Tax Experts Advocate Raising 30% Income Tax Slab to ₹35 Lakh Amid Inflation Concerns
Tax experts are advocating for raising India's 30% income tax slab from ₹24 lakh to ₹35 lakh to address inflation's impact on middle-class purchasing power. The proposal includes implementing annual CPI-linked adjustments and comprehensive reviews every five years to prevent bracket creep. While the government might lose some direct tax revenue initially, experts argue this would boost consumption, generate additional GST revenue, and provide targeted relief to salaried employees, self-employed individuals, and retirees.
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Tax professionals are unanimously calling for reforms to India's income tax structure ahead of Budget 2026, with particular focus on raising the 30% income tax slab threshold to counter inflation's impact on middle-class purchasing power. The current system, experts argue, fails to account for rising living costs that push taxpayers into higher brackets without corresponding increases in real wealth.
Current Tax Structure Challenges
Tax experts highlight fundamental issues with India's existing tax framework, particularly the 30% slab that currently applies to income above ₹24.00 lakh. Anil Harish, Partner at DM Harish & Co, points out that low slabs push even first-time earners, including young engineering graduates, into the top bracket prematurely. This creates a perception of taxation as a burden rather than a contribution to national development.
The core problem lies in the system's failure to account for inflation, which erodes purchasing power and creates inherent unfairness. As nominal wages increase to keep pace with rising costs, taxpayers find themselves in higher tax brackets without experiencing genuine wealth gains—a phenomenon known as "bracket creep."
Proposed Solutions and Expert Recommendations
Akhil Chandna, Partner and Global People Solutions Leader at Grant Thornton Bharat, proposes raising the 30% tax threshold to ₹35.00 lakh. This adjustment acknowledges that nominal wage growth has been consistently outpaced by living expenses, particularly in urban areas where housing, healthcare, and education costs continue to rise.
| Current Structure: | Proposed Changes |
|---|---|
| 30% Slab Threshold: | ₹24.00 lakh → ₹35.00 lakh |
| Adjustment Mechanism: | Annual CPI-linked reviews |
| Review Cycle: | Comprehensive assessment every 5 years |
| Target Beneficiaries: | Middle-class salaried employees, self-employed, retirees |
Experts suggest implementing annual adjustments linked to the Consumer Price Index (CPI) with comprehensive reviews every five years to maintain equity and ensure the tax system remains relevant to economic realities.
Economic Impact and Benefits
SR Patnaik, Partner (Head - Taxation) at Cyril Amarchand Mangaldas, explains that while the government might forgo some direct tax income initially, the increased disposable funds for the middle class would boost consumption and generate additional GST revenue. This approach could also help ease inflationary pressures by stimulating economic activity.
The proposed changes would yield several economic benefits:
- Enhanced Consumption: More disposable income would drive demand for goods like automobiles and electronics
- Improved Tax Compliance: Reduced incentives for evasion and increased transparency
- Business Growth: Increased consumer spending would aid business expansion
- Investment Boost: Higher savings rates would support capital formation
Demographic-Specific Advantages
The proposed tax structure changes would provide targeted relief across different demographic groups. Salaried employees would benefit from reduced Tax Deducted at Source (TDS), leading to higher monthly take-home pay for essentials and investments. This adjustment would also prevent bonuses from being heavily taxed, providing crucial relief for urban expenses like healthcare and education.
| Beneficiary Group: | Key Advantages |
|---|---|
| Salaried Employees: | Higher monthly take-home pay, reduced TDS impact |
| Self-Employed: | Capital buffer for business reinvestment |
| Retirees: | Better protection of fixed income against healthcare costs |
| Urban Middle Class: | Enhanced spending power for housing, automobiles, electronics |
For self-employed individuals, a higher threshold would create a capital buffer for business reinvestment without losing significant portions of profits to taxation. Retirees would benefit as their fixed incomes gain better protection against rising healthcare costs, helping their savings last longer.
Alternative Reform Mechanisms
Beyond direct slab increases, experts propose complementary mechanisms for inflation adjustment. Ritika Nayyar, Partner at Singhania & Co, suggests reinstating inflation indexation for tax slabs, similar to past capital gains computations, enabling automatic annual updates based on price trends.
Additional reform suggestions include:
- Expanding deductions for provident funds, health insurance, and education expenses
- Updating the outdated ₹2.00 lakh cap on home loan interest deductions
- Enhancing standard deductions for salaried employees
- Increasing Section 87A rebates for lower-income taxpayers
- Implementing digital compliance tools to simplify tax processes
Implementation Framework
Experts emphasize the importance of maintaining stability in tax law while ensuring adaptability to economic changes. The proposed framework includes automatic inflation-linked reviews every 3-5 years, preventing the need for frequent legislative overhauls while ensuring ongoing relevance to economic conditions.
The consensus among tax professionals highlights the urgent need for structural reforms that treat taxpayers respectfully while aligning policy with broader economic goals of boosted savings and consumption. These changes would represent a pivotal step toward inflation-proofing India's tax system while providing meaningful relief to the middle class.
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