Union Budget 2025 Live Updates: No Tax on Income Up to ₹12 Lakh, Says Nirmala Sitharaman

On February 1, 2025, Finance Minister Nirmala Sitharaman presented the Union Budget for the fiscal year 2025-26, making several key announcements that aim to shape India's economic future. Among the most significant reforms was the announcement that individuals with an annual income of up to ₹12 lakh will no longer be required to pay income tax under the New Tax Regime (NTR). This bold move is expected to provide much-needed relief to millions of taxpayers, boost the purchasing power of the middle class, and stimulate the overall economy.

Key Highlights of the 2025 Union Budget

The Union Budget 2025 focuses on reforms that are not only aimed at streamlining tax processes but also at providing tangible benefits to taxpayers across various income groups. Below are the major takeaways from the budget that will impact the tax system and the Indian economy:

1. No Tax on Income Up to ₹12 Lakh
2. Revised Tax Slabs for the New Tax Regime (NTR)
3. Increased Tax Rebate under Section 87A
4. Standard Deduction for Salaried Employees
5. Simplified Tax Filing Process
6. Boost to Middle-Class Consumption
7. Potential Economic Growth

1. No Tax on Income Up to ₹12 Lakh

The most significant reform in this year’s Union Budget is the provision for no tax on individuals earning up to ₹12 lakh annually under the New Tax Regime. This decision directly targets salaried individuals, small business owners, and professionals, who will now have a greater share of their income to retain and use for savings, investments, and consumption.

In a country where tax-paying citizens often feel burdened by high tax rates, this move is expected to bring substantial relief. People earning between ₹3 lakh and ₹12 lakh annually, who previously faced significant tax liabilities, will now find their incomes much more manageable. This policy is seen as a strategic move to uplift the middle class, which is considered the backbone of India's economy.

The tax relief is also likely to have a positive impact on consumer sentiment. With no tax on income up to ₹12 lakh, individuals will have higher disposable income, which is expected to increase domestic consumption, drive demand for goods and services, and foster economic growth.

2. Revised Tax Slabs Under the New Tax Regime (NTR)

Along with the relief for those earning up to ₹12 lakh, the government has also made revisions to the income tax slabs under the New Tax Regime. The new tax structure simplifies the tax process and ensures that more people fall into the lower tax brackets.

The revised tax slabs for the fiscal year 2025-26 are as follows:

These revised slabs ensure that more taxpayers will benefit from a lower tax burden. The increase in the no-tax limit from ₹5 lakh to ₹12 lakh for individuals will bring much-needed relief to middle-income groups. The lower income groups, with earnings of ₹3 lakh to ₹7 lakh, will pay a reduced tax rate of 5%, which is a significant departure from the previous higher tax brackets.

For those earning between ₹7 lakh and ₹10 lakh, the tax rate has been lowered to 10%. Additionally, those earning ₹10 lakh to ₹12 lakh will pay just 15%, which is far more reasonable compared to earlier rates.

At the highest income bracket (above ₹15 lakh), the tax rate remains unchanged at 30%. However, the reduction in taxes for individuals in lower-income ranges means that taxpayers will experience much less financial strain, particularly the middle class.

3. Increased Tax Rebate under Section 87A

Another significant tax reform announced by the Finance Minister in Budget 2025 is the enhancement of the tax rebate under Section 87A. The tax rebate, which was previously capped at ₹5 lakh, has been increased to ₹7 lakh.

This increased rebate is particularly beneficial to individuals earning up to ₹7 lakh annually, as it effectively means that their income tax liability will be wiped out entirely. The increase in the rebate ensures that lower-income individuals will no longer have to worry about paying taxes, thus encouraging savings and improving their standard of living.

In practice, this means that individuals earning up to ₹7 lakh will get a full rebate, making them exempt from paying income tax. This policy directly supports the government's goal of reducing the tax burden on individuals in lower income groups and promoting a more equitable tax system.

4. Standard Deduction for Salaried Employees

In addition to the new tax slabs and rebate revisions, the Union Budget 2025 also introduces a standard deduction of ₹50,000 for salaried employees. This move aims to provide additional relief to the salaried class, which often faces a high tax burden due to the nature of their income.

The standard deduction of ₹50,000 will reduce the taxable income for individuals in salaried positions, which means they will be liable for lower taxes. This change is expected to benefit millions of salaried workers across the country, helping them retain more of their income and improve their financial security.

5. Simplified Tax Filing Process

One of the long-standing challenges in India’s taxation system has been the complexity and bureaucracy involved in filing taxes. However, the Union Budget 2025 makes significant strides in simplifying the tax filing process. The tax slabs have been made clearer, and the process of filing taxes has been streamlined to make it easier for individuals to understand and comply with their tax obligations.

The introduction of the ₹50,000 standard deduction for salaried employees further reduces the need for complicated calculations, making it easier for people to determine their taxable income. Simplifying the tax filing process is expected to reduce the administrative burden on both taxpayers and the government, ensuring a more efficient system.

6. Boost to Middle-Class Consumption

The Union Budget 2025 is expected to boost middle-class consumption, which is a crucial driver of economic growth. By providing tax relief to individuals earning up to ₹12 lakh, the government is increasing disposable income for the middle class, which in turn could lead to higher demand for goods and services.

In a growing economy like India, consumer spending plays an important role in driving demand in various sectors such as retail, housing, automobiles, and consumer goods. With more money in their hands, individuals are likely to spend more on daily needs, luxury goods, and services, thus contributing to the overall growth of the economy.

The increased purchasing power among the middle class could also stimulate job creation, particularly in industries that cater to consumer goods and services. This could lead to a positive cycle where increased consumption results in greater production and, ultimately, economic growth.

7. Potential Economic Growth

The tax reforms outlined in Budget 2025 are designed not only to provide immediate relief to taxpayers but also to stimulate long-term economic growth. By increasing disposable income, encouraging savings and investments, and reducing tax-related complexities, the government aims to create an environment that is conducive to economic expansion.

With more money in the hands of consumers, there is a strong likelihood of increased demand, which could lead to job creation across various industries. Additionally, the increased tax rebates for low- and middle-income individuals are expected to result in better financial security for families, which can lead to greater overall economic stability.

Furthermore, the government is hoping that these reforms will encourage more people to comply with tax laws, thus increasing the overall tax base and allowing for greater fiscal space to invest in infrastructure, healthcare, education, and other sectors critical to India's growth.

Conclusion

The Union Budget 2025 is a historic moment for India's taxation system, with the government taking bold steps to provide relief to taxpayers and encourage economic growth. By exempting individuals earning up to ₹12 lakh from income tax, the government has provided substantial relief to the middle class, which forms the backbone of India's economy.

The revision of tax slabs, the increase in the tax rebate under Section 87A, and the introduction of a standard deduction for salaried individuals further enhance the tax system’s fairness and simplicity. The expected boost to disposable income is likely to stimulate consumption, drive demand, and promote economic growth in the coming years.

Overall, the Union Budget 2025 presents a roadmap for a more inclusive and prosperous India, where economic growth is fueled by a dynamic, empowered middle class. With these reforms, the government is positioning India for a future of sustainable growth, increased financial security for its citizens, and greater economic resilience.