NEW DELHI: Finance Minister Nirmala Sitharaman, in her Budget speech today, on Feb 1, revised the tax regime to ensure that individuals earning up to ₹12 lakh annually will pay no income tax.
Additionally, those earning up to ₹13 lakh will also benefit from tax relief, as the government has introduced a standard deduction of ₹75,000 and a marginal relief of ₹30,000, effectively reducing the tax burden for this segment.
This move aims to provide significant relief to the middle class, boost disposable incomes, and fuel economic growth.
Here is the new tax rate structure:
0 – ₹4 lakh: NIL
₹4 lakh – ₹8 lakh: 5%
₹8 lakh – ₹12 lakh: 10%
₹12 lakh – ₹16 lakh: 15%
₹16 lakh – ₹20 lakh: 20%
₹20 lakh – ₹24 lakh: 25%
Above ₹24 lakh: 30%
Key Highlights of the Tax Reforms:
No Tax on Income up to ₹12 Lakh: The exemption limit has been significantly raised, ensuring that individuals earning up to ₹12 lakh annually (₹1 lakh per month) will not have to pay any income tax.
Additional Benefits for Salaried Individuals: Salaried employees will enjoy an extra benefit with a standard deduction of ₹75,000, effectively making annual incomes up to ₹12.75 lakh tax-free.
Revised Tax Slabs: A new tax structure has been introduced, featuring lower tax rates across different income brackets to provide relief to taxpayers.
Impact of the Tax Reforms
The government has highlighted the financial benefits of these reforms through practical examples:
₹12 lakh income: ₹80,000 tax savings; effective tax rate 0%
₹16 lakh income: ₹50,000 tax savings; effective tax rate 7.5%
₹18 lakh income: ₹70,000 tax savings; effective tax rate 8.8%
₹20 lakh income: ₹90,000 tax savings; effective tax rate 10%
₹25 lakh income: ₹1,10,000 tax savings; effective tax rate 13.2%
₹50 lakh income: ₹1,10,000 tax savings; effective tax rate 21.6%
The government estimates that these tax reductions will lead to a revenue loss of approximately ₹1 lakh crore in direct taxes. However, officials believe that the move will boost consumption, drive economic growth, and further strengthen the middle class, which remains a key pillar in India’s journey toward becoming a “Viksit Bharat” (Developed India).
These reforms will lead to ₹1 lakh crore in direct taxes being forgone, along with ₹2,600 crore in indirect tax relief.
Before its presentation in Parliament, the Union Cabinet, led by Prime Minister Narendra Modi, formally approved the Budget for the fiscal year 2025-26 (April 2025 to March 2026).
