No income tax payable up to Rs 12 lakh income: Budget bonanza for middle class
No income tax payable up to Rs 12 lakh income: Budget bonanza for middle class
M.U.H
01/02/202527
Finance Minister Nirmala Sitharaman fulfilled expectations and hopes of a major income tax relief as she presented the Union Budget for the financial year 2025-2026 on Saturday. People with incomes of up to Rs 12 lakh will not have to pay a single rupee in income tax, the Finance Minister announced, as she also proposed rejigging the tax slabs under the new income tax regime.
According to the income tax changes proposed in the Budget, salaried employees would effectively pay no tax on incomes up to Rs 12.75 lakh after taking into account the benefit of standard deduction. This effective exemption limit earlier was Rs 7.75 lakh.
Nirmala Sitharaman also announced changes in the slab structure of the new income tax regime, expanding the first slab - attracting nil income tax - from Rs 0–3 lakh to Rs 0–4 lakh.
The old income tax regime, which allows for several deductions and exemptions on the total taxable income, saw no changes, indicating a push by the government towards the new regime. The new income tax regime, first introduced in 2020, follows a simplified structure with no deductions.
"I am now happy to announce that there will be no income tax payable up to income of Rs 12 lakh under the new regime," the finance minister said in Parliament as she presented a record eighth consecutive budget.
"The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment," Sitharaman also said in her Budget speech.
As per the rejig, for people earning more than Rs 12 lakh per annum, there will be nil tax for income up to Rs 4 lakh, 5 per cent for income between Rs 4 and 8 lakh, 10 per cent for Rs 8-12 lakh, 15 per cent for Rs 12-16 lakh.
A 20 per cent income tax will be levied on income between Rs 16 and 20 lakh, 25 per cent on Rs 20-24 lakh and 30 per cent above Rs 24 lakh per annum. A taxpayer in the new regime with an income of Rs 12 lakh will get a benefit of Rs 80,000 in tax. A person having income of Rs 18 lakh will get a benefit of Rs 70,000 in tax.
'Rs 1 LAKH INCOME TAX IN 2014 IS 0 INCOME TAX NOW'
The Finance Minister, while comparing the income tax rates proposed by the BJP as opposed to the rates under Congress rule, said, "If you compare them with the 2014 tax rates under the Congress, for someone who is earning Rs 8 lakh annually, nearly Rs 1 lakh more money is in their pockets today. Rs 1 lakh income tax in 2014 is 0 income tax now," she said.
She further said that Rs 2 lakh income tax was levied on those earning Rs 12 lakh annually in 2014, whereas those earning the same amount have to pay nothing today owing to the income tax slabs proposed in the Budget. "Meaning Rs 2 lakh more money in the pockets of people who are earning Rs 12 lakh," she said.
"Across the board, everybody is getting benefits, because the rates have also been brought down," she said. Nirmala Sitharaman claimed that the income tax on those earning Rs 24 lakh annually was Rs 5.6 lakh, which has now come down to Rs 3 lakh, implying that Rs 2.6 lakh more is being saved.
"So, it is not just those earning up to Rs 12 lakh who benefit, because they do not have to pay any tax due to exemptions," she said.
ZERO TAX ON INCOMES UP TO RS 12 LAKH
The new tax regime offers zero income tax for earnings up to Rs 12 lakh (Rs 12.75 lakh for salaried taxpayers with standard deduction of Rs 75,000).
What this effectively means is that people earning a salary of up to Rs 12,75,000 will not have to pay tax.
Manmeet Kaur, Partner at Karanjawala & Co, said, "The Government aims at Democracy, demography and demand recognising the middle class. Minimum tax slab raised to Rs 12 lakhs from Rs 7 lakhs in new regime + Rs 75000 standard deduction. Aims to boost both consumption and savings/investments."
The government has introduced new tax slabs that aim to substantially reduce taxes for the middle class and are designed to leave more money in their hands, boosting household consumption, savings, and investment.