 "Nirmala Sitharaman Budget")
In a significant move to ease the tax burden on the middle class, Finance Minister Nirmala Sitharaman, in her Union Budget 2025 presentation, unveiled a major overhaul of the new tax regime, introducing a zero-income tax slab for taxpayers earning up to Rs 12 lakh annually under the new tax regime. This new structure is designed to benefit a large section of the population, especially salaried individuals, by reducing their overall tax liabilities.
Under the revamped regime, taxpayers will not have to pay any income tax on earnings up to Rs 12 lakh per annum. The new rule provides additional relief for salaried individuals, who will benefit from an enhanced Rs 12.75 lakh exemption when considering the standard deduction of Rs 75,000. This shift is expected to have a transformative impact on household incomes, providing a significant boost to savings, consumption, and investments.
Key Highlights of the New Tax Regime:
Nil Tax Slab Up to Rs 12 Lakh: The most striking change comes with the introduction of a zero-income tax slab for income up to Rs 12 lakh ( Rs 12.75 lakh for salaried tax payers with standard deduction of Rs 75,000). This substantial move reduces the tax burden on the vast majority of taxpayers in this income bracket. What this essentially means is that Salaried individual income earning Rs 12.75 lakh annually will not have to pay income tax.
Substantial Tax Cuts for the Middle Class: By increasing the nil-tax limit and introducing broader rate adjustments, the government aims to leave more disposable income in the hands of taxpayers. This policy is expected to lead to an increase in household consumption, a key factor in driving India’s economic growth.
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Streamlined Slabs and Rates: Across the board, changes to income tax slabs and rates will benefit taxpayers at various income levels. The government has promised a simpler, more transparent structure that reduces complexity and allows individuals to retain more of their earnings. The slab changes are as follows:
The move is in line with the government’s long-term goal of strengthening India’s consumer-driven economy. By alleviating the financial burden on middle-income earners, the new tax regime seeks to empower consumers and stimulate economic activity, as more funds are directed towards discretionary spending, savings, and investments.
What This Means for the Average Taxpayer:
For many salaried individuals, especially those in the middle-income group, this reform will result in substantial savings. With more disposable income, there is potential for an increase in savings, which could translate into greater investments in assets like mutual funds, stocks, and real estate. Additionally, the increased tax relief could provide the much-needed support for household consumption, benefiting various sectors of the economy. "Raising the income tax exemption threshold to ₹12 lakh is a deeply positive move, especially for the middle class. For many, it brings a much-needed relief, considering the increasing living costs and pressures of inflation. By increasing disposable income, the government is not only simplifying the tax system but also fostering consumer confidence. This change will impact a broad spectrum of individuals, particularly in urban areas, giving them more room to invest and spend. The overall restructuring of tax slabs, aimed at a more equitable distribution, is also an encouraging step towards creating a progressive tax environment," said Sandeep Chilana, Managing Partner, CCLaw.
