Finance Minister Nirmala Sitharaman presented Budget 2025 with significant reforms aimed at easing the tax burden on middle-income earners, particularly those with incomes ranging from Rs 12 lakh to Rs 24 lakh. The new tax regime introduces revised tax slabs, promising reductions of 25% to 100% on tax liabilities, depending on taxpayer earnings.
The budget's standout feature is the change to the income tax slabs, which now offer lower tax rates for several brackets. For the financial year 2025-26, the government has increased the threshold for lower tax rates to Rs 4 lakh from Rs 3 lakh. This means individuals earning between Rs 3 lakh and Rs 4 lakh will enjoy zero tax liabilities, effectively providing relief to middle-class taxpayers.
Another noteworthy adjustment affects individuals earning between Rs 12 and 24 lakh. Previously, those falling within the Rs 20-24 lakh range faced taxation at the higher 30% rate, but now they will only pay 25%. Meanwhile, those with incomes exceeding Rs 24 lakh will see no changes to their tax rates.
According to analysts at Value Research, the modified slabs offer significant benefits, particularly for taxpayers below Rs 12 lakh and those whose incomes stretch to Rs 24 lakh, who can expect savings between 25% and 31%. These reforms are seen as effective measures aimed at enhancing the financial wellness of middle-class families.
“The revised new tax regime offers significant relief to a large segment of taxpayers. With zero tax liability for those earning below Rs 12 lakh and substantial savings for higher earners, the proposed changes encourage individuals to opt for the simplified structure,” Value Research noted.
New provisions under Section 87A have also prompted notable shifts: the threshold for eligibility has increased from Rs 7 lakh to Rs 12 lakh, allowing for greater tax rebates. While the rebate limit is elevated from Rs 25,000 to Rs 60,000 for those meeting the income threshold, it's important to note this doesn’t apply to special rate income.
Key changes extend beyond income tax slabs. For senior citizens, the limit for Tax Deducted at Source (TDS) on interest has doubled from Rs 50,000 to Rs 1,00,000. This adjustment is expected to provide additional financial relief for retirees, allowing them to keep more of their earned interest.
Renting out property has also seen beneficial changes, with the rent TDS limit increased from Rs 2,40,000 to Rs 6,00,000—this aids small taxpayers who rely on rental income.
Perhaps one of the more technical yet impactful aspects of the budget is the marginal relief provision under the new regime. Marginal relief allows taxpayers with incomes slightly above Rs 12 lakh to mitigate the sudden jump in tax liability resulting from marginal increases in taxable income. This is particularly relevant for individuals earning just over Rs 12 lakh—where even small changes could result in significant tax increases.
Under this provision, if Mr. A has a gross taxable income of Rs 14 lakh and is eligible for standard deductions and NPS contributions, he winds up with Rs 12.25 lakh as net taxable income. Typically, the tax liability is Rs 63,750; but with the introduction of marginal relief, Mr. A's tax decreases to just Rs 26,000, taking the additional cess component of 4% to heart.
“An individual can claim marginal relief even if net taxable income exceeds Rs 12 lakh,” explained Suresh Surana, a practicing Chartered Accountant. “The relief is computed so the net payable as income tax doesn’t exceed the tax amount applicable at Rs 12 lakh plus the additional income.”
Tax experts like Sneha Padhiar from Bhuta Shah & Co LLP reinforced the importance of marginal relief: “This is to protect individuals from sudden tax hikes when they earn just over the threshold.” Taxpayers should be aware, though, of the limits concerning eligibility for marginal relief, primarily dedicated to resident individuals, excluding entities such as HUFs and non-residents.
With changes made, individuals with net taxable income below Rs 12.75 lakh are expected not to bear any additional taxes from minimal income increases. Yet, the higher income brackets will revert to the previous tax calculations without access to relief provisions once thresholds are exceeded.
Tax planning has never been more relevant than now, as individuals must assess their financial strategies to leverage all deductions and relief options available under the new regulations. Taxpayers remain encouraged to actively review their positions against the backdrop of the new tax hierarchy to maximize savings moving forward.
Overall, the Budget 2025 tax changes come as good news for many salaried individuals, especially those who fall within the specified income ranges. With more substantial deductions, raised limits for tax rebates, and the implementation of marginal relief, the changes attempt to provide comprehensive support, ensuring the tax structure remains responsive to the financial realities of middle-income earners. These adjustments mark yet another step toward making taxation fair and beneficial for the vast majority of taxpayers.