With the 8th Pay Commission decision pending, the Finance Ministry is reportedly considering a massive tweak to the New Tax Regime to offer immediate relief. Here is what to expect on February 1.
Key Highlights
- The Big Buzz: Rebate limit under New Tax Regime may rise from ₹7 Lakh to ₹10 Lakh.
- Standard Deduction: Proposal to hike it from ₹75,000 to ₹1 Lakh.
- The Reason: To counter inflation and provide disposable income if salary hikes are delayed.
- Old Regime: Unlikely to see any major changes as the government pushes the New Regime.
Middle Class Eyes on Nirmala Sitharaman
NEW DELHI: As the countdown to the Union Budget 2026-27 begins, hope is rising for the common taxpayer. With inflation averaging 5.5% last year and the 8th Pay Commission implementation likely taking time, sources in the North Block suggest the government plans to put more money in the pockets of the salaried class through tax cuts.
The most discussed proposal is widening the “Tax-Free” net. Currently, under Section 87A of the New Tax Regime, income up to ₹7 Lakh is effectively tax-free. Reports indicate this limit could be raised to ₹8 Lakh or even ₹10 Lakh to make the New Regime the default choice for everyone.
“Standard Deduction to Double?”
Another key expectation is regarding the Standard Deduction.
- Current: ₹75,000 (hiked in July 2024).
- Expected: ₹1,00,000.
If this passes, a salaried employee earning ₹11 Lakh could effectively pay zero tax (after claiming deductions).
Tax Calculation: How Much Will You Save?
If the rebate limit is hiked to ₹10 Lakh, here is the massive relief for an employee earning ₹9.5 Lakh per year:
| Income Slab | Current Tax (New Regime) | Proposed Tax (If Rebate = ₹10L) |
| ₹0 – ₹3 Lakh | Nil | Nil |
| ₹3 – ₹7 Lakh | 5% | 5% (Rebate Applicable) |
| ₹7 – ₹9.5 Lakh | 10% | 10% (Rebate Applicable) |
| Total Tax Payable | Approx ₹52,500 | ZERO (₹0) |
(Note: Under the Section 87A Rebate system, if your taxable income stays within the limit, the entire tax calculated is waived off. This shows a direct saving of over ₹50,000.)
Why Now?
Political analysts believe this move is strategic.
- Compensation: It acts as an interim relief before the 8th Pay Commission salaries kick in.
- Consumption: Lower tax means more “cash in hand,” which boosts market spending—a priority for the Finance Ministry this year.
FAQs
A: No. The Finance Minister has repeatedly stated that the Old Regime will continue, but no new benefits will be added to it. The focus is entirely on making the New Regime attractive.
A: If announced in the Budget on February 1, 2026, the new rates will be applicable for the financial year starting April 1, 2026.
A: Not yet. This is currently a proposal under review by the Revenue Department. The final seal of approval will come from the Prime Minister’s Office (PMO) later this month.
Disclaimer
This article is based on pre-budget expectations and media reports as of January 4, 2026. Please wait for the official Budget Speech for confirmed details
