In a major move to provide relief to taxpayers, especially the middle class, Finance Minister Nirmala Sitharaman announced during her Union Budget 2025 speech that there will be no income tax payable on earnings up to Rs 12 lakh. This will offer substantial tax relief to many individuals, putting more money in their hands.
For salaried taxpayers, the income tax exemption will extend up to Rs 12.75 lakh, factoring in a Rs 75,000 standard deduction. Sitharaman emphasized that the new income tax regime will be simplified, with a particular focus on benefiting the middle class.
However, the exemption comes with some conditions. Taxpayers can avail of the exemption if they claim relief under various sections of the Income Tax Act, such as the Rs 1.5 lakh deduction under Section 80CCC or a similar exemption for home loan interest.
Sitharaman stated, “For taxpayers with up to Rs 12 lakh of normal income (excluding special rate income such as capital gains), a tax rebate is being provided, along with the benefit of reduced slab rates, so that no tax is payable.”
The announcement was met with loud applause from the Treasury benches, led by Prime Minister Narendra Modi.
In addition to the tax exemption, Sitharaman also revealed changes to the income tax slabs and rates, ensuring a more progressive tax structure that would reduce the tax burden on the middle class and encourage increased household consumption, savings, and investment.
Under the new tax slabs, income up to Rs 4 lakh will be tax-free, up from Rs 3 lakh. Taxpayers in the new regime will see significant savings: a person earning Rs 12 lakh will benefit from an Rs 80,000 reduction in tax, a person with Rs 18 lakh income will save Rs 70,000, and those earning Rs 25 lakh will receive a tax relief of Rs 1.10 lakh.
Sitharaman further explained, “A taxpayer with an income of Rs 12 lakh will benefit by Rs 80,000 in tax, which is 100% of the tax payable under existing rates. A person with an income of Rs 18 lakh will save Rs 70,000, which is 30% of the tax payable under the current structure. Someone earning Rs 25 lakh will see a benefit of Rs 1.10 lakh, which is 25% of the current tax payable.”
These proposed changes are expected to result in a revenue loss of around Rs 1 lakh crore in direct taxes and Rs 2,600 crore in indirect taxes.