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, retaining the zero-tax benefit for incomes up to ₹12 lakh-or ₹12.75 lakh for salaried taxpayers after accounting for the standard deduction.
This move continues the landmark personal income-tax reform introduced in Budget 2025, which had sharply raised the rebate threshold from ₹7 lakh to ₹12 lakh and redesigned tax slabs to make the system simpler and more predictable.
Government officials say the continuation of this framework is aimed at boosting disposable incomes and supporting household consumption, even as mandatory ITR filing for incomes above ₹4 lakh remains a compliance requirement.
Tax experts note that while the new regime benefits a wide segment of taxpayers, individuals should still compare outcomes under both regimes before filing, especially if they claim substantial deductions under the old system.
Overall, taxpayer groups have welcomed the sustained relief, though some continue to advocate higher exemption limits in the future.
Middle-Class Tax Relief Explained
Under the current new tax regime, income up to ₹4 lakh is exempt, with progressive tax rates thereafter:
- 5% on income between ₹4–8 lakh
- 10% on ₹8–12 lakh
- Higher slabs apply beyond this, rising to 30% for income above ₹24 lakh
A key feature is the enhanced Section 87A rebate of up to ₹60,000, which effectively eliminates tax liability for individuals with taxable income up to ₹12 lakh. For salaried taxpayers, the ₹75,000 standard deduction pushes the nil-tax threshold to approximately ₹12.75 lakh. Senior citizens also continue to enjoy higher basic exemption limits.
Finance Ministry officials say the structure is designed to ensure “more money in the hands of middle-income earners,” while analysts caution that income taxed at special rates-such as long-term or short-term capital gains-may not fully qualify for rebate benefits.
Marginal Relief: Cushion for Incomes Just Above ₹12 Lakh
An important but often overlooked feature of the new tax regime is marginal relief, which benefits taxpayers earning slightly above ₹12 lakh.
Marginal relief ensures that the additional tax payable on income exceeding ₹12 lakh does not exceed the amount by which income crosses ₹12 lakh. In simple terms, it prevents a situation where earning a little more leads to a disproportionately higher tax burden.
Under Budget 2026–27:
- Marginal relief is available only to resident individuals
- It applies to those with income marginally above ₹12 lakh
- It can significantly reduce tax outgo for taxpayers just crossing the rebate threshold
This provision softens the transition into the taxable zone and offers meaningful savings to middle-income earners whose income slightly exceeds the zero-tax limit.
Comparison with Budget 2025 and the Old Tax Regime
Budget 2025 marked a decisive shift toward the new tax regime by:
- Raising the rebate threshold from ₹7 lakh to ₹12 lakh
- Expanding slab ranges for smoother progression
- Leaving the old regime unchanged, with a basic exemption of ₹2.5 lakh and higher marginal rates
While the new regime offers simplicity and broader relief, the old regime may still suit taxpayers with significant deductions-such as HRA, Section 80C investments, or housing loan interest—depending on individual financial profiles.
Ahead of Budget 2026, many taxpayers had sought higher exemption limits and expanded deductions. While those demands were only partly addressed, the continued zero-tax threshold and the availability of marginal relief signal the government’s intent to steadily strengthen middle-class tax relief.
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.
