Finance Minister Nirmala Sitharaman, in her post-Budget press conference on Saturday, said more than 1 crore Indians will also be out of the tax net as an unprecedented hike has been announced in the income tax rebate under the new tax regime. It has come as a landmark change under the Union Budget 2025, which has promised to provide immense relief to the salaried class and middle-income groups.
Among the most important decisions taken recently is the Finance Minister’s decision to increase the rebate under Section 87A of the new tax regime. Under the revised tax slabs, Indian residents with an annual income of up to ₹12 lakh will not have to pay any income tax. This is a sharp increase from the previous rebate threshold of ₹7 lakh and brings immediate relief to a large section of the population.
For the salaried class, this translates into a standard deduction of ₹75,000, so that any gross taxable income of ₹12.75 lakh or less will result in zero tax liability, benefiting around 1 crore more taxpayers. The tax-free threshold of ₹12.75 lakh shows the government’s commitment to a robust tax relief package for India’s growing middle class.
Key Highlights of the New Tax Slabs
This is the new tax structure that eases the tax burden on the taxpayer without sacrificing fiscal prudence. This structure is as follows:
Income Range (₹) | Tax Rate |
---|---|
Up to ₹4,00,000 | Nil |
₹4,00,001 to ₹8,00,000 | 5% |
₹8,00,001 to ₹12,00,000 | 10% |
₹12,00,001 to ₹16,00,000 | 15% |
₹16,00,001 to ₹20,00,000 | 20% |
₹20,00,001 to ₹24,00,000 | 25% |
More than ₹24,00,000 | 30%+ |
Middle Class Taxpayer Relief
Speaking during the budget presentation, Finance Minister Nirmala Sitharaman said that these reforms were particularly aimed at offering significant relief to middle-class taxpayers. “There will be no income tax payable for incomes up to ₹12 lakh,” Sitharaman said, signaling a major shift toward tax simplification and encouraging greater disposable income for individuals in the middle-income bracket.
This move is expected to inject more cash into the pockets of the salaried class, which in turn will result in higher consumer expenditure and further economic growth. Experts believe that this increase in disposable income will boost demand in retail, housing, and services sectors, pushing the country’s growth curve.
The tax rebate increase is a huge cash benefit. For example, an individual earning ₹12.75 lakh would have paid approximately ₹83,200 in taxes under the previous regime. With the new structure, this individual will pay no tax, saving approximately ₹80,000 in taxes and ₹3,200 in cess. In addition, ₹25-lakh earners under the new tax regime will shell out ₹3.43 lakh as tax under the new plan as against ₹4.57 lakh in the old system—that translates into nearly 5 percent more going home.
It also adjusts the 30% tax bracket, which was levied on incomes of more than ₹15 lakh. Now, the 30% tax will be paid by those whose incomes exceed ₹24 lakh, thereby providing greater relief to high-income taxpayers.
One of the important takeaways from Budget 2025 has been the taxpayer’s probable behavioral shift. The new tax regime, with its simplified and rationalized structure, is expected to encourage around 25–30% of current taxpayers to transition from the old tax regime to the new one. According to Adhil Shetty, CEO of BankBazaar.com, this is among the largest tax reforms in recent history, designed to align with inflation and ensure that people have more disposable income to fuel economic growth without compromising the fiscal deficit.
However, the old tax regime will still remain in place for those who prefer it. It provides the option for taxpayers to choose between the new tax regime and the old one, depending on their personal financial circumstances and eligibility for deductions such as those under Section 80C.
The standard deduction of ₹75,000 has also been extended. This is another big relief for salaried individuals and pensioners. That deduction amount will be increased to ₹12.75 lakh for the eligible. Gross taxable income of employees within low tax slabs will definitely get significantly benefited in keeping their finances well managed.
For those who do not qualify for the standard deduction, tax will be levied as per the revised slabs. However, the elimination of taxes up to ₹12 lakh, combined with the standard deduction, will likely encourage more taxpayers to opt for the new tax regime, leading to greater tax compliance.
This year, the income tax changes came along with extensions of the timeline for filing an updated tax return, ITR-U, for four years as against two earlier. The period of filing, however, invites penalties. Greater taxes are payable on returns submitted later. Tax will be applied at 60% for submissions between 24 and 36 months and at 70% for submissions between 36 and 48 months.