Finance Minister Nirmala Sitharaman announced significant changes to the income tax structure in the Union Budget 2025-26, providing major relief to middle-class taxpayers. The new tax regime now exempts incomes up to ₹12 lakh from taxation, with salaried individuals benefiting from an additional standard deduction of ₹75,000, effectively making income up to ₹12.75 lakh tax-free.
Higher Rebate Limit Under the New Tax Regime
The Finance Minister stated, “Resident individual with total income up to ₹7,00,000 do not pay any tax due to rebate under the new tax regime. It is proposed to increase the rebate for the resident individual under the new regime so that they do not pay tax if their total income is up to ₹12,00,000.”
This announcement significantly increases the tax-free threshold, allowing more taxpayers to retain a larger share of their earnings. The move is expected to boost disposable income, leading to increased household consumption, savings, and investment.
New Tax Slabs and Rates
The budget also introduced a revised tax structure, reducing tax rates across different income slabs to benefit a wider population. The new tax slabs under the revised regime are:
| Income Range (₹) | 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% |
These revised tax rates simplify the existing tax structure while ensuring progressive taxation. The Finance Minister emphasized that the new structure aims to substantially reduce the tax burden on the middle class and promote economic stability.
Standard Deduction for Salaried Individuals
A standard deduction of ₹75,000 has been introduced for salaried individuals. This means that salaried employees with an income of up to ₹12.75 lakh will not have to pay any tax under the new regime. The government expects this move to benefit millions of salaried workers, reducing their tax liability and improving financial stability.
Marginal Relief for Incomes Slightly Above ₹12 Lakh
For individuals whose income slightly exceeds ₹12 lakh, marginal relief provisions will apply. This ensures that those earning just above the new exemption limit do not face a sudden tax burden. Marginal relief will smoothen the transition and prevent taxpayers from experiencing sharp tax jumps.
Boost for Middle-Class Savings and Investments
The revised tax structure provides more liquidity in the hands of middle-income earners, encouraging spending and investments in key economic sectors. The government anticipates higher consumer demand in real estate, automobiles, and financial markets due to increased disposable income.
Financial experts believe this tax relief will contribute to economic growth by enhancing household savings and boosting long-term investments in mutual funds, fixed deposits, and insurance policies.
Industry and Economic Reactions
Tax analysts and industry leaders welcomed the government’s move, stating that the simplified tax structure encourages voluntary tax compliance while reducing the financial burden on working professionals.
Experts also pointed out that the higher tax-free limit will likely push more taxpayers toward the new tax regime, reducing dependence on deductions and exemptions seen in the older system.
Economists expect the tax relief to positively impact economic growth by stimulating demand across various sectors. By lowering tax rates and expanding the exemption limit, the government aims to create a balance between tax collection and economic stimulus.
Comparison With Previous Tax Structures
| Aspect | Previous Tax Regime | New Tax Regime 2025-26 |
|---|---|---|
| Zero-Tax Slab | Up to ₹5 lakh | Up to ₹12 lakh (₹12.75 lakh for salaried individuals) |
| Lowest Tax Rate | 5% for ₹2.5L-5L | 5% for ₹4L-8L |
| Middle Tax Rates | 20% on ₹5L-10L | 10% on ₹8L-12L |
| Highest Tax Rate | 30% on ₹10L+ | 30% on ₹24L+ |
| Standard Deduction | ₹50,000 | ₹75,000 |
The simplified structure benefits all taxpayers, ensuring progressive taxation while maintaining economic growth.
Government’s Vision for Taxation
The Finance Minister reiterated the government’s commitment to simplifying direct taxation while ensuring fairness in tax collection. The move aligns with the long-term vision of reducing tax exemptions, broadening the taxpayer base, and making the tax system more transparent.
Authorities will continue monitoring the impact of these reforms to ensure revenue stability while promoting economic growth. The government aims to create an efficient and taxpayer-friendly environment that encourages voluntary compliance.
Conclusion
The Union Budget 2025-26 has delivered a landmark reform in income tax, bringing substantial relief to middle-class taxpayers. The increase in the tax-free income threshold to ₹12 lakh, coupled with a streamlined tax structure, ensures more financial freedom for individuals.
With additional benefits for salaried individuals and marginal relief provisions, the budget presents a well-balanced approach to taxation. The government’s decision is expected to drive consumer spending, boost savings, and enhance overall economic activity in the coming years.