Rethinking India’s Personal Income Tax Structure for Single-Earner Families

Joint Taxation for Married Couples – India’s personal income tax framework has long been designed around individual taxation. While this approach appears equitable on paper, it often fails to reflect the social and economic realities of Indian households. A significant number of Indian families continue to rely on a single earning member, supporting a spouse, children, and sometimes even dependent parents. Against this backdrop, the Institute of Chartered Accountants of India (ICAI) has raised serious concerns regarding the inadequacy of the basic exemption limit under both the old and new tax regimes.

Under the new tax regime, the basic exemption limit stands at ₹4 lakh, while under the old regime, it is ₹2.5 lakh. ICAI has observed that these limits are insufficient for families dependent on one income. As a result, taxpayers are often incentivized to explore methods of income splitting or income transfer to other family members purely to reduce tax liability. This practice, while legally structured in many cases, undermines the intent of a fair taxation system and increases administrative complexity.

To address this imbalance, ICAI has once again proposed the introduction of a Joint Taxation Scheme for married couples, a concept already implemented in several developed economies, including the United States. With the Union Budget 2026 approaching, this proposal has regained relevance and sparked renewed discussion among policymakers, professionals, and taxpayers alike.

Current Basic Exemption Limits and Their Practical Limitations

The present income tax system allows each individual taxpayer to claim a separate basic exemption limit. While this appears generous in theory, it does not adequately serve households where only one spouse earns an income. In such families, the non-earning spouse and children technically enjoy exemption limits, but practically have no independent income to utilize them.

This structural gap leads to two major consequences:

• Unequal tax burden on single earners compared to dual-income households

• Increased temptation to shift income to non-earning family members through gifts, investments, or business arrangements

ICAI has highlighted that this situation creates inefficiencies and encourages tax planning strategies that focus more on form than substance. A taxation framework should ideally reflect the economic unit of the family, especially in societies where family-based financial dependence is prevalent.

Income Transfers and Tax Planning Challenges

In response to inadequate exemption limits, taxpayers often adopt strategies to distribute income among family members. These may include:

• Transferring assets to a spouse or children

• Making investments in the names of family members

• Structuring family-run businesses to allocate income across multiple individuals

While the Income-tax Act contains clubbing provisions to curb misuse, these rules are complex, frequently litigated, and difficult to administer uniformly. ICAI has emphasized that rather than policing income transfers after the fact, a more effective approach would be to redesign the tax system itself to accommodate family-based taxation.

A joint taxation mechanism could significantly reduce the need for such practices by allowing families to naturally benefit from combined exemption limits and progressive slabs.

ICAI’s Proposal for Joint Taxation of Married Couples

According to ICAI, married individuals should be given an option to choose between:

• Continuing with individual taxation under the existing system, or

• Opting for joint taxation with their spouse

This optional framework ensures flexibility while respecting individual circumstances. To qualify for joint taxation, both spouses must possess a valid Permanent Account Number (PAN). The joint return would aggregate the income of both spouses and apply a revised slab structure with higher exemption thresholds.

This proposal does not mandate joint taxation but introduces it as an alternative, empowering taxpayers to select the structure that best suits their financial profile.

Proposed Income Tax Slabs Under Joint Taxation for Married Couples

ICAI has outlined a comprehensive slab structure for joint taxation that effectively doubles the exemption limit and rationalizes tax rates across income levels. The proposed slabs are as follows:

This structure directly addresses the needs of middle-income families by offering meaningful tax relief without distorting progressivity. For single-earner households, it provides breathing room and aligns tax liability more closely with actual family responsibilities.

Impact on Middle-Class and Salaried Taxpayers

The introduction of Joint Taxation for Married Couples could have a transformative impact on India’s middle class, particularly salaried individuals supporting dependents. By pooling incomes and applying higher exemption thresholds, families could retain more disposable income, leading to:

• Improved household savings

• Higher consumption and demand

• Reduced reliance on aggressive tax planning

From a compliance perspective, joint taxation could also simplify return filing for many families, reducing disputes related to income attribution and clubbing provisions.

Revised Surcharge Thresholds Under Joint Taxation for Married Couples

Beyond slab rates, ICAI has also proposed significant changes to the surcharge structure, which currently kicks in at relatively lower income levels for high earners. The institute has recommended:

• Increasing the surcharge threshold for single earners from ₹50 lakh to ₹75 lakh

• Introducing a higher threshold of ₹1.5 crore under joint taxation for married couples

Under the Joint Taxation for Married Couples taxation model, the proposed surcharge rates would be:

• 10% where total income exceeds ₹1.5 crore but does not exceed ₹3 crore

• 15% where total income exceeds ₹3 crore but does not exceed ₹5 crore

• 25% where total income exceeds ₹5 crore

These revisions recognize the financial pressures faced by high-responsibility households and aim to maintain fairness without compromising revenue objectives.

Global Perspective: Joint Taxation for Married Couples in Other Countries

Joint Taxation for Married Couples is not a novel concept globally. Countries such as the United States allow married couples to file joint returns, often resulting in lower overall tax liability due to favorable brackets. Such systems acknowledge marriage as an economic partnership and structure taxation accordingly.

By revisiting this concept, India would be aligning itself with international best practices while adapting them to domestic realities. ICAI has pointed out that India’s socio-economic fabric, characterized by family dependence, makes a strong case for such reform.

Status of the Proposal and Budget 2026 Outlook

The joint taxation proposal is not new. ICAI had submitted similar recommendations ahead of Budget 2025, but they were not accepted at the time. However, with rising inflation, stagnant exemption limits, and growing taxpayer dissatisfaction, the issue has gained renewed urgency.

Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget 2026 on February 1, 2026. Whether the government adopts this proposal remains to be seen, but its inclusion in pre-Budget consultations signals serious consideration.

Why Joint Taxation for Married Couples Could Reshape India’s Tax Landscape

Joint taxation offers a pragmatic solution to long-standing inequities in the personal tax system. By acknowledging the family as a unit of consumption and dependency, it creates a more balanced and humane taxation framework. It also reduces administrative friction, limits tax avoidance incentives, and enhances voluntary compliance.

For policymakers, the challenge lies in designing safeguards to prevent misuse while preserving simplicity. For taxpayers, joint taxation represents a long-awaited recognition of real-world financial dynamics.

Conclusion

ICAI’s proposal for joint taxation of married couples addresses a critical gap in India’s income tax system. With basic exemption limits proving inadequate for single-earner families, the need for reform has become undeniable. The suggested joint taxation scheme, with its higher exemption thresholds, revised slabs, and rationalized surcharge structure, offers a balanced and forward-looking solution.

As Budget 2026 approaches, this proposal stands out as a meaningful reform that could ease the tax burden on millions of households while maintaining fiscal discipline. Its implementation would mark a significant step toward a more equitable and realistic personal taxation regime in India.

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