Budget 2025: Major Tax Relief for Middle-Class, No Income Tax Up to ₹12 Lakh

New Delhi, February 1, 2025: In a significant relief for middle-class taxpayers, Union Finance Minister Nirmala Sitharaman announced that individuals earning up to ₹12 lakh annually will not have to pay any income tax under the revised tax regime. Including standard deductions, the exemption limit effectively extends to ₹12.75 lakh.

The announcement, made during the Union Budget 2025 presentation in Parliament, was met with loud cheers from ruling party members, underscoring the government’s focus on reducing the tax burden and stimulating economic activity.

Revised Tax Slabs Under New Regime

Ms. Sitharaman also unveiled revised tax slabs applicable exclusively to the new tax regime:

• Income up to ₹4 lakh – No tax
• ₹4 lakh to ₹8 lakh – 5%
• ₹8 lakh to ₹12 lakh – 10%
• ₹12 lakh to ₹16 lakh – 15%
• ₹16 lakh to ₹20 lakh – 20%
• ₹20 lakh to ₹24 lakh – 25%
• Above ₹24 lakh – 30%

The finance minister emphasized that these changes would "significantly ease the tax burden on middle-class families, leaving them with higher disposable incomes, which will boost consumption, savings, and investments."

Key Tax Reforms Announced in Budget 2025

Apart from personal income tax revisions, the finance minister also introduced several reforms aimed at simplifying tax compliance and benefiting taxpayers:

• TDS Rationalization: Tax Deducted at Source (TDS) rates to be revised for better compliance.
• Higher Deductions for Senior Citizens: The tax deduction limit for senior citizens has been doubled to ₹1 lakh.
• Extended Deadline for Filing Updated Returns: Taxpayers will now have four years instead of two to file updated returns.

New Direct Tax Code to be Introduced

A major policy shift is also on the horizon, with the finance minister confirming that a new Direct Tax Code will be introduced next week. This initiative is aimed at simplifying existing tax laws and streamlining compliance.

The existing Income Tax Act of 1961, which spans 23 chapters and 298 sections, is expected to be significantly overhauled. One of the key highlights of the new tax code could be the removal of financial year (FY) and assessment year (AY) classifications, a long-standing cause of confusion among taxpayers.

Additionally, the new tax framework may introduce a 5% tax on high-value insurance policies and standardize dividend taxation at 15%, replacing the current slab-based taxation.

A Shift Towards a Simplified Tax Regime

The government's decision to phase out the dual-tax system, which allowed taxpayers to choose between the old and new tax regimes, is another major change under discussion. Experts believe that these changes will not only simplify tax compliance but also reduce litigation and ambiguities surrounding tax filings.

With the Union Budget 2025 bringing sweeping tax reforms, the middle class stands to gain significantly from reduced liabilities, while the introduction of a new tax code aims to modernize India’s tax structure for the long term.