The Federal Budget 2026-27 proposed relief for salaried class, however, it seems to have missed the mark

When the budget was going to be announced, there was an expectation that the salaried individuals would be provided some much-needed relief. In the last year, the salaried class paid around Rs 550 billion in taxes which makes up roughly 29% of all tax collections made. The newly announced federal budget has proposed revised income tax slabs for individuals, however, the relief is only for a few of the tax slabs with the ones below the threshold getting no relief whatsoever.

The tax slabs that have been given some sort of relief start from Rs 183,333 per month, going all the way up to Rs 583,333 per month, with additional benefit being given to individuals earning more than Rs 1 crore annually. Based on the new tax slabs, individuals earning below Rs 50,000 per month are expected to pay no tax at all. The tax slabs start from Rs 50,000 per month to Rs 100,000 per month. Individuals in this slab will end up paying 1% of income earned above Rs 50,000 per month.

For salaries between Rs 100,000 per month and 183,333 per month, the tax liability is Rs 6,000 plus 11% on the income being earned above Rs 12 lakhs. After this, the tax relief starts to take effect. For individuals earning between Rs 183,333 per month and Rs 266,667 per month, the previous marginal rate was 23% on the income above Rs 2.2 million which has been reduced to 20%. Similarly, income between Rs 266,667 per month to Rs 341,667 per month was being charged a tax of 30% which has been reduced to 25%. 

The next slab goes from Rs 341,667 to Rs 466,667 per month which sees the rate drop from 35% to 29% while the last slab from Rs 466,667 to Rs 583,333 per month sees the rate fall from 35% to 32%. For annual salaries above Rs 7 million, the status quo will persist and they will be expected to pay Rs 1.424 million in tax plus 35% of income above the Rs 7 million threshold.

However, for individuals earning more than Rs 10 million a year, the surcharge of 9% on the additional income above Rs 10 million will see this surcharge being removed which would mean that they will end up taking a larger chunk of their salary home rather than seeing it go to the coffers of the government. This is in continuation from last year where the surcharge was decreased from 10% to 9% and has now been removed.

Before the budget was announced, there was an expectation that the salaried class would get some relief as they have faced the brunt of taxation. With little in the way of evasion or avoidance, the salary class ends up paying the highest amount while other sectors are able to use the loopholes present in the system to avoid them. In regards to the data, a large portion of the salaried class in the country falls between the tax slabs of Rs 50,000 per month and Rs 183,333 per month which means that the tax relief being proposed will fail to provide any such relief to the largest portion of salary earners.

The penalty becomes greater when it is considered that this salary class has been subjected to inflation and the recent petrol price hike. Based on the increase in cost of living from year to year, there was an expectation that the relief would be more widespread and targeted towards this tax slab; however, none has been proposed in the new budget.