The preparations have begun for the Union Budget 2026-27, to be presented by Finance Minister Nirmala Sitharaman in Parliament on February 1, 2026, as the third budget of the Modi 3.0 regime. In the Union Budget 2025-26, the Centre in February this year announced, probably one of the biggest tax reforms on the personal taxation front – making an annual income up to Rs 12.75 lakh tax-free, revising tax slabs and hiking rebate. All these changes were done under the New Tax Regime.
Now, the expectations are high that the upcoming budget will again give some relief to taxpayers by revising tax slabs under the New Tax Regime. aimed at reducing the burden on individuals, especially the middle class. Personal tax relief is one of the most sought-after demands every year in the Union Budget as it increases the disposable income of individuals.
Taxpayers’ expectations from Budget 2026-27
As the government begins work on the Budget 2026, the big question taxpayers would be asking: Will income tax slabs be further widened to give relief to the middle class?
A fresh push has come from industry body PHDCCI, which has urged the government to cut income tax rates for individuals earning up to Rs 50 lakh a year. This is one of the most direct appeals so far to ease the personal tax burden on India’s growing middle class.
For several years, personal income tax slabs have largely remained unchanged, even as inflation and cost of living have steadily increased. Under the New Tax Regime, anyone earning above Rs 24 lakh falls into the highest 30% tax bracket.
Industry groups argue that this threshold is too low and forces many middle-income earners to pay what feels like a “high-income” rate.
What PHDCCI is asking for
In its pre-Budget recommendations submitted to the Finance Ministry, PHDCCI has suggested a change in the tax structure:
Up to Rs 30 lakh income: tax rate should not exceed 20%
Rs 30–50 lakh income: tax rate should be 25%
Above Rs 50 lakh: highest slab of 30%
If accepted, this would be a meaningful relief for crores of taxpayers who currently see a big chunk of their income lost to taxes and surcharge.
Why industry thinks lower taxes work
PHDCCI points out that corporate tax cuts in recent years did not reduce government revenue.
Corporate tax was cut to 25%, yet collections jumped from Rs 6.63 lakh crore in 2018–19 to Rs 8.87 lakh crore in 2024–25.
Their argument: lower taxes improve compliance, bring more people into the system, and increase overall revenue.
Middle class carrying highest burden
The chamber highlighted that after surcharges, many taxpayers end up paying close to 39% in taxes.
This leaves only about 60% of their income for personal use, which industry groups believe is too high, especially when compared with benefits residents receive in developed countries.
Dinkar Sharma, Company Secretary and Partner, Jotwani Associates, believes that the PHD Chamber’s recommendation to reduce the income tax rate for individuals earning up to Rs 50 lakh per annum is both timely and pragmatic, especially in the context of India’s post-pandemic recovery and efforts to stimulate domestic consumption.
At present, individuals in this income bracket face a tax rate of up to 30% (inclusive of surcharge and cess), which, when adjusted for inflation and rising cost of living, places considerable strain on middle-income earners — many of whom form the backbone of India’s tax-paying population, he stressed.
Echoing contrasting views, Rahul Jain, Partner at Khaitan & Co., said, “The intent of the Government of India has been to encourage individuals to move to the new personal tax regime. The new regime offers comparatively beneficial slab rates and eliminates the need to claim tax deduction on various fronts (such as house rent allowance, life insurance premium, etc.). In the Finance Act, 2025, the slab rates under the new regime were further amended with the base tax rate of 30% being applicable only on income exceeding INR 24 lakh. With this being a recent change, a higher threshold of 50 lakh (for applicability of 30% tax rate) may not be on cards at this stage.”
Having said that, it is highly expected of the government to reduce the highest surcharge rate to 15% for all the individual taxpayers, to bolster the consumption, investment and savings for such taxpayers, he added.
More PHDCCI recommendations on the table
Along with personal tax relief, PHDCCI has also called for:
Reintroducing the 15% concessional corporate tax rate (Section 115BAB) to boost manufacturing
Changes in rules related to TDS/TCS, buy-back taxes, and presumptive tax schemes
GST improvements such as mandatory faceless audit and allowing ITC transfers across business units
These suggestions come as the Finance Ministry begins internal discussions for the next Union Budget, expected to be presented in February.
Will the government accept the proposal?
There is no official indication yet. However, with rising living costs and growing demands from industry and taxpayers alike, expectations for middle-class tax relief are higher this year.
A wider tax slab, especially for incomes up to Rs 50 lakh, would instantly make the Budget more people-friendly and could boost consumption at a time when households are seeking more financial breathing room.
For now, all eyes are on how the government balances revenue needs with taxpayer expectations as Budget 2026 takes shape.
