On February 1, 2025, Indian Finance Minister Nirmala Sitharaman unveiled the Union Budget 2025, announcing major reforms to income tax slabs aimed at providing financial relief to the middle class. One of the central highlights is the introduction of thresholds with no income tax for earnings up to ₹12 lakh, significantly impacting millions of taxpayers across the country.
This major shift means individuals with annual incomes up to ₹12 lakh will not have to pay any tax, which extends to ₹12.75 lakh for salaried individuals when factoring in the standard deduction of ₹75,000. "I am now happy to announce there will be no income tax up to this level," Sitharaman stated during her presentation, emphasizing the government’s commitment to supporting the middle-class populace.
The newly revised tax slabs under the new regime are as follows: from ₹0 to ₹4 lakh, nil tax; from ₹4 to ₹8 lakh, 5% tax; between ₹8 and ₹12 lakh, 10% tax; from ₹12 to ₹16 lakh, 15% tax; from ₹16 to ₹20 lakh, 20% tax; from ₹20 to ₹24 lakh, 25% tax; and for incomes above ₹24 lakh, the tax rate is set at 30%.
The revised tax structure stands to ease the financial burden faced by the salaried class, which is expected to stimulate disposable income and boost overall consumption. This change is particularly significant as it replaces the previous system where the NIL tax threshold was only ₹7 lakh.
According to estimates from the government, the increase to ₹12 lakh signifies potential savings of approximately ₹1 lakh crore remaining with taxpayers, hinting at improved spending capacity. "This will definitely help increase the disposable income and is expected to positively impact the consumption and saving patterns of Indian households," remarked Sohrab Bararia from Grant Thornton Bharat, highlighting the potential benefits of the budget measures.
Marginal relief has also been introduced to protect taxpayers just above the ₹12 lakh mark from paying excess tax. For example, someone earning ₹12,10,000 would ordinarily owe ₹61,500, but under the new rules, they would only pay ₹10,000, ensuring their tax liability remains fair and manageable.
While the new tax regime simplifies income tax filing and enables taxpayers to navigate tax obligations with ease, it marks one of the government’s broader economic strategies aimed at boosting growth through increased household spending. "The middle class provides strength to the economy. We have periodically reduced the tax burdens," Sitharaman affirmed, reinforcing the idea of empowering this segment of society as pivotal for India's economic reliability.
The changes are set to affect approximately 8.75 crore individuals who have filed income tax returns, creating significant positive ramifications as taxpayers now feel the impact directly on their finances. This thoughtful approach, particularly considering the pre-existing tax structures, is seen as not only adjusting for the current economic climate but also anticipating future demand and consumption trends.
Experts believe this measure could mark the beginning of a substantial shift, focusing on the middle-class taxpayer’s contribution to the economy and heightening financial inclusion with less stress on compliance. It is anticipated to drive new patterns of consumption and savings, bolstering the economy's momentum.
Overall, the reforms included within the Union Budget 2025 represent not just tactical financial relief but also embody the strategic vision set out for the nation’s economic stability and growth moving forward.