Finance Minister Nirmala Sitharaman unveiled significant income tax reforms in the Union Budget 2025, aimed at easing the tax burden on the middle class. One of the key announcements was raising the no-tax limit to ₹12 lakh under the new tax regime, along with an additional standard deduction of ₹75,000 for salaried individuals.
Presenting the budget in Parliament, Finance Minister Nirmala Sitharaman reaffirmed the government's commitment to the economic welfare of the middle class, calling them a crucial pillar in India's growth story.
"The middle class provides strength for India’s growth. This government, under the leadership of Prime Minister Narendra Modi, has always believed in their admirable energy and ability in nation-building," she said.
With these revised tax slabs, individuals earning up to ₹12 lakh annually will not have to pay any income tax. Salaried individuals can enjoy an even higher exemption limit of ₹12.75 lakh due to the standard deduction benefit.
The revised income tax slabs and applicable tax rates under the new tax regime are as follows:
|
Total Income |
Rate of Tax |
|
Up to ₹4,00,000 |
Nil |
|
₹4,00,001 to ₹8,00,000 |
5% |
|
₹8,00,001 to ₹12,00,000 |
10% |
|
₹12,00,001 to ₹16,00,000 |
15% |
|
₹16,00,001 to ₹20,00,000 |
20% |
|
₹20,00,001 to ₹24,00,000 |
25% |
|
Above ₹24,00,000 |
30% |
Under the revised tax structure, taxpayers will experience substantial savings. Sitharaman highlighted the benefits of the new regime with specific examples:
Individuals earning ₹12 lakh will now save ₹80,000 in taxes, enjoying 100% relief compared to the previous tax rates.
Those earning ₹18 lakh will see a tax reduction of ₹70,000, which is 30% lower than the previous tax liability.
Taxpayers with an income of ₹25 lakh will benefit from a tax cut of ₹1.1 lakh, which accounts for 25% savings on earlier tax rates.
These tax benefits are expected to boost disposable income, stimulate economic activity, and encourage higher consumer spending and investment.
The Income-tax Act, 1961, offers taxpayers the flexibility to choose between two tax regimes:
Old Tax Regime: Higher tax rates but offers numerous deductions and exemptions.
New Tax Regime: Lower tax rates with fewer deductions and exemptions.
Allows taxpayers to claim up to 70 deductions and exemptions, including:
House Rent Allowance (HRA)
Leave Travel Allowance (LTA)
Standard Deduction
Deductions under Sections 80C to 80U (e.g., PF, LIC, medical insurance, education loans, etc.)
Suitable for individuals with high eligible deductions and who wish to reduce their taxable income through exemptions.
Lower tax rates with minimal deductions.
Default tax regime for individual taxpayers and Hindu Undivided Families (HUFs) from FY 2023-24.
Beneficial for those who prefer simpler tax calculations and do not have significant deductions.
The new income tax structure provides significant relief for middle-class families, ensuring higher take-home income and reducing the financial burden.
With more disposable income, taxpayers can spend, invest, and save more, leading to higher economic growth and an increase in demand for goods and services.
The reduction in tax slabs and streamlined tax rates under the new regime make it easier for individuals to file their taxes, reducing bureaucratic complexities.
The Union Budget 2025 brings historic tax reforms, making the new tax regime more attractive and beneficial for salaried individuals and middle-class taxpayers. By raising the no-tax limit to ₹12 lakh, the government has provided substantial relief while ensuring that tax collections remain sustainable.
However, taxpayers must carefully evaluate their financial situation and choose between the old and new tax regimes based on their income structure and eligible deductions. The reduction in tax rates under the new regime makes it a lucrative option, but individuals with multiple exemptions may still prefer the old regime.
With these strategic tax reforms, the government aims to create a simplified, transparent, and taxpayer-friendly system, aligning with India’s vision of economic growth and financial inclusion.