In a major relief for middle-class taxpayers, the Union Budget 2025 has introduced a revised income tax structure that eliminates tax liability for individuals earning up to ₹12 lakh annually. This change has been made possible through a combination of new tax slabs and a rebate mechanism, ensuring that eligible taxpayers do not have to pay any tax. The reform is aimed at simplifying the taxation system, reducing financial stress on salaried individuals, and increasing disposable income, which is expected to boost economic activity.
The new tax structure has been designed to provide more clarity and ease of calculation for taxpayers. The changes are expected to make compliance more straightforward while benefiting a large section of the population. Salaried professionals, in particular, will experience financial relief as they will be allowed an additional standard deduction along with the rebate.
New Tax Slabs and Tax Calculation
Under the new tax regime, income tax is applied in a structured manner based on different income levels. The updated tax rates are:
Despite these tax slabs, individuals earning up to ₹12 lakh will not have to pay any tax due to the rebate introduced in the budget. For instance, an individual with an annual income of ₹12 lakh would typically be required to pay ₹60,000 in tax based on the slab rates. However, this amount is fully offset by the rebate, ensuring that no tax is due. For those earning more than ₹12 lakh, tax will only be applicable on the portion exceeding this threshold. For example, a person earning ₹16 lakh will be taxed only on the ₹4 lakh above ₹12 lakh. This means their total tax liability will be ₹60,000 after considering the rebate, significantly reducing their financial burden compared to previous tax structures.
To further support salaried professionals, a standard deduction of ₹75,000 has been introduced under the new regime. As a result, individuals earning up to ₹12.75 lakh (including the deduction) will also fall within the zero-tax category. This change is expected to provide additional savings and make the taxation process more transparent and beneficial for employees. With these reforms, the government aims to simplify taxation while ensuring that middle-class earners retain more of their income. By reducing tax burdens and making compliance easier, financial stability and economic growth are expected to be positively impacted. These new measures are likely to benefit a large section of taxpayers and promote better financial planning.