How The Budget 2026 Has Impacted The Middle Class Taxpayers In 5 Ways?

A variety of measures targeting India's middle class have been introduced in the Union Budget 2026. With a clear focus on stability, relief, and ease of compliance rather than major tax reforms, Budget 2026 had a direct and noticeable impact on middle-class taxpayers. According to CA (Dr.) Suresh Surana, the middle class has been affected by the Budget 2026 in the following ways:

1. Continuity of Effective Tax Relief for Middle-Income Individuals

The Finance Bill, 2026 does not propose any change in the personal tax relief available to middle-income taxpayers. Accordingly, the existing slab structure under the concessional/ new tax regime, along with the rebate, continues to ensure that individuals up to the total taxable income upto Rs. 12 lakhs threshold are not subject to income-tax.

Thus, salaried taxpayers and pensioners within the said threshold continue to remain outside the tax net, preserving disposable income without any additional compliance burden. Further, it is pertinent to note that the tax rates under the old tax regime have also remained unchanged.

2. Extending period for filing revised return

Section 263(5) of ITA 25 (corresponding section 139(5) of ITA 1961) provides for filing of a revised return of income by a person who has furnished a return under section 263(1) or section 263(4) - Belated return, where any omission or wrong statement is discovered in the original or belated return. Currently, such revised return is required to be furnished within 9 months from the end of the relevant tax year or before completion of assessment, whichever is earlier.

Finance Bill 2026 has proposed to amend section 263(5) to extend the time limit for filing a revised return from 9 months to 12 months from the end of the relevant tax year. Further, it is proposed to levy a fee in respect of revised returns filed beyond nine months from the end of the relevant tax year. Section 428(b), read with section 263(5) of the Income-tax Act, 2025, provides for a fee of Rs. 1,000 where a revised return is furnished beyond 9 months from the end of the relevant tax year and total taxable income does not exceed Rs. 5,00,000, and a fee of Rs. 5,000 where the total income exceeds Rs. 5,00,000.

These amendments shall take effect from 1 April 2026 and shall apply in relation to tax year 2026-27 and subsequent years.

3. Changes in Rates of Tax Collection at Source on Overseas Tour Programme Packages

Currently, tax is collected at source on the sale of overseas tour programme packages at the rate of 5% on the amount or aggregate of amounts up to Rs. 10 lakh, and 20% on the amount exceeding Rs. 10 lakh.

It is proposed to rationalise the TCS structure by reducing the rate to a uniform 2%, while removing the existing monetary threshold, so that tax is collected at source at a single rate of 2% irrespective of the value of the overseas tour programme package.

4. Changes in Rates of Tax Collection at Source under the Liberalised Remittance Scheme (LRS)

Tax is collected at source on remittances under the Liberalised Remittance Scheme at the rate of 5% for remittances towards education loan (other than mentioned u/s 80E) or medical treatment, and 20% for remittances for purposes other than education or medical treatment.

It is proposed to reduce the TCS rate to 2% in respect of remittances made for education loan and medical treatment.

Since TCS is creditable against the final tax liability, a lower rate would also reduce the incidence of excess collection and subsequent refund claims, while continuing to serve the objective of monitoring overseas remittances. The proposal is not expected to have a significant revenue impact and is aligned with improving taxpayer convenience and compliance.

Category	Nature of Transaction	Existing TCS Rate	Existing Threshold	Proposed TCS Rate	Proposed Threshold
Overseas Tour Programme Packages	Sale of overseas tour programme packages including expenses for travel or hotel stay or boarding or lodging or any such similar or related expenditure	5% - 20%	Up to Rs. 10 lakh, Exceeding Rs. 10 lakh	2%	No threshold
Liberalised Remittance Scheme (LRS)	Remittance for education loan (other than u/s 80E) or medical treatment	5%	Exceeding Rs. 10 lakh	2%	Exceeding Rs. 10 lakh
"	Remittance for purposes other than education or medical treatment	20%	Exceeding Rs. 10 lakh	20%	Exceeding Rs. 10 lakh

5. Exemption on Interest Income under the Motor Vehicles Act, 1988

Section 11 of the Income-tax Act, 2025 provides that income of persons specified in Schedule III is exempt from tax, subject to fulfilment of the prescribed conditions. The Motor Vehicles Act, 1988 provides for the award of compensation, along with interest on such compensation, by the Motor Accident Claims Tribunal to an individual or his legal heir in cases of death, permanent disability, or bodily injury arising from a motor accident.

In order to alleviate the financial hardship faced by accident victims and their families, it is proposed to amend Schedule III to the Income-tax Act, 2025 so as to exempt income in the nature of interest received under the Motor Vehicles Act, 1988, in the hands of an individual or his legal heir. This amendment will take effect from 1 April 2026 and shall apply in relation to tax year 2026-27 and subsequent tax years.

Further, under the existing provisions of section 393(4) of the Income-tax Act, 2025, tax is required to be deducted at source on interest on compensation awarded by the Motor Accident Claims Tribunal where the amount or aggregate of such income exceeds Rs. 50,000 during the tax year. In order to provide additional relief, it is proposed that no tax shall be deducted at source on such interest income, irrespective of the amount. This amendment shall also take effect from 1 April 2026.