In a landmark move, Finance Minister Nirmala Sitharaman introduced significant tax reforms in the Union Budget 2025. One of the most notable changes is the increase in the nil tax slab, which has been raised from ₹7 lakh to ₹12 lakh. This change is expected to provide substantial relief to taxpayers, particularly the middle class, by reducing their overall tax burden.
📢 Zero Income Tax till ₹12 Lakh Income under New Tax Regime
▶️ Slabs and rates being changed across the board to benefit all tax-payers
Advertisement · Scroll to continue▶️ New structure to substantially reduce taxes of middle class and leave more money in their hands, boosting household consumption, savings… pic.twitter.com/QzJ4nCVD0k
— PIB India (@PIB_India) February 1, 2025
Key Changes in the New Tax Regime
The revamped tax regime unveiled by Sitharaman aims to ease the financial load on middle-class families. The new changes provide a tax-free income limit of ₹12 lakh per year under the new tax structure. Additionally, salaried individuals will benefit from an enhanced exemption limit of ₹12.75 lakh, factoring in the standard deduction of ₹75,000.
For individuals earning up to ₹12 lakh annually, this means they will no longer have to pay any income tax. This move is seen as a significant step in boosting disposable income, encouraging savings, and supporting the growth of consumption in the economy.
Nil Tax Slab Increased to ₹12 Lakh
The most striking change in the budget is the introduction of a zero-income tax slab for earnings up to ₹12 lakh. Under this new system, a salaried individual earning ₹12.75 lakh per year (including the standard deduction of ₹75,000) will be completely exempt from paying any income tax.
This adjustment marks a clear shift in tax policy, offering substantial relief to salaried individuals and especially to those in the middle-income bracket. The government’s objective is to leave more money in the hands of taxpayers, ultimately helping to stimulate the economy through increased household consumption.
Substantial Tax Cuts for the Middle Class
By increasing the nil tax limit and making adjustments to tax rates, the government aims to reduce the financial burden on the middle class. This policy is expected to result in an increase in household disposable income, which will likely boost spending on goods and services across the economy.
More disposable income means people will have more freedom to spend on daily needs, as well as save and invest for the future. These changes are expected to create a ripple effect across various sectors, helping to drive economic growth, especially in consumer-driven industries.
Streamlined Tax Slabs and Simpler Structure
Another key aspect of the new tax regime is the simplification of tax slabs and rates. The changes have been made with the aim of making the tax system more transparent and easier to navigate. By reducing the complexity of tax calculations, the government hopes to make it easier for taxpayers to file their returns and manage their finances.
The total tax benefit of slab rate changes and rebate at different income levels can be
illustrated with examples.
- A tax payer in the new regime with an income of ₹12 lakh will get a benefit of
₹80,000 in tax (100% of tax payable as per exis?ng rates will be exempt). The
effec?ve income tax rate will be 0%. - A person having income of ₹16 lakh will get a benefit of ₹50,000 in tax. [The
effec?ve income tax rate payable will be just 7.5%] - A person having income of ₹18 lakh will get a benefit of ₹70,000 in tax. [The
effec?ve income tax rate payable will be just 8.8%] - A person having income of ₹20 lakh will get a benefit of ₹90,000 in tax. [The
Effective income tax rate payable will be just 10%]. - A person with an income of ₹25 lakh gets a benefit of ₹1,10,000. [The effec?ve
tax rate will be just 13.2%] - A person with an income of ₹50 lakh also gets a benefit of ₹1,10,000. [The
effec?ve tax rate will be just 21.6%]
As a result of these proposals, revenue of about ₹ 1 lakh crore in direct taxes will be forgone.
The streamlined system is also expected to benefit taxpayers across various income levels. With a clearer and more straightforward structure, individuals will retain more of their earnings, contributing to greater economic stability.
Impact on the Average Taxpayer
For salaried individuals, especially those in the middle-income group, these reforms are expected to result in significant savings. With no income tax on earnings up to ₹12 lakh (or ₹12.75 lakh for salaried employees), individuals will have more disposable income to save, invest, and spend.
This additional disposable income could lead to increased investments in assets such as mutual funds, stocks, and real estate. Furthermore, the increased tax relief will likely encourage more consumption, benefiting various sectors of the economy, including retail, housing, and education.
A Boost to India’s Consumer-Driven Economy
These tax changes align with the government’s long-term vision of strengthening India’s consumer-driven economy. By providing significant tax relief to middle-class taxpayers, the government hopes to boost consumption and investment, driving economic growth across the nation. With more funds available for discretionary spending and saving, the changes aim to empower individuals and contribute to the overall prosperity of the country.
As the new tax regime takes effect, the impact on household incomes and the broader economy will be closely monitored. The government’s focus on reducing the tax burden on the middle class is seen as a step towards creating a more robust and sustainable economic environment.