Finance Minister Nirmala Sitharaman has introduced significant tax changes in the first full budget of the third term of the Modi government. The new tax regime now offers a major relief to the middle class.
Previously, individuals with an annual income of up to Rs 7 lakh were exempt from income tax. Now, this exemption extends to those with income up to Rs 12 lakh annually.
This means people with a monthly income of up to Rs 1 lakh will no longer need to pay income tax.
Tax Benefits for Salaried Individuals
In addition to the tax exemption on income up to Rs 12 lakh, salaried individuals with an annual income up to Rs 12.75 lakh will benefit from a standard deduction of Rs 75,000, meaning no tax will be levied on their income. However, those earning more than this will be taxed under the new income tax slabs.
For individuals earning Rs 18 lakh annually, the new changes will provide a tax benefit of Rs 70,000, while those earning Rs 12 lakh will receive a rebate of Rs 80,000.
These proposals are applicable for the financial year 2025-26, which will be assessed in 2026-27.
Changes to Tax Slabs and Rates
The budget also introduced changes in the income tax slabs and rates. The new tax structure will look like this:
1) Income up to Rs 4 lakh: No tax
2) Income between Rs 4 lakh and Rs 8 lakh: 5% tax
3) Income between Rs 8 lakh and Rs 12 lakh: 10% tax
4) Income between Rs 12 lakh and Rs 16 lakh: 15% tax
| Old Slab | Old Rates | New Slabs | New Rates |
|---|---|---|---|
| Up to Rs 3,00,000 | No Tax | Up to Rs 4 lakh | No Tax |
| Rs 3,00,001 to Rs 7 lakh | 5% | Rs 4,00,001 to Rs 8 lakh | 5% |
| Rs 7,00,001 to Rs 10 lakh | 10% | Rs 8,00,001 to Rs 12 lakh | 10% |
| Rs 10,00,001 to Rs 12 lakh | 15% | Rs 12,00,001 to Rs 16 lakh | 15% |
| Rs 12,00,001 to Rs 15 lakh | 20% | Rs 16,00,001 to Rs 20 lakh | 20% |
| Rs 15,00,001 to Rs 50 lakh | 30% | Rs 20,00,001 to Rs 24 lakh | 25% |
| Rs 50,00,001 to Rs 1 crore | 30% | Above Rs 24 lakh | 30% |
Taxpayer Benefits and Senior Citizens’ Relief
Taxpayers will see the following benefits based on their income:
1) Taxpayers earning Rs 12 lakh will get a rebate of Rs 80,000, reducing their tax liability to zero.
2) Taxpayers earning Rs 16 lakh will get a benefit of Rs 50,000.
3) Taxpayers with Rs 18 lakh income will save Rs 70,000.
4) Those earning Rs 20 lakh will benefit by Rs 90,000.
5) Taxpayers earning Rs 25 lakh or Rs 50 lakh will receive a benefit of Rs 1,10,000.
Additionally, senior citizens will get a major tax relief with an increase in the limit for TDS on interest income. The limit has been raised from Rs 50,000 to Rs 1 lakh per annum.
The minimum income threshold for TDS on rental income has also been increased from Rs 2.40 lakh to Rs 6 lakh.
The budget also proposes changes to the tax collection at source (TCS) on foreign remittances. The limit for TCS under the liberalized remittance scheme (LRS) will now apply on amounts above Rs 10 lakh, up from Rs 6 lakh.
