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In a bold move to provide financial relief to the middle class, Finance Minister Nirmala Sitharaman unveiled sweeping tax reforms in the Union Budget for FY26. The announcement of no income tax up to Rs 12 lakh per annum under the new tax regime is set to significantly ease the financial burden on millions of taxpayers.
Simplified New Tax Slabs for FY26
The new tax structure aims to make tax filing easier and more beneficial for middle-income earners by offering lower rates across various income brackets. Here’s a breakdown of the proposed tax slabs for the new regime:
- Income Range Rs 0 – Rs 4 lakh: NIL tax
- Income Range Rs 4 lakh – Rs 8 lakh: 5% tax
- Income Range Rs 8 lakh – Rs 12 lakh: 10% tax
- Income Range Rs 12 lakh – Rs 16 lakh: 15% tax
- Income Range Rs 16 lakh – Rs 20 lakh: 20% tax
- Income Range Rs 20 lakh – Rs 24 lakh: 25% tax
- Income Above Rs 24 lakh: 30% tax
Additionally, a 4% cess will be applied to the total tax amount, and for incomes exceeding Rs 50 lakh, additional surcharges will apply.
Increased Rebate and Tax Relief
One of the standout provisions is the significant enhancement of the Section 87A rebate. The income limit for this rebate has been raised from Rs 7 lakh to Rs 12 lakh, ensuring that more taxpayers can benefit from reduced tax liability. Moreover, the rebate amount under Section 87A has been increased from Rs 25,000 to Rs 60,000 for those earning up to Rs 12 lakh annually.
This means that nearly 85% of the 7.5 crore taxpayers will see a reduction in their tax burden, with those earning up to Rs 12 lakh benefiting from direct relief.
Old vs. New Tax Regimes: A Critical Choice
One of the crucial decisions taxpayers will need to make is whether to opt for the old tax regime or the new tax regime. The new tax system offers lower tax rates and a simplified structure, but it comes with the caveat that most deductions and exemptions available under the old regime are no longer applicable.
- Old Tax Regime: This allows taxpayers to avail various deductions, such as those under Section 80C (for investments in PPF, LIC, etc.) and Section 80D (for health insurance premiums). However, the tax rates in the old system are higher compared to the new regime.
- New Tax Regime: This provides simpler, lower tax rates but removes most of the deductions and exemptions. However, it is ideal for taxpayers who do not have many deductions to claim and prefer a straightforward calculation.
Taxpayers’ Guide: Which Regime to Choose?
When deciding between the two regimes, taxpayers should consider factors like:
- Income Structure: If you have a substantial number of deductions available (e.g., investments in PPF, insurance premiums, home loan interest), the old tax regime might be more beneficial.
- Simplicity: If you prefer a hassle-free tax filing process with fewer calculations, the new tax regime, with its lower rates and streamlined approach, could be the better option.
- Tax Liability: For those earning up to Rs 12 lakh, the new regime is highly attractive, offering both reduced tax rates and a rebate under Section 87A.
The new tax regime, with its enhanced rebates and simplified slabs, provides a significant opportunity for middle-class taxpayers to keep more of their hard-earned money.
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