The “middle-class dream” might finally come true. With the Union Budget 2026 less than a month away, strong reports suggest the Finance Ministry is considering hiking the tax-free income limit to ₹10 Lakh under the New Tax Regime.
As the countdown begins for Union Budget 2026-27, to be presented by the Finance Minister on February 1, 2026, the rumor mills are working overtime. The biggest buzz? A massive relief for the salaried class.
According to sources in the Finance Ministry, the government is actively discussing a proposal to increase the Section 87A Rebate limit under the New Tax Regime. If approved, this would mean individuals earning up to ₹10 Lakh per year will pay ZERO income tax.
The Current Scenario (FY 2025-26)
Currently, under the New Tax Regime, the “Tax-Free” limit stands at ₹7 Lakh.
- Rebate Limit: Income up to ₹7 Lakh is tax-free due to the rebate u/s 87A.
- The Catch: If your income crosses ₹7 Lakh by even ₹100, you have to pay tax on the slab amount (starting from ₹3 Lakh).
- Standard Deduction: Salaried employees get an additional deduction of ₹75,000 (hiked in July 2024).
What is Proposed for Budget 2026?
To boost consumption and provide relief from inflation, policymakers are looking at two major changes:
- Hike in Rebate Limit: Increasing the Section 87A threshold from ₹7 Lakh to ₹10 Lakh.
- Basic Exemption Limit: Raising the base exemption slab from ₹3 Lakh to ₹5 Lakh.
Why Now? Economists argue that while the Indian economy is growing, private consumption in the middle-income segment has slowed down due to high food inflation. Putting more money in the hands of the “Common Man” is seen as the quickest way to revive demand for FMCG, auto, and real estate sectors.
How Much Will You Save?
If the limit is indeed raised to ₹10 Lakh, here is how the math works for a salaried employee:
| Annual Income | Current Tax (New Regime) | Proposed Tax (If Limit = ₹10L) | Savings |
| ₹7,00,000 | ₹0 | ₹0 | ₹0 |
| ₹9,00,000 | ₹40,000 (approx) | ₹0 | ₹40,000 |
| ₹10,00,000 | ₹52,000 (approx) | ₹0 | ₹52,000 |
| ₹12,00,000 | ₹78,000 | ₹60,000 | ₹18,000 |
(Note: Calculations are indicative based on current slab rates without cess).
Expert Opinion
“The government wants to make the New Tax Regime the default and only choice. Hiking the limit to ₹10 Lakh will make the Old Regime (with 80C exemptions) completely unattractive for 90% of taxpayers,” says Rakesh Nangia, a senior tax analyst.
Will 80C Limit Be Increased?
For those sticking to the Old Tax Regime, the news is not as bright. There are no indications that the Section 80C limit (currently ₹1.5 Lakh) will be hiked. The government’s clear focus is on simplifying taxes via the New Regime.
FAQs: Budget 2026 & Income Tax
A: If announced on February 1, 2026, the new rates will apply for the financial year April 1, 2026, to March 31, 2027 (AY 2027-28).
A: No. This is currently a proposal/expectation based on ministry discussions. The final decision rests with the Finance Minister and the PMO.
A: There are rumors that Standard Deduction might be hiked to ₹1,00,000 to adjust for inflation, but this is less likely than the rebate hike.
Disclaimer: The information above is based on pre-budget expectations and media reports. Please await the official Budget Speech on Feb 1, 2026, for confirmed details.
