A fresh tax relief pitch — what’s on the table

A fresh tax relief pitch — what’s on the table

As the Union Budget 2026-27 gears up for its public unveiling in February 2026, the spotlight is once again on personal income tax — specifically the highest slab under the new tax regime. The industry lobby is knocking at the door. The PHD Chamber of Commerce and Industry (PHDCCI) has urged the government to widen tax slabs, relieve the burden on middle-income earners, and raise the threshold for the highest 30 % tax rate. 

Under the current new tax regime, the 30 % rate kicks in for individuals with annual income exceeding Rs 24 lakh.  PHDCCI argues this limit is too low, effectively pulling in people it deems “middle income” into a tax rate zone meant for higher earners. Their proposal:

• Up to Rs 30 lakh: tax rate ≤ 20% 

• Rs 30–50 lakh: tax rate ~25% 

• Above Rs 50 lakh: highest slab of 30% 

If adopted, this would mean that the 30% tax rate under the new regime would apply only to annual incomes above Rs 50 lakh — giving a more generous margin for those earning up to that amount.

Why this matters — the reasoning

There are several reasons why the industry is pushing this change, and why it might resonate:

1. Relief for middle-income earners

With inflation, rising living costs and stagnant tax slabs, many salaried taxpayers feel squeezed. PHDCCI points out that many individuals earning up to the current threshold are paying close to 39% effective tax once surcharge and cess are factored in — meaning only ~60% of their income remains for personal use.  By raising the threshold for the 30% rate, more taxpayers would fall under lower slabs, increasing disposable income and easing the burden.

2. Improved compliance and revenue logic

The chamber draws a parallel with corporate tax cuts: when the rate was lowered to 25% for corporates, corporate tax collections actually rose (from about Rs 6.63 lakh crore in 2018-19 to Rs 8.87 lakh crore in 2024-25) — suggesting that a lower rate with broader base may work better.  They argue that similar logic could apply to individuals: fewer incentives for tax avoidance, more willingness to declare income, and thus overall better revenue for the government.

3. Stimulus for consumption and growth

Relieving personal taxes means more disposable income, which can lead to higher consumption. At a time when the government seeks to boost domestic demand and investment, personal tax relief can be a lever. The PHDCCI specifically notes this in the context of India’s post-pandemic recovery.

Will the government bite? The challenges ahead

Despite the appeal, there are several headwinds and questions surrounding the possibility of this reform:

• The new tax regime under discussion is relatively recent: the slab that brings 30% tax at Rs 24 lakh was introduced in the Finance Act 2025.  So, shifting it again so soon may pose administrative or revenue forecasting issues.

• The government still needs to balance between giving relief and maintaining revenue. Tax cuts can be politically popular but may constrain resources for social spending, infrastructure, and other obligations.

• No official indication yet: As of now, the Ministry of Finance has not confirmed whether it will accept the threshold-raise proposal. The article notes that though expectations are high, the actual change is uncertain. 

What it means for taxpayers

For salaried individuals, professionals and other taxpayers under the new regime scheme, here’s what to keep an eye on:

• If the change goes through, those earning up to Rs 50 lakh annually may get relief, paying lower tax rates than currently.

• Tax planning (for FY 2025-26 and onwards) may need to consider whether to remain in the new regime or opt for the old regime (if eligible) — depending on deductions, investment options and personal situation.

• Even if the change is announced, the timeline matters: how soon it becomes effective, whether it applies from FY 2026-27 or earlier, and how transitional provisions are handled.

• Other reforms may accompany this change: PHDCCI also recommends reducing the highest surcharge rate to 15% for individual taxpayers, reintroducing concessional corporate tax (section 115BAB) for manufacturing, improving TDS/TCS rules, GST improvements (faceless audits, ITC transfers) etc.  So this may be part of a broader package.

Looking ahead

The Budget in February 2026 will be closely watched not just for macroeconomic measures, but for how it addresses individual taxpayers in the growing “middle-to-upper middle” bracket. A move to raise the threshold for the 30% tax slab to above Rs 50 lakh would signal a tilt towards making tax policy more “people-friendly” — and could also bolster consumption and growth. On the other hand, it will test the government’s ability to maintain fiscal discipline and revenue collection.

For now, all eyes remain on the Ministry of Finance’s internal consultations and how far they are willing to go in granting tax relief while safeguarding fiscal stability.