
In a significant move aimed at providing relief to the middle class, the Union Budget 2025 has introduced sweeping reforms in personal income tax, particularly benefiting salaried individuals. The Finance Minister announced that under the new tax regime, there will be no income tax payable on annual incomes up to ₹12 lakh. For salaried taxpayers, this limit is effectively increased to ₹12.75 lakh due to the standard deduction of ₹75,000.
Impact on salaried individuals: Examples
To better understand the impact of these reforms, here are some examples of tax liabilities under the new regime:
- Income of ₹8 lakh
- Old tax regime: ₹30,000 tax payable
- New tax regime: ₹20,000 tax payable
- Benefit: ₹10,000 saved
- Income of ₹10 lakh
- Old tax regime: ₹50,000 tax payable
- New tax regime: ₹40,000 tax payable
- Benefit: ₹10,000 saved
- Income of ₹12 lakh
- Old tax regime: ₹80,000 tax payable
- New tax regime: ₹60,000 tax payable
- Standard deduction for salaried individuals: ₹75,000
- Effective income considered: ₹11.25 lakh
- Final tax payable: Zero
- Income of ₹18 lakh
- Old tax regime: ₹1.7 lakh tax payable
- New tax regime: ₹1.2 lakh tax payable
- Benefit: ₹50,000 saved
- Income of ₹25 lakh
- Old tax regime: ₹4.1 lakh tax payable
- New tax regime: ₹3 lakh tax payable
- Benefit: ₹1.1 lakh saved
Wider implications of the reforms
These reforms are expected to result in a revenue loss of ₹1 lakh crore in direct taxes and ₹2,600 crore in indirect taxes, according to the Finance Minister. However, the government believes the move will spur economic activity by increasing disposable incomes, leading to higher consumption and investment.
The tax relief comes as part of the government’s broader strategy to strengthen the middle class and position India as a ‘Viksit Bharat’ (developed nation) by 2047. By reducing the tax burden and promoting financial well-being, the government aims to stimulate growth while reinforcing its trust in the contributions of salaried and middle-class taxpayers.