Budget 2026: Income tax slabs, exemption limit remains unchanged; no fresh relief to taxpayers
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Finance Minister Nirmala Sitharaman on Sunday announced a series of tax-related measures in the Union Budget 2026–27 while retaining the existing income tax structure and offering no fresh relief to individual taxpayers. Income tax slabs and the basic exemption limit have been left unchanged, signalling continuity and stability in the personal taxation framework.
Tax slabs
Under the new tax regime for FY27, salaried individuals below 60 years of age will continue to pay no tax on income up to ₹4 lakh. Income between ₹4 lakh and ₹8 lakh will be taxed at 5%, ₹8 lakh to ₹12 lakh at 10%, ₹12 lakh to ₹16 lakh at 15%, ₹16 lakh to ₹20 lakh at 20%, ₹20 lakh to ₹24 lakh at 25%, and income above ₹24 lakh at 30%.
Standard deduction
The standard deduction for salaried employees has been retained at ₹75,000. In addition, the rebate under Section 87A will continue to apply for net taxable income of up to ₹12 lakh, effectively making such income tax-free under the new regime. No increase was announced in the standard deduction for salaried employees and pensioners, meaning taxable income for most individuals will remain unchanged unless there are changes in salary or other income sources.
January 2026
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Radhika Rao, Executive Director and Senior Economist at DBS Bank, said, "On the tax front, constructive measures, particularly customs duty exemptions, are aimed at reducing production costs. Overall, the Budget preserves macroeconomic stability and maintains continuity in policy. Fiscal consolidation will continue, with the centre’s debt-to-GDP ratio projected to decline by around 0.5% and the fiscal deficit expected to narrow to 4.3% of GDP."
Old tax regime
No changes were announced to the old tax regime either. Existing slabs, exemptions and deductions under the old regime will continue, with taxpayers retaining the option to choose between the old and new regimes while filing their income tax returns.
Income Tax Act
The finance minister said the Income Tax Act, 2025, will come into effect from April 1, 2026, with all changes announced in Budget 2026 to be incorporated into the new legislation. The government is expected to notify the rules and return forms shortly.
Announcing additional taxpayer-friendly measures, Sitharaman proposed extending the deadline for filing revised income tax returns from December 31 to March 31, subject to payment of a nominal fee. She also announced a cut in the Tax Collected at Source (TCS) rate under the Liberalised Remittance Scheme for education and medical treatment abroad to 2% from 5%. The TCS rate on overseas tour packages will also be reduced to 2% from 5%, a significant rollback from the earlier 20% rate.
In another move aimed at easing compliance, the finance minister proposed a rule-based automated process for small taxpayers in the FY27 Budget. She also announced that awards granted by Motor Accident Claims Tribunals will be exempted from income tax.