In a significant move aimed at reducing the tax burden on middle-class taxpayers, the government has announced that under the new tax regime, individuals earning up to ₹12 lakh annually will not have to pay any income tax. This reform is designed to enhance disposable income, boost savings, and encourage spending, ultimately driving economic growth.
Reaffirming Government’s commitment to the philosophy of “trust first, scrutinize later”, the Union Budget 2025-26 has reposed faith in the Middle class and continued the trend of giving relief in tax burden to the common tax–payer. Presenting the Budget in the Parliament, Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman proposed an across-the-board change in tax slabs and rates to benefit all tax-payers.
UNDERSTANDING THE NEW TAX REGIME
The new tax regime, introduced in Budget 2020, was optional, offering lower tax rates without deductions. However, with successive reforms, the government has simplified tax slabs and increased rebates, making it an attractive alternative to the old regime. Under the latest revision, individuals earning up to ₹12 lakh per annum will benefit from a zero-tax liability, provided they avail themselves of the rebate under Section 87A
Finance Minister stated, There will be no income tax payable upto income of Rs. 12 lakh (i.e. average income of Rs.1 lakh per month other than special rate income such as capital gains) under the new regime. This limit will be Rs.12.75 lakh for salaried tax payers, due to standard deduction of Rs. 75,000,
Tax rebate is being provided in addition to the benefit due to slab rate reduction in such a manner that there is no tax payable by them, 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
REVISE TAX RATE STRUCTURE
| 0-4 lakh rupees | Nil |
| 4-8 lakh rupees | 5 per cent |
| 8-12 lakh rupees | 10 per cent |
| 12-16 lakh rupees | 15 per cent |
| 16-20 lakh rupees | 20 per cent |
| 20- 24 lakh rupees | 25 per cent |
| Above 24 lakh rupees | 30 per cent |
TAX IMPLICATIONS AND BENEFITS
Higher Savings for Middle-Class Taxpayers: With a zero-tax liability up to ₹12 lakh, individuals will save more on their earnings, allowing them to invest in healthcare, education, or personal financial goals.
Increased Disposable Income and Economic Boost: More savings translate into higher spending, boosting demand in key sectors such as real estate, automobile, and retail. This move aligns with the government’s objective of driving consumer-led economic growth.
Simplified Tax Structure: Unlike the old tax regime, which involved multiple deductions and exemptions, the new tax regime offers a straightforward tax computation process, making compliance easier for taxpayers.
CONCLUSION
The decision to remove income tax liability for earnings up to ₹12 lakh annually under the new tax regime is a game-changer for taxpayers. It promotes financial security, encourages investment, and simplifies tax compliance. This move is expected to enhance economic stability, benefiting both individuals and the broader economy.
