Key Highlights of Union Budget – A.Y. 2026–27

Income Tax || Key Highlights of Union Budget – A.Y. 2026–27

Key Highlights of Union Budget – A.Y. 2026–27

1. Overview

The Union Budget for Assessment Year 2026–27 introduces significant reforms aimed at:
  1. Enhancing taxpayer relief
  2. Increasing disposable income
  3. Simplifying the income tax structure
  4. Encouraging wider adoption of the new tax regime
The revised provisions are designed to create a more streamlined and taxpayer-friendly system.

2. New Tax Regime – Revised Slab Structure

      

3. Rebate under Section 87A

  1. Available for individuals with total income up to ₹12,00,000
  2. Eligible taxpayers will have zero tax liability
  3. Effective tax-free income extends up to ₹12.75 lakh, considering the standard deduction
Marginal Relief (MMR)
Marginal Relief is applicable where total income slightly exceeds ₹12,00,000:
  1. Ensures that the additional tax payable does not exceed the additional income earned
  2. Prevents disproportionate tax burden due to marginal income increase
Methodology for MMR Calculation
  1. Determine total income
  2. Compute tax liability as per applicable slab rates
  3. Calculate excess income over ₹12,00,000
  4. Compare:
    1. Tax liability as per slabs
    2. Excess income amount
  5. Tax payable shall be restricted to the lower of the above two values
Illustrative Example
  1. Total Income: ₹12,20,000
  2. Tax as per slab rates: ₹62,000
  3. Excess Income over ₹12,00,000: ₹20,000
  4. Final Tax Payable (after applying MMR): ₹20,000

4. Standard Deduction

       

5. Basic Exemption Limit

  1. The basic exemption limit under the new tax regime has been revised to ₹4,00,000

6. Capital Gains Tax Rates

      

 7. Old Tax Regime

  1. Continues to remain optional for taxpayers
  2. Allows availing of various deductions and exemptions, including:
    1. Section 80C (Investments)
    2. Section 80D (Medical Insurance)
    3. House Rent Allowance (HRA)
8. National Pension System (NPS)
  1. Employer’s contribution is allowable as a deduction up to 14% of salary under the new tax regime

9. Family Pension Deduction

  1. Deduction permitted up to ₹25,000 for family pension income

10. Summary of Tax-Free Income

      

The Union Budget for A.Y. 2026–27 introduces a more progressive and simplified taxation framework. With enhanced rebate limits, revised slab rates, and provisions such as marginal relief, the new regime significantly reduces the tax burden for middle-income taxpayers while promoting ease of compliance.

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