Budget 2026: Section 87A Tax Rebate Unchanged, Middle-Class Relief Limited
Budget 2026: No Increase in Section 87A Tax Rebate

Budget 2026: No Relief in Section 87A Tax Rebate, Middle-Class Hopes Dashed

In a move that has left many taxpayers disappointed, the Union Budget 2026 has maintained the Section 87A tax rebate at its existing level, with no increase to provide additional relief to middle-income earners. This decision comes despite widespread expectations for enhanced tax benefits to boost consumption and ease the financial burden on individuals.

Rebate Details and Eligibility Criteria

Under the new tax regime, resident individuals with a net taxable income of up to Rs 12 lakh can continue to claim a maximum rebate of Rs 60,000. This effectively reduces their tax liability to zero on regular income within this limit, mirroring the provisions from the previous fiscal year, FY 2025-26.

However, the rebate remains exclusive to resident individuals. Hindu Undivided Families (HUFs), Non-Resident Indians (NRIs), companies, and super senior citizens are not eligible to avail of this benefit, highlighting the targeted nature of the relief.

Exclusions and Specific Income Categories

While the rebate amount stays unchanged, certain income streams are explicitly excluded from its purview:

  • Long-term capital gains (LTCG) from listed equity shares and equity mutual funds do not qualify for the Section 87A rebate. It is important to note that gains up to Rs 1.25 lakh on such assets remain tax-free under separate provisions.
  • Short-term capital gains (STCG) from equity sales, starting FY 2025-26, are also ineligible for the rebate under the new tax regime. This marks a departure from earlier practices under the old tax rules.
  • Incomes from non-standard sources, including gambling, online gaming, and virtual digital assets, are taxed at flat rates with applicable surcharge and cess, and are not eligible for the rebate.

Impact on Taxpayers and Government Priorities

The decision to retain the current rebate levels suggests that the government is prioritizing other fiscal objectives over expanding tax relief for individual taxpayers in Budget 2026. Although the rebate continues to offer significant savings for many middle-income earners under the new regime, the lack of an increase may dampen expectations regarding immediate consumer spending support from the budget.

Tax Liability Breakdown for Different Income Levels

Since the income tax rules remain unchanged from the previous budget, here is a detailed look at how much taxpayers will owe under the new regime:

  1. Income Rs 8 lakh: Tax payable is Rs 0, with a total benefit of Rs 30,000 compared to old slab rates.
  2. Income Rs 9 lakh: Tax payable is Rs 0, with a total benefit of Rs 40,000.
  3. Income Rs 10 lakh: Tax payable is Rs 0, with a total benefit of Rs 50,000.
  4. Income Rs 11 lakh: Tax payable is Rs 0, with a total benefit of Rs 65,000.
  5. Income Rs 12 lakh: Tax payable is Rs 0, with a total benefit of Rs 80,000.
  6. Income Rs 13 lakh: Tax payable is Rs 75,000, with a benefit of Rs 25,000.
  7. Income Rs 14 lakh: Tax payable is Rs 90,000, with a benefit of Rs 30,000.
  8. Income Rs 15 lakh: Tax payable is Rs 1,05,000, with a benefit of Rs 35,000.
  9. Income Rs 16 lakh: Tax payable is Rs 1,20,000, with a benefit of Rs 50,000.
  10. Income Rs 17 lakh: Tax payable is Rs 1,40,000, with a benefit of Rs 60,000.
  11. Income Rs 18 lakh: Tax payable is Rs 1,60,000, with a benefit of Rs 70,000.
  12. Income Rs 19 lakh: Tax payable is Rs 1,80,000, with a benefit of Rs 80,000.
  13. Income Rs 20 lakh: Tax payable is Rs 2,00,000, with a benefit of Rs 90,000.
  14. Income Rs 21 lakh: Tax payable is Rs 2,25,000, with a benefit of Rs 95,000.
  15. Income Rs 22 lakh: Tax payable is Rs 2,50,000, with a benefit of Rs 1,00,000.
  16. Income Rs 23 lakh: Tax payable is Rs 2,75,000, with a benefit of Rs 1,05,000.
  17. Income Rs 24 lakh: Tax payable is Rs 3,00,000, with a benefit of Rs 1,10,000.
  18. Income Rs 25 lakh: Tax payable is Rs 3,30,000, with a benefit of Rs 1,10,000.
  19. Income Rs 50 lakh: Tax payable is Rs 10,80,000, with a benefit of Rs 1,10,000.

This breakdown illustrates that while the rebate provides substantial relief for incomes up to Rs 12 lakh, taxpayers with higher earnings continue to face significant tax liabilities, albeit with some benefits compared to the old regime.

Overall, Budget 2026's stance on the Section 87A tax rebate underscores a cautious approach to fiscal policy, focusing on stability rather than expansion in tax relief measures for the middle class.