On 1st February, Finance Minister Nirmala Sitharaman tabled Annual Financial Statement for FY 2025, marking her record eight consecutive Union Budget. One of the major announcement include the tax exemption on yearly incomes of up to Rs 12,00,000 under the new tax system. According to her address in the Parliament, the budget will act as a stimulant for India’s middle class. The middle class had hoped for a favorable change in income tax brackets ahead of the Union Budget 2025-26, and they were not disappointed. The day before, PM Modi dropped hint when he said that Goddess Lakshmi keeps blessing the poor and middle class, which now clearly indicate that it alluded to big income-tax relief.
FM Sitharaman has delivered a significant tax relief for taxpayers in her budget speech by making annual income of up to Rs 12 lakh in the new tax regime tax-free.
#WATCH | “I am now happy to announce that there will be no income tax up to an income of Rs 12 lakhs”, says Union Finance Minister Nirmala Sitharaman#UnionBudget2025 | #BudgetSession | #BudgetSession2025 | #Budget | #NirmalaSitharaman
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— The Frustrated Indian (@FrustIndian) February 1, 2025
“Big relief for taxpayers! Under the new tax regime, income up to Rs 12 lakh will now be tax-free, significantly reducing the financial burden on the middle class. This bold move enhances disposable income, encourages spending, and promotes economic growth. By simplifying taxation and easing compliance, the government reinforces its commitment to a taxpayer-friendly system. This reform not only benefits salaried individuals but also supports businesses and investments, driving overall prosperity. With a focus on financial empowerment and ease of living, this tax relief is a major step toward a more inclusive and growth-oriented economy”, says Adhil Shetty, Bankbazaar.
Union Finance Minister Nirmala Sitharaman proposed in her Budget 2025-26 address that income up to Rs 12 lakh be tax-free.
Sitharaman also announced a revamping of income tax slabs. Now, the new tax slab are as follows:
Prior to Budget 2025-26, the tax slabs were as follows-
The decision comes at a time when taxpayers and analysts have been requesting income tax relief for months due to rising living costs.
In the 2020-21 Budget, Sitharaman introduced the New Tax Regime, which boosted basic exempted income, income tax rebate, and standard deduction while eliminating various exemptions and deductions such as house rent allowance (HRA), leave travel allowance (LTA), 80-C, 8-0D, and others.
Effectively, so far, there was no tax on income up to Rs 7.5 lakh.
As per The Economic Times, this is how your payable tax came to zero on income up to Rs 7.5 lakh under the existing arrangement:
If your entire income is Rs 7.5 lakh, you have a standard deduction of Rs 50,000, reducing your total taxable income to Rs 7 lakh. The tax payable on Rs 7 lakh income is Rs 25,000, while the tax on Rs 3-6 lakh is 5% (Rs 15,000) and 10% for Rs 7-10 lakh (Rs 10,000). However, the total refund under Section 87A of the Income Tax Act is Rs 25,000, which negates the payable tax of Rs 25,000, implying that you would not pay any tax if you earn up to Rs 7.5 lakh per year.
Notably, in the previous budget, Sitharaman extended the standard deduction to Rs 75,000, but that was to come into effect from the financial year 2025-26.