In a major relief for the middle class, Finance Minister Nirmala Sitharaman announced that individuals earning up to Rs 12 lakh per year will now pay zero income tax under the new tax regime. This is a significant increase from the previous tax-free limit of Rs 7 lakh.
The move aims to boost disposable income, stimulate consumption, and accelerate economic growth. However, experts speculate whether this tax relief will impact capital expenditure, given the government’s expected Rs 1 lakh crore loss in direct tax revenue and Rs 2,600 crore in indirect tax revenue.
New Income Tax Slabs for FY 2025-26
| Annual Income (Rs) | Tax Rate |
|---|---|
| 0 – 4 lakh | NIL |
| 4 – 8 lakh | 5% |
| 8 – 12 lakh | 10% |
| 12 – 16 lakh | 15% |
| 16 – 20 lakh | 20% |
| 20 – 24 lakh | 25% |
| Above 24 lakh | 30% |
Key Takeaways from Budget 2025
✅ Zero Tax Up to Rs 12 Lakh: The new tax regime offers complete tax exemption for annual income up to Rs 12 lakh.
✅ Tax Deduction for Senior Citizens: The standard deduction for senior citizens has been doubled from Rs 50,000 to Rs 1 lakh.
✅ Simpler Tax Structure: The revised slabs reduce tax liability for the middle class, encouraging higher savings and investments.
✅ TDS Reforms: The Tax Deduction at Source (TDS) framework will be rationalized, ensuring smoother compliance.
Market Reaction
Following the announcement, the Sensex and Nifty showed mixed reactions. The BSE Sensex dipped 177 points, closing at 77,323, while the Nifty50 showed a slight gain of 0.4%, closing at 23,413.
Government’s Justification & Economic Outlook
Sitharaman emphasized that the tax relief will empower the middle class and boost economic activity. However, concerns remain about the fiscal impact of the Rs 1 lakh crore revenue shortfall and potential cuts in government spending.
The Economic Survey 2025, released a day before the budget, projected India’s GDP growth at 6.4% for FY 2025-26, marking a four-year low. The estimated FY26 growth is expected to range between 6.3% – 6.8%.
Next Steps: Income-Tax Bill & Further Reforms
The government will introduce a new Income-Tax Bill next week, aiming to simplify taxation further and align with the Bharatiya Nyay Sanhita for economic justice.
Conclusion
The Budget 2025 tax reforms bring substantial relief to the middle class, increasing disposable income and potentially driving economic growth. However, taxpayers must evaluate their financial situation before choosing between the old and new tax regimes.
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