As Budget 2026 approaches, one idea is quietly gaining traction in policy circles and among taxpayers — can personal income tax be simplified the way Goods and Services Tax (GST) was streamlined over the years? The comparison is not accidental. The government has repeatedly used GST as an example of how a complex tax system can be made simpler, broader, and easier to comply with. Now, many believe a similar experiment could be attempted with direct taxes.
For salaried taxpayers, the new tax regime already promised simplicity by removing most exemptions and deductions. But despite multiple tweaks in recent budgets, the slab structure with as many as 7 layers is still seen as crowded, with too many steps and marginal rate jumps. That has led to speculation that Budget 2026 could attempt a GST-like compression of income tax slabs, making the system easier to understand and more predictable.
New tax slabs under new tax regime post 2026 Budget
0 to Rs 4 lakh – NIL
Rs 4 lakh to Rs 8 lakh – 5%
Rs 8 lakh to Rs 12 lakh – 10%
Rs 12 lakh to Rs 16 lakh – 15%
Rs 16 lakh to Rs 20 lakh – 20%
Rs 20 lakh to Rs 24 lakh – 25%
Above Rs 24 lakh – 30%
In contrast, the old tax regime has fewer slabs
-For individuals below 60 years of age
Up to Rs 2.5 lakh – NIL
Rs 2.5 lakh to Rs 5 lakh – 5%
Rs 5 lakh to Rs 10 lakh – 20%
Above Rs 10 lakh – 30%
How GST was simplified
When GST was launched, it came with multiple rate slabs — 0%, 5%, 12%, 18% and 28% — along with cess and special rates for certain goods. While the intent was to balance revenue and affordability, over time the system became complicated for businesses and consumers alike.
Over the last year, the government and the GST Council have worked towards rationalisation. Several items were shifted out of the 12% and 28% brackets, with most goods and services converging into two main slabs — 5% and 18%. The highest rate is now largely reserved for luxury, sin or demerit goods, while essential and mass-consumption items are taxed at lower rates. A few special rates continue for products like precious metals, but overall, the structure today is far more compact than what it started with.
The logic behind this move was clear: fewer rates mean fewer classification disputes, simpler compliance, and a tax system that ordinary consumers can understand without needing a chart.
Can income tax follow the same path?
The question now is whether the government can apply the same philosophy to personal income tax under the new tax regime. At present, the regime has already replaced the older system for a large majority of taxpayers, but it still has multiple slabs, which some feel defeat the purpose of simplicity.
While this multi-structure income tax system offers lower tax rates at various income levels, it also introduces several breakpoints. For many salaried taxpayers, understanding how incremental income is taxed across so many slabs can still feel confusing.
This is where the GST-like model comes into the discussion. Just as GST moved towards two broad rates with a higher slab for luxury consumption, income tax could theoretically be compressed into fewer, wider slabs — while retaining the highest rate for top earners.
What slab compression could look like
One possible approach could be merging multiple middle slabs into broader bands.
For example, instead of having separate 10%, 15% and 20% slabs, the government could introduce a single middle rate, while keeping a low rate for entry-level incomes and a high rate for premium incomes.
Another idea often discussed is pushing the 30% slab threshold higher, so that only very high earners fall into the top tax bracket. This would mirror the GST approach where the highest rate is applied selectively rather than widely.
Such compression would not necessarily mean a tax giveaway. Instead, it would focus on clarity, smoother progression and fewer rate jumps, making the system more intuitive.
Example: How a Rs 30 lakh income is taxed today
To understand why slab simplification matters, consider an individual earning Rs 30 lakh per annum under the current new tax regime.
Their income is taxed in parts — some at 5%, some at 10%, some at 15%, and so on, with income above Rs 24 lakh taxed at 30%. While the effective tax rate is lower than the headline 30%, the calculation itself involves multiple layers.
If slabs were compressed — say into three or four broader rates — the same taxpayer could calculate their liability faster and with greater certainty. The final tax outgo would depend on how the slabs are structured, but the experience of paying tax would be far simpler.
Why taxpayers are watching Budget 2026 closely
The government has consistently signalled its intent to move towards a simple, predictable and low-compliance tax system. GST rationalisation was a big step in that direction for indirect taxes. Income tax could be the next frontier.
For middle-class and upper-middle-class taxpayers, slab compression could mean fewer surprises, easier salary planning, and clearer take-home expectations. For the government, it could improve compliance and reduce disputes without necessarily hurting revenue.
Whether Budget 2026 takes this bold step remains to be seen. But the comparison with GST has already set the tone for the debate — if indirect taxes can be simplified, why not income tax too?