The Union Budget 2025 announces no income tax for salaried individuals earning up to ₹12 lakh. New tax slabs and rebates will boost household consumption, reducing the tax burden.
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On February 1, 2025, during the Union Budget speech, Finance Minister Nirmala Sitharaman introduced significant changes to the income tax structure aimed at providing relief to salaried individuals. The newly announced tax reforms focus on reducing the tax burden for middle-income earners, promoting greater household consumption. The proposal includes rebates and new tax slabs that will ensure more disposable income for taxpayers.
Key Highlights from the Union Budget 2025:
- Full Tax Rebate for Income Up to ₹12 Lakh: The Finance Minister announced a major reform under which no income tax will be payable for individuals earning up to ₹12 lakh annually from regular salary income, excluding special incomes like capital gains. This is expected to provide substantial relief to salaried individuals."I am happy to announce that there will be no income tax payable up to income of ₹12 lakh rupees," said Nirmala Sitharaman in her address to the Lok Sabha.
- Impact of Standard Deduction: In addition to the tax slabs, the standard deduction of ₹75,000 for salaried individuals effectively increases the tax-free income limit, making the total limit for salaried taxpayers ₹12.75 lakh."So, average income of ₹1 lakh per month, other than the special income from capital gains, under the new regime, this limit will be ₹12.75 lakh for salaried taxpayers due to the standard deduction of ₹75,000 rupees," explained the Finance Minister.
- New Tax Slabs Announced: The Finance Minister introduced the following tax slabs that will be applied for taxpayers in the new regime:
- ₹0 to ₹4 lakh - No tax payable
- ₹4 lakh to ₹8 lakh - 5% tax rate
- ₹8 lakh to ₹12 lakh - 10% tax rate
- ₹12 lakh to ₹16 lakh - 15% tax rate
- ₹16 lakh to ₹20 lakh - 20% tax rate
- ₹20 lakh to ₹24 lakh - 25% tax rate
- Above ₹24 lakh - 30% tax rate
- Illustrative Examples Provided by the Finance Minister: To further clarify the benefits of the new tax structure, the Finance Minister provided the following examples:
- A taxpayer earning ₹12 lakh will benefit from a tax rebate of ₹80,000, covering 100% of the tax liability under the previous system.
- A person with an income of ₹18 lakh will receive a ₹70,000 rebate, reducing their tax liability by 30%compared to the old regime.
- A taxpayer earning ₹25 lakh will get a ₹1.10 lakh rebate, reducing their tax obligation by 25%.
- Impact of Tax Rebate for Lower Incomes: For individuals earning up to ₹12 lakh, the tax rebate, combined with reduced tax slabs, will effectively result in no tax payable for these taxpayers. This structure is part of the government's strategy to simplify the tax system and provide tangible benefits to middle-income earners."To taxpayers up to ₹12 lakh of normal income, other than special rate incomes such as capital gains, tax rebate is being provided in addition to the benefit due to slab rate reduction in such a manner that there is no tax payable by them," added the Finance Minister.
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