 year) across all financial assets.
• Indexation Benefits: While indexation was largely removed for several assets in previous years, taxpayers are hoping for its selective return for unlisted assets to protect against inflationary taxation.

Social Security for the Gig Economy

As of 2026, the gig economy (freelancers, consultants, and platform workers) represents a significant portion of the workforce. Unlike salaried employees, they don't have EPF or Gratuity.

What they Want:

• Presumptive Taxation Expansion: An increase in the limits for Section 44AD and 44ADA to allow more professionals to file taxes without the burden of complex book-keeping.
• Direct Deductions: The ability to deduct social security insurance premiums directly from their taxable income, similar to corporate contributions to NPS.

Motilal Oswal’s Strategy: Investing in a Post-Budget World

While we wait for the Finance Minister’s speech, our QGLP framework suggests that certain sectors will thrive regardless of the specific tax tweaks. If the budget addresses the taxpayer’s wishlist, we expect a massive Demand Revival.

Sectors to Watch:

• Consumer Discretionary: Automobiles and premium retail will benefit from higher take-home pay.
• Financials: As more people enter the tax net and have surplus savings, the Financialization of Savings will continue to drive banks and AMCs.
• Real Estate & Ancillaries: Any relief in home loan deductions will act as a multiplier for cement, steel, and paint companies.

Summary Table: Taxpayer Expectation vs. Rationale

Final Word

At Motilal Oswal, we believe that a Happy Taxpayer is the best Aggressive Investor. By addressing these expectations, the Budget 2026 can transform the Indian middle class from being mere savers into becoming wealth creators.

The road to a $16 trillion economy is paved with the aspirations of 1.4 billion people. If the government gives the taxpayer the right price (tax rate) and longevity (policy stability), the growth will follow naturally.