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In a bold and forward-thinking move, the Modi government has announced substantial income tax relief for the middle class in the Union Budget 2025. This announcement promises to ease the financial burden on millions of taxpayers and provide a significant boost to household income, savings, and consumption. With a focus on India’s fastest-growing economy, this budget proposes transformative changes aimed at ensuring the prosperity of the people, especially the middle class, which remains a key pillar of the nation’s economic growth.
No Tax on Income Up to ₹12 Lakh
As part of the revamped tax regime, taxpayers with annual incomes up to ₹12 lakh will be completely exempt from income tax. For salaried individuals, this tax-free limit increases to ₹12.75 lakh, due to the standard deduction of ₹75,000, which applies only to salaried employees. This move has been seen as a way to incentivize savings and reduce the financial pressures faced by many middle-class families.
Finance Minister Sitharaman expressed, “Right after 2014, the Nil tax slab was raised to ₹2.5 lakh, which was further increased to ₹5 lakh in 2019 and to ₹7 lakh in 2023. In this Budget, we have announced that no income tax will be applicable up to ₹12 lakh.”
Tax Relief for Different Income Groups
The new income tax changes have a far-reaching impact across various income groups. The new tax slabs offer progressive tax relief, with specific benefits for individuals at different income levels:
- A taxpayer with an income of ₹12 lakh will see a tax saving of ₹80,000, resulting in an effective tax rate of 0%.
- A person earning ₹16 lakh annually will benefit from ₹50,000 in tax relief, with an effective tax rate of 7.5%.
- Those earning ₹18 lakh annually will get a tax benefit of ₹70,000, with an effective tax rate of 8.8%.
- A person with an income of ₹20 lakh will see a reduction of ₹90,000 in taxes, with an effective rate of 10%.
- For those earning₹25 lakh, the tax relief will amount to ₹1.10 lakh, with an effective rate of 13.2%.
- Even individuals earning ₹50 lakh will get a benefit of ₹1.10 lakh, bringing their effective tax rate to just 21.6%.
These measures are expected to reduce tax revenue by approximately ₹1 lakh crore in direct taxes, signaling a major shift toward supporting middle-class taxpayers.
Additional Benefits for Senior Citizens
In a move aimed at easing the financial burden on senior citizens, the government has also announced that the tax deduction on interest income for seniors will be doubled. The current limit of ₹50,000 will be raised to ₹1 lakh, providing significant relief to those relying on interest income for their livelihood.
Government’s Commitment to Taxpayer Convenience
The government has made it clear that these income tax changes are part of a broader commitment to simplify the tax system and make it more taxpayer-friendly. Over the past 10 years, the government has introduced several measures to ease the process, including:
- Faceless assessment for faster tax processing.
- A taxpayer charter ensuring taxpayer rights.
- Nearly 99% of tax returns are now processed through self-assessment.
- The Vivad se Vishwas scheme to resolve tax disputes without litigation.
Comprehensive Reforms for the Economy
Apart from income tax reforms, the Budget 2025 also includes several other measures to improve ease of doing business and promote investment. These include:
- Raising the FDI limit in the insurance sector from 74% to 100%, benefiting companies investing premiums in India.
- Developing a ‘Grameen Credit Score’ framework by Public Sector Banks to help rural areas and Self-Help Groups (SHGs) access credit.
- Setting up a High-Level Committee for Regulatory Reforms to review non-financial sector regulations.
- Extending tax benefits for Startups and ship-leasing units in the International Financial Services Centre (IFSC).
Reforming the Customs Act and Other Tax Measures
In an effort to further streamline the tax system, the government has also introduced reforms related to customs and other tax laws. Key changes include:
- Fixing a two-year time limit for finalizing provisional assessments under the Customs Act.
- Introducing a scheme for transfer pricing to reduce litigation and provide more certainty in international taxation.
- Extending the tonnage tax scheme to inland vessels, promoting the use of inland water transport.
