The Union Budget of 2025, presented by Finance Minister Nirmala Sitharaman, introduced significant reforms to India’s income tax structure, particularly within the new tax regime. These changes aim to enhance the spending power of the middle class, simplify the tax system, and stimulate economic growth.
Key Highlights of the New Income Tax Regime:
1. Increased Tax Exemption Limit: Individuals earning up to ₹12 lakh annually are now exempt from paying income tax under the new tax regime. This move is designed to provide substantial relief to the middle class, increasing their disposable income and stimulating consumption.
2. Revised Tax Brackets: The tax slabs have been restructured to benefit those earning between ₹12 lakh and ₹24 lakh per year. This restructuring aims to create a more equitable tax system, ensuring that tax liabilities are commensurate with income levels.
3. Higher Standard Deduction: To offer additional relief, the standard deduction limit has been increased, benefiting salaried employees and pensioners. This enhancement simplifies the tax filing process and reduces the taxable income base for a significant portion of the population.
4. Simplified Tax Code: The new income tax bill has been condensed to 622 pages from over 800, eliminating redundant sections and replacing complex provisions with clearer ones. This effort aims to reduce legal disputes and encourage voluntary tax compliance
5. Enhanced Powers for Tax Authorities: The new income tax bill proposes giving tax authorities extensive powers to access taxpayers’ electronic records, including emails, social media accounts, and online trading and bank accounts during searches. This provision is intended to strengthen tax enforcement but has raised concerns over privacy rights.
Implications for Taxpayers :
Middle-Class Relief: The increased exemption limit and revised tax brackets are expected to provide substantial financial relief to middle-income groups, enhancing their purchasing power and contributing to economic growth.
Simplified Compliance: The streamlined tax code and higher standard deduction simplify the tax filing process, making it more accessible for individual taxpayers and reducing the likelihood of errors.
Privacy Considerations: While enhanced powers for tax authorities aim to improve compliance, they also raise concerns regarding taxpayer privacy. It is crucial for the government to implement clear safeguards to balance effective tax enforcement with the protection of individual rights.
This restructuring increases the basic exemption limit from ₹3,00,000 to ₹4,00,000, providing relief to taxpayers across various income brackets. Notably, individuals with an annual income of up to ₹12,00,000 will now be exempt from income tax, a significant increase from the previous threshold of ₹7,00,000. For salaried employees, the standard deduction has been raised from ₹50,000 to ₹75,000, effectively making income up to ₹12,75,000 tax-free.
Simplification of the Tax System
The new income tax bill aims to simplify and modernize the Indian tax system, making it more accessible and understandable for taxpayers. The focus is on using plain language and reducing complexities to create a taxpayer-friendly environment.
Revised Tax Slabs:
- Income up to ₹4 lakh: Nil
- ₹4 lakh to ₹8 lakh: 5%
- ₹8 lakh to ₹12 lakh: 10%
- ₹12 lakh to ₹16 lakh: 15%
- ₹16 lakh to ₹20 lakh: 20%
- ₹20 lakh to ₹24 lakh: 25%
- Above ₹24 lakh: 30%
The new income tax slabs announced in the Union Budget 2025 will come into effect from April 1, 2025, for the financial year 2025-26. These revised slabs are part of the new tax regime and are designed to provide relief to taxpayers. The basic exemption limit has been increased to ₹4 lakh from the previous ₹3 lakh. Additionally, the highest tax rate of 30% will now apply to incomes above ₹24 lakh, compared to the earlier threshold of ₹15 lakh.
It’s important to note that the recently introduced Income Tax Bill, 2025, aims to simplify and modernize the tax laws, replacing the Income Tax Act of 1961. However, this new bill is proposed to be effective from April 1, 2026, and does not alter the tax slabs announced for FY 2025-26.
Therefore, for the financial year 2025-26, the tax slabs as declared in the Union Budget 2025 will be applicable starting from April 1, 2025.
These adjustments are designed to increase disposable income for middle-class families, thereby enhancing their capacity for spending, saving, and investing. The government anticipates that these measures will stimulate economic growth by boosting consumption and investment among the middle class.
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