In anticipation of what Budget 2026 will bring in the coming days, we thought it would be beneficial to revisit the changes from Budget 2025 that will be implemented from April 1, 2026.
For middle-income taxpayers, the new regime will look very different. Here’s what’s changing.
1. Increase in rebate under Section 87A
One of the changes you’ll notice in your taxes from Budget 2025 is that the tax-free limit u/s 87A has increased. To see how this will work for FY 2025–26, it’ll help to first understand what a rebate actually does.
A rebate doesn’t lower your tax rate. Instead, it wipes out the tax calculated altogether, but only if your income stays within the specified limit.
From FY 2025-26, under the new regime, this limit moves up to ₹12 lakh. So, in practical terms, if your taxable income does not exceed ₹12 lakh, you are eligible for the Section 87A rebate.
This is possible because the maximum rebate has been increased from ₹25,000 to ₹60,000. With this change, individuals earning up to ₹12 lakh will now pay zero tax under the new regime.
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Resident status: Only resident individuals are eligible for this rebate; it’s not available to NRIs, HUFs, or companies.
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Senior citizens: Senior citizens aged 60–79 are eligible. Super senior citizens 80+ are also eligible if their income falls within the rebate thresholds.
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Exclusions: The rebate is not available on income taxed at special rates. This includes LTCG u/s 112A as well as STCG.
For salaried taxpayers, the benefit goes a step further. With the standard deduction increased to ₹75,000, salaried individuals can earn up to ₹12.75 lakh without any tax liability if they file under the new regime.
Under the old regime, section 87A remains unchanged. The rebate continues to be capped at ₹12,500, available only if your total income does not exceed ₹5 lakh.
2. Revised new regime slabs
Along with changes to the rebate, Budget 2025 also revised the slab structure under the new regime. These revised slabs will apply from April 1, 2026, onwards.
Compared to the earlier new regime, the slabs have been widened across income levels. Here’s a comparison:
| Taxable income slab | Earlier new regime (up to AY 2025–26) | Revised new regime (from AY 2026–27) |
|---|---|---|
| Basic exemption limit | Up to ₹3,00,000 | Up to ₹4,00,000 |
| 5% slab | ₹3L – ₹6L | ₹4L – ₹8L |
| 10% slab | ₹6L – ₹9L | ₹8L – ₹12L |
| 15% slab | ₹9L – ₹12L | ₹12L – ₹16L |
| 20% slab | ₹12L – ₹15L | ₹16L – ₹20L |
| 25% slab | ₹15L – ₹18L | ₹20L – ₹24L |
| 30% slab | Above ₹15L | Above ₹24L |
As you can see, the basic exemption limit has been increased from ₹3 lakh to ₹4 lakh, and the 30% tax bracket now comes in much later, at ₹24 lakh instead of ₹15 lakh.
Overall, the revised structure shifts more income into lower tax brackets, making it more favourable for middle- and upper-middle-income taxpayers.
So, from April 1, 2026, when taxpayers file returns for AY 2026–27, the revised rebate and slab rate work together to deliver these outcomes:
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Income up to ₹12,00,000 becomes effectively tax-free for freelancers and business owners.
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Income up to ₹12,75,000 also becomes effectively tax-free for salaried employees, by including the ₹75,000 standard deduction.
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The 30% tax bracket now applies only when income exceeds ₹24,00,000, significantly raising the threshold for the highest slab.
Now, whenever we talk about tax rebate, there’s another concept called marginal relief that’s closely tied to it. Let’s cover it in brief.
What if your income is above ₹12 lakh?
Budget 2025 also extends marginal relief beyond ₹12 lakh. So, if your income exceeds the rebate limit by a small amount, you’ll only pay tax on the extra income you earn, not more than that.
This relief is primarily designed for individuals with regular income, including salary, professional income, and business income. Also, income taxed at special rates, such as long-term capital gains on shares, isn’t included.
So two people earning ₹12 lakh can still end up with different tax amounts, depending on whether their income comes from salary, business, or investments.
When does this relief end?
Marginal relief applies only up to the point where paying tax under the regular slabs becomes the better option than taxing just the extra income. For the FY 2025–26, this benefit applies up to ₹12.75 lakh of taxable income.
Here’s how the tax amount changes as income increases:
| Taxable income | Tax with marginal relief | Why? |
|---|---|---|
| ₹12,00,000 | ₹0 | Full rebate applies. |
| ₹12,10,000 | ₹10,000 | Tax is capped at the extra ₹10,000 earned |
| ₹12,50,000 | ₹50,000 | Tax is capped at the extra ₹50,000 earned |
| ₹12,75,000 | ₹71,250 | Regular slab tax is now lower, so normal rates apply (15%) |
Why does these changes from April 2026?
These changes align with the ITD’s plan to introduce the Income Tax Act, 2025, which is expected to take effect from April 1, 2026.
The new act aims to achieve clearer language and fewer disputes in day-to-day taxation. We’ll also stop using the FY/AY format and move to a single tax year. While the law itself is new, its core framework – slabs, rebates, and thresholds has largely been shaped by Budget 2025.
This makes it clear that the changes aren’t meant for just one year. They set the base for the tax system going forward.
Are you filing under the new regime this year?