Union Budget 2025-26 Highlights: No Income Tax for Earnings Up to ₹12 Lakh
Finance Minister Nirmala Sitharaman unveiled the much-awaited Union Budget 2025-26 on February 1, bringing some major tax reforms aimed at benefiting the middle class. One of the biggest takeaways is that individuals earning up to ₹12 lakh per year will no longer have to pay income tax under the revised tax system. Additionally, salaried employees will now enjoy a higher standard deduction of ₹75,000, effectively making incomes up to ₹12.75 lakh tax-free.
New Income Tax Slabs for FY 2025-26
The government has introduced a revised tax structure to reduce the financial burden on the middle class, enabling more savings, higher disposable income, and increased spending. Here’s the new income tax slab:
- Income up to ₹4 lakh – No Tax
- ₹4-8 lakh – 5%
- ₹8-12 lakh – 10%
- ₹12-16 lakh – 15%
- ₹16-20 lakh – 20%
- ₹20-24 lakh – 25%
- Above ₹24 lakh – 30%
These changes are expected to provide significant relief to taxpayers while maintaining economic stability.
Budget 2025: How It Impacts Savings and Investments
The Finance Minister emphasized that the new tax regime will put more money into people’s hands, leading to increased household consumption, savings, and investments. She stated, “The new tax structure substantially lowers the tax burden for middle-class families, allowing them to save more and spend wisely.”
Finance Secretary Tuhin Kanta Pandey noted that tax revenue growth (or tax buoyancy) is expected to be 1.42 for the upcoming financial year, slightly lower than the previous year’s 2.0. He also mentioned that nearly 75% of taxpayers have already switched to the new tax regime, and the government expects even more to transition in the coming months.
Expert Opinions on Budget 2025 Tax Reforms
Vivek Jalan, Partner at Tax Connect Advisory Services LLP, highlighted the major themes of this year’s budget: “The 2025 Budget focuses on three key areas—Manufacturing, Middle-Class Households, and MSMEs. The reduction in customs duties on capital goods, particularly lithium-ion batteries, will boost domestic manufacturing. Also, the removal of some TDS/TCS provisions will simplify tax compliance for businesses and individuals.”
Old Tax Regime vs. New Tax Regime: Which One Works Better?
With the revised tax system, many taxpayers are wondering whether to stick to the old regime or switch to the new one. Here’s a quick comparison:
- Old Tax Regime: Higher tax rates but allows deductions and exemptions (such as HRA, LTA, 80C investments, etc.).
- New Tax Regime: Lower tax rates with fewer deductions, making tax filing simpler for individuals who don’t claim multiple exemptions.
Financial advisors suggest that taxpayers assess their financial goals before deciding which tax regime works best for them.
NPS Vatsalya Scheme: Tax Benefit Up to ₹50,000
To promote financial security for minors, the government has extended tax benefits under the NPS Vatsalya Scheme. Now, an annual contribution of up to ₹50,000 towards this scheme will be tax-free. Launched in September 2024, the scheme has already attracted over 89,475 subscribers, with assets worth ₹61.98 crore under management. Parents and guardians can invest in the scheme through online platforms or designated financial institutions, ensuring a secure financial future for minors.
Adjustments in Standard Deduction and Section 87A Rebate
Taxpayers were hoping for adjustments in standard deductions and rebates under both tax regimes. Here’s the latest update:
Standard Deduction
- Old Tax Regime: ₹50,000
- New Tax Regime: ₹75,000
Section 87A Rebate
- New Tax Regime: Up to ₹25,000 rebate for individuals earning up to ₹7 lakh per year.
- Old Tax Regime: Up to ₹12,500 rebate for incomes up to ₹5 lakh per year.
Stock Market Impact: How Will Tax Reforms Affect Investors?
With tax relief for the middle class, analysts believe this will encourage more retail investors to participate in the stock market. According to the Economic Survey, the number of retail investors in India has surged to 132 million as of December 2024, compared to just 49 million in FY20. Mutual fund investments have also skyrocketed, with SIP contributions increasing from ₹0.10 lakh crore in FY22 to ₹0.23 lakh crore in FY25.
Conclusion: A Budget for Economic Growth and Stability
The Union Budget 2025-26 introduces key tax reforms that reduce financial burdens, improve savings, and stimulate economic growth. By prioritizing the middle class and MSMEs, the government aims to drive household consumption, investments, and overall financial well-being.
Stay tuned for more updates on Budget 2025 and its economic impact!