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The Case for Adjusting Tax Brackets
Rising nominal salaries have masked a critical issue for many middle-class households: diminishing purchasing power. As inflation drives up the cost of essentials like housing, healthcare, and education, more taxpayers find themselves pushed into the 30 percent tax bracket without experiencing any genuine improvement in their financial well-being. This phenomenon, known as 'bracket creep,' highlights a system out of sync with current economic realities.
Expert Recommendations for Budget 2026
Tax experts are unanimous in their call for raising the 30 percent income tax slab, which currently begins above Rs 24 lakh, to a higher threshold. Anil Harish, Partner at DM Harish & Co, noted that low slabs prematurely push even early-career professionals into higher tax brackets. Akhil Chandna, Partner at Grant Thornton Bharat, specifically proposes increasing the threshold to Rs 35 lakh, arguing that nominal wage growth has been outpaced by living expenses.
Economic Implications of the Proposed Hike
While an adjustment might lead to a short-term dip in direct tax revenue, the long-term economic benefits are projected to be substantial. SR Patnaik, Partner at Cyril Amarchand Mangaldas, suggests that increased disposable income for the middle class will boost consumption, leading to higher Goods and Services Tax (GST) revenue. This injection of funds into the economy can stimulate demand for goods such as cars and electronics, thereby aiding business expansion and encouraging overall economic growth. Furthermore, it could enhance tax compliance by reducing evasion incentives.
Differential Impact and Alternative Solutions
Salaried employees stand to gain significantly through reduced Tax Deducted at Source (TDS), increasing their monthly take-home pay. For the self-employed, a higher threshold offers more capital for reinvestment. Retirees also benefit as their fixed incomes are better protected against rising costs. Experts also propose complementary mechanisms, including annual inflation-linked reviews of tax slabs and enhancing standard deductions or tax rebates for lower-income groups, ensuring the tax system remains fair and adaptable.