7 Key Tax Changes in Budget 2026 Every Indian Salaried Professional Must Know. (FY 2026-27 Slabs)

Tax season often brings stress and confusion, but 2026 introduces a significant change that can simplify your financial planning. The New Income Tax Act 2025, effective from April 2026, reshapes how individuals calculate their taxes. Understanding these changes is crucial for middle-income earners and salaried employees who want to maximize their savings and comply with the latest regulations.

This post breaks down the new tax slabs, explains the ₹12 lakh tax rebate under Section 87A, highlights the standard deduction benefits, and covers important updates like the reduction in Tax Collected at Source (TCS) on overseas tour packages. By the end, you will have a clear picture of why the new tax regime is now the preferred choice for many taxpayers.

New Income Tax Slabs for FY 2026-27

The New Income Tax Act 2025 introduces a simplified six-tier tax slab structure. This structure aims to make tax calculations more straightforward and fairer for taxpayers across different income levels. Here is the slab breakdown for individual taxpayers below 60 years of age:

This tiered system replaces the older slabs and offers a more gradual increase in tax rates as income rises. The zero tax rate on income up to ₹4 lakh provides relief to low-income earners, while the highest rate remains at 30% for incomes exceeding ₹24 lakh.

The ₹12 Lakh Magic: Section 87A Rebate Explained

One of the most attractive features of the new tax regime is the enhanced rebate under Section 87A. Taxpayers with a net taxable income up to ₹12 lakh can claim a rebate of ₹60,000. This rebate effectively makes income up to ₹12 lakh tax-free.

How does this work?

• If your taxable income is ₹12 lakh or less, you pay no income tax after applying the rebate.

• For example, if your taxable income is ₹10 lakh, your tax liability before rebate might be ₹1,00,000 (based on slab rates). After applying the ₹60,000 rebate, you pay only ₹40,000.

• If your taxable income is exactly ₹12 lakh, your tax liability before rebate is ₹60,000, which the rebate fully cancels out.

  
  

This rebate encourages taxpayers to stay within or below the ₹12 lakh threshold to benefit from zero tax liability, making it a powerful tool for middle-income earners.

Standard Deduction for Salaried Employees

Salaried individuals receive an automatic standard deduction of ₹75,000 from their gross salary. This deduction reduces taxable income, lowering the overall tax burden without the need for detailed expense proofs.

Why is this important?

• It simplifies tax calculations by providing a flat deduction.

• It covers common expenses like commuting, meals, and other work-related costs.

• For example, if your gross salary is ₹10 lakh, your taxable income after the standard deduction becomes ₹9.25 lakh.

  
  

This deduction works alongside the new slabs and Section 87A rebate to reduce your tax liability further.

Changes in Tax Collected at Source (TCS) on Overseas Tour Packages

The government has reduced the TCS rate on overseas tour packages from 5% to 2%. This change applies to payments made for foreign travel booked through Indian tour operators.

What does this mean for taxpayers?

• Lower TCS means less upfront tax collection on foreign travel expenses.

• It improves cash flow for individuals planning international trips.

• For example, if you book a ₹5 lakh overseas tour package, the TCS deducted at source will now be ₹10,000 instead of ₹25,000.

  
  

This reduction aligns with the government's effort to ease compliance and reduce the tax burden on discretionary spending.

Why the New Regime is the Default and Most Attractive for Middle-Income Earners

The New Income Tax Act 2025 makes the new tax regime the default option for taxpayers. This shift reflects the government's intention to simplify tax filing and make the system more taxpayer-friendly.

Key reasons for its attractiveness:

• Simplified slabs reduce confusion and make tax planning easier.

• The ₹12 lakh tax rebate under Section 87A effectively eliminates tax for many middle-income earners.

• The standard deduction of ₹75,000 lowers taxable income without extra documentation.

• Reduced TCS on overseas travel eases financial pressure on discretionary expenses.

• The new regime removes the need to claim multiple exemptions and deductions, streamlining the filing process.

  
  

For many salaried employees and middle-income taxpayers, the new regime offers a clear financial advantage. It encourages compliance and reduces the time and effort spent on tax calculations.

Mastering your taxes in 2026 means understanding these changes and planning accordingly. Use the new slabs and deductions to your benefit, and consider the new regime as your default tax option. Staying informed will help you save money, avoid surprises, and make tax season less stressful.

If you want personalized advice or help with your tax filing, consulting a qualified finance professional or chartered accountant is a wise next step. They can guide you through the nuances of the new act and ensure you maximize your benefits.