India’s finance minister, Nirmala Sitharaman, delivered her much-anticipated Budget 2025, announcing sweeping changes to the personal income tax regime aimed at benefiting the middle class. For the financial year 2025-26, the tax-free threshold has been elevated significantly from Rs 7 lakh to Rs 12 lakh, allowing individuals earning this amount to pay zero income tax. This change is projected to affect nearly one crore taxpayers, who previously faced tax burdens ranging from Rs 20,000 to Rs 80,000.
Under the restructured tax slabs introduced in this budget, those with annual incomes of Rs 4-8 lakh will incur a tax rate of 5%, designations extending to 15% for incomes between Rs 12 lakh and Rs 16 lakh. Tax rates then rise progressively, reaching 30% for incomes beyond Rs 24 lakh. This reshuffle not only aims to alleviate financial pressure on lower and middle-income households but also incentivizes higher earnings.
"Right after 2014, our government progressively increased the nil tax slabs, demonstrating trust in middle-class taxpayers," said Sitharaman during her budget speech. The previous thresholds were set at Rs 2.5 lakh, Rs 5 lakh, and eventually Rs 7 lakh. Now, with the new announcement, individuals earning Rs 12 lakh or less will benefit significantly, as Sitharaman adds, "There will be no income tax payable up to income of Rs 12 lakh, and with the standard deduction for salaried individuals, this limit will extend to Rs 12.75 lakh."
According to the new regulations, tax rebates will be provided for those earning up to Rs 12 lakh, which means individuals will actually get back their payable tax amounting to approximately Rs 60,000. For taxpayers earning slightly above this threshold, the recommendations offer marginal relief to prevent any potential income losses. For example, someone with taxable earnings of Rs 12.10 lakh, would face only Rs 10,000 after introduction of this relief measure.
Unfortunately, this sweeping exemption also incurs government revenue losses estimated at Rs 1 lakh crore, raising concerns about the fiscal balance. Nevertheless, the government is optimistic about absorbing these losses through increased spending fueled by tax savings.
The revised income tax structure, featuring 6 distinct slabs, has generated buzz among taxpayers and financial experts alike. For individuals earning Rs 25 lakh annually, tax liability under this new scheme would amount to approximately Rs 3 lakh, compared to Rs 4.1 lakh under the old structure, resulting in significant savings.
Importantly, the changes unveiled will solidly promote tax compliance and participation among citizens who may have otherwise refrained from reporting their incomes fully to avoid higher taxes. Aside from exemptions, the government intends to introduce clearer, more transparent tax regulations to minimize litigation cases.
"The government anticipates its income tax revenue to rise by 14.4%, reaching Rs 14.3 lakh crore during FY26, validating the belief of increased compliance due to these measures," stated financial analysts. Such optimism is also reflected among citizens, as they expect to observe greater net income and disposable earnings due to these reforms—encouraging spending and investment.
Salaried employees, after accounting for the standard Rs 75,000 deduction, will see their effective tax-free limit extend to earnings of up to Rs 12.75 lakh. For those earning Rs 18 lakh, the tax deduction will allow for savings of approximately Rs 70,000 due to the new slab structure. Even for those with incomes pursuing higher wage brackets, the government has put measures to sustain savings and retention benefits.
While many are welcoming the news, skeptics focus on the importance of maintaining fiscal stability. The National Democratic Alliance (NDA) continues to balance its objectives between providing tax relief and ensuring accountable fiscal policies. The Ministry of Finance will discuss the proposed revisions and finalize the tax structure, at which point taxpayers will have complete clarity on the income tax rates applicable from the forthcoming fiscal year.
Industry experts believe the updated income tax slabs will re-energize consumer spending, with many estimating immediate investments to kickstart economic activity as more take-home pay is anticipated. Nonetheless, the success of the new income tax framework will largely depend on the acceptability among taxpayers, measured through future tax declarations and compliance levels.
Overall, with the Budget 2025 updates providing much-needed tax relief, individuals and families will now have avenues to manage their finances more effectively, strengthening their ability to plan for the future.