In the Union Budget 2026–27, presented on 1 February 2026, Finance Minister Nirmala Sitharaman reaffirmed and extended income-tax relief for the middle class under the new tax regime, keeping the zero-tax benefit for incomes up to ₹12 lakh (₹12.75 lakh for salaried taxpayers after the standard deduction).
This continues the landmark personal tax relief first introduced in Budget 2025, which raised the rebate threshold from ₹7 lakh to ₹12 lakh and expanded exemption slabs. Officials say the move simplifies the system and boosts take-home pay, although compliance – including mandatory ITR filing for incomes above ₹4 lakh – remains essential.
Experts note that many taxpayers will still benefit from comparing the new and old regimes before filing. Taxpayers and citizen groups largely welcomed the sustained relief, while advocates urged further hikes in exemption limits.
Middle Class Tax Relief Explained
Under the current new tax regime, income up to ₹4 lakh is exempt and progressive rates apply thereafter: 5% on ₹4–8 lakh, 10% on ₹8–12 lakh, and higher percentages up to 30% for earnings above ₹24 lakh. Crucially, an enhanced Section 87A rebate of up to ₹60,000 effectively wipes out tax liability for individuals with taxable income up to ₹12 lakh – and, with the ₹75,000 standard deduction for salaried taxpayers, many can enjoy nil tax up to ~₹12.75 lakh. Senior citizens get additional basic exemptions.
Finance Ministry officials say this framework aims to leave “more money in the hands of middle-income earners”, supporting consumption and savings. Analysts caution that incomes including special rate components (like LTCG/STCG) may not fully qualify for rebate benefits.
How This Compares to Budget 2025 & the Old Regime
Last year’s Budget 2025 pivoted strongly toward the new tax regime, increasing the rebate threshold from ₹7 lakh to ₹12 lakh and expanding exemption slabs, while the old regime remained unchanged with lower basic exemption limits (₹2.5 lakh) and steeper marginal rates.
That shift nudged many taxpayers toward the new regime’s simplicity but also raised questions about compliance, as ITR filing is still mandatory to claim Section 87A even when tax due is zero. Compared to the old system, the new slabs are broader and smoother, but some taxpayers with high deductions – such as HRA and Section 80C investments – may find the old regime more favourable depending on their financial profile.
Ahead of Budget 2026, taxpayers had been asking for even higher thresholds and expanded standard deductions – suggestions that partly shaped ongoing deliberations in Parliament.
The Logical Indian’s Perspective
The Logical Indian views sustained tax relief for middle-income earners as a positive step toward economic equity and financial empowerment, especially at a time of rising living costs. Simplifying tax slabs and raising exemption thresholds can help ordinary citizens retain more of their earnings and participate more fully in the economy.
Yet, clarity and ease of compliance remain critical – as do inclusive conversations about exemptions for investment, housing affordability, and familial responsibilities.
While the extended rebate offers welcome relief, policymakers should also ensure that all forms of income and diverse livelihood patterns are equitably treated.
