30% tax slab should start at Rs 30 lakh income in Budget 2026 giving middle class taxpayers a relief against inflation

As we approach the Budget date, discussions on tax rates and tax breaks intensifies. All taxpayers, be it individuals or corporates, are anxious about the tax breaks or levies that the Finance Minister would provide for in the Budget. For salaried taxpayers, the discussion is of utmost significance considering that 90% of their taxes are paid through tax withholding.

In the Budget of 2025, recognizing the significant contribution of the middle class in nation building, the Finance Minister provided substantial tax relief to individual taxpayers under the simplified tax regime. For a taxpayer earning up to INR 12 lakh of total income, there is nil tax payable. This limit earlier was INR 7 lakhs. Further the income slabs were also revised, with the highest tax rate of 30% applicable to income beyond INR 24 lakhs, which was earlier limited to INR 15 lakhs. A higher standard deduction of INR 75,000 was provided to employees under the simplified tax regime. There was no change proposed to the regular tax regime. In fact, the last revision to the old tax regime was in FY 2017-18 when the tax rate for the first income slab up to INR 5 lakhs was reduced from 10% to 5% signifying the government's resolve to encourage taxpayers to opt for the simplified tax regime as against the regular tax regime that focussed on deductions and exemptions.

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Comparison between the two regimes

To further understand the amount of disposable income now available with taxpayers under the simplified tax regime, let's look at a few illustrations of taxable salary income at different levels (assuming that there are zero deductions / exemptions) -

Annual taxable Income	Tax under old regime (incl. cess)	Tax under new regime (incl. cess)	Annual saving	Additional monthly take home (approx.)
₹ 8,00,000	65,000	₹ 0	65,000	₹ 5,417.00
₹ 10,00,000	₹ 1,06,600	₹ 0	₹ 1,06,600	₹ 8,883.00
₹ 12,00,000	₹ 1,63,800	₹ 0	₹ 1,63,800	₹ 13,650.00
₹ 15,00,000	₹ 2,57,400	₹ 97,500	₹ 1,59,900	₹ 13,325.00
₹ 18,00,000	₹ 3,51,000	₹ 1,50,800	₹ 2,00,200	₹ 16,683.00
₹ 20,00,000	₹ 4,13,400	₹ 1,92,400	₹ 2,21,000	₹ 18,416.67
₹ 24,00,000	₹ 5,38,200	₹ 2,92,500	₹ 2,45,700	₹ 20,475.00
₹ 50,00,000	₹ 13,49,400	₹ 10,99,800	₹ 2,49,600	₹ 20,800.00

(Rounded figures; actual numbers may differ slightly due to rounding rules.)

As can be inferred, based on the different income levels, taxpayers could save an amount of INR 5417 to INR 20,800 per month for a salary income ranging between INR 8 lakhs to INR 50 lakhs, provided the taxpayer has no deductions and is opting for the old regime. While one may term these relief as generous, let us examine whether this is adequate for taxpayers or if there is the need to further enhance the benefit for the middle class.

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Impact of inflation on Household Budgets

Based on published statistics, an Indian household spends about 60-70% of the total budget on obligatory expenses (such as EMIs/loans) and necessities. Based on a recent report from a leading consulting firm, it was observed that about 40% of middle class households are constantly concerned with rising food prices that forces them to rework consumption priorities. Inflation on essential expenses such as education, healthcare, erodes purchasing power.

Increasing rentals is also one more cause of concern for the middle class. The annual increase in rentals in the last couple of years, especially in certain pockets such as Bangalore, Mumbai, and some Tier 2 cities, has been challenging for tenants. While headline inflation moderated in 2024-25, the food inflation rate remained elevated and in December 2024 reached as high as 8.3%. The situation has seen an improvement only post September 2025 with the reduction in GST rates.

Lower income growth

The increase in salaries has not kept pace with the steady rise in the cost of living. Average compensation hikes last year have been in the range of 6-9%, which falls significantly short of the rise in essential expenditures. Compounding this challenge is a consistent decline in returns from traditional investment avenues, further eroding the financial cushion available to taxpayers. As a result, any marginal increase in disposable income from tax deductions is effectively neutralised by higher day to day costs, leaving many individuals-particularly those in the lower income brackets-struggling to make ends meet.

Further, many taxpayers may have already committed to tax linked savings instruments such as PPF, life insurance policies, post office schemes, or long term home loans. These are significant financial obligations that cannot simply be discontinued because the new tax regime appears more advantageous. In several cases, continuing these investments leaves taxpayers with limited disposable income. Undoubtedly, such long term financial commitments play an important role in supporting national development initiatives. It is therefore essential that the finance minister takes cognizance of this and considers providing appropriate relief for taxpayers who remain invested in these instruments.

Thus, in this Budget, the finance minister could look to fine-tune the tax rates by pushing the 30% tax rate to apply to income slab of INR 30 lakhs and above and evaluating the option of providing relief for some deductions without increasing compliance. One hopes that the finance minister will keep in mind the need for the economic stability of the middle income groups that are eager for some more relief in taxes to help them tide over daily challenges.

(The article is authored by Aarti Raote, Partner, Deloitte India)