Budget 2025: A tax-free income of Rs 12 lakh is available to taxpayers along with standard deductions as demonstrated by Nirmala Sitharaman during the presentation of the Union Budget 2025 today.
She introduced tax slab revisions and made public these changes during an event full of cheers and loud desk slapping from BJP legislators who were led by Prime Minister Narendra Modi (the new regime provisions apply).
Income between Rs 4 lakh and Rs 5 lakh brings no tax obligations according to the updated tax system.
A tax of five percent will apply to income between Rs 4 and Rs 8 lakh.
For income ranges between Rs 8 to Rs 12 lakh the tax rate stands at 10 percent.
The new tax rate under this system ranges from 15 percent for income between Rs 12 lakh and Rs 16 lakh.
Homeowners earning between Rs 16 to 20 lakhs will face a tax rate of 20 percent.
Taxes on earnings between Rs 20 lakh and Rs 24 lakh will amount to 25 percent of the total.
From Rs 24 lakh to higher amounts the tax rate stands at 30 percent.
The government has implemented these changes to significantly lower middle-class tax liabilities thereby increasing their disposable income according to Ms Sitharaman. Household spending together with savings and investment will receive an increase from these measures according to her statement.
TDS tax deduction at source rates will be modified while senior citizens will be able to deduct up to Rs 1 lakh from their taxable income according to Ms Sitharaman.
The minister proposed a new extension to four years for people to update their tax returns.
A New Direct Tax Code?
The announcement of personal income tax reforms made by the Finance Minister will soon be followed by the direct tax code rollout which aims to make individual tax filing easier.
When Mrs. Sitharaman delivered the 2024/25 budget in July she introduced discussions about a new direct tax code wishing to simplify existing income tax regulations while reducing the I-T Act of 1961 from 298 sections to a condensed 120 sections in a 27-chapter document.
The tax code stands apart from the provisions outlined in I-T Act.
The 1961 Act contains twenty-three chapters with two hundred ninety-eight sections that govern the collection of direct taxes and securities transactions taxes as well as gift and wealth taxes.
The new tax system will eliminate the confused relationship between financial year and accounting year due to major modifications. The new tax policy would impose at least five percent taxation against earning from Life Insurance Corporation policy benefits.
According to the 1961 law these taxable items remained untaxed.
Taxes on dividend payments may receive a standard rate of 15 percent instead of the current slab-based system. A crucial aspect of this new code eliminates the ability to choose between previous and current regimes of taxation.
Budget 2025: New Income Tax Slabs – How Much Do You Save?
The new tax regime slab is as follows:
Up to Rs 4 lakh – 0 per cent
Rs 4-8 lakh – 5 per cent
Rs 8 12 lakh – 10 per cent
Rs 12-16 lakh – 15 per cent
Rs 16-20 lakh – 20 per cent
Rs 20-24 lakh – 25 per cent
Above Rs 24 lakh – 30 per cent
So, how much would you save?
The chief economic minister stated that individuals earning up to Rs 12 lakh in income will receive two different types of tax reductions which ensure they will pay no tax at all.
An illustration of total tax advantages related to slab rates and rebates appears at various income levels through these examples:
The new tax structure grants Rs 80,000 tax reduction from Rs 12 lakh annual income (equal to 100 percent of the current tax liability).
With 30 percent of their expected existing rates tax cost amounting to Rs 18 lakh income individuals can obtain Rs 70,000 worth of tax benefit.
The tax benefit for individuals with annual income of Rs 25 lakh amounts to Rs 1,10,000 according to the standard existing rates.
“The path toward Viksit Bharat requires three fundamental elements which are democracy together with demography and demand. In the context of ongoing growth India derives its power from its middle class population segment.
Throughout his term in power Prime Minister Narendra Modi and his government have consistently valued the beneficial value of middle-class citizens for constructing a stronger nation. The government repeatedly reduces taxes to honor the valuable contributions of taxpayers” according to Ms Sitharaman.
What Rs 12 Lakh Exemption Means And How Tax Is Calculated If You Earn More
A person receiving Rs 15 lakh annual salary benefits from the current tax exemption of up to Rs 12 lakh but their actual tax burden depends on the amount exceeding Rs 12 lakh. No. Only individuals who bring in up to Rs 12 lakh per year can utilize the exemption benefit. People who earn above Rs 12 lakh must proceed with the standard tax slabs system.
The income mentioned here consists of taxable amounts while taxpayers benefit from a new standard deduction provision that adds Rs 75,000. The practical implementation will boost the exemption threshold up to Rs 12,75,000.
The Proposed Tax Slabs
The government has created a new tax framework after dividing tax brackets into additional sections. The income tax will remain zero for amounts up to Rs 4 lakh under the first tax bracket. Earlier it was Rs 3 lakh. The proposed tax percentage increases from 5% for incomes between Rs 4 to 8 lakh to a percentage of 10% for Rs 8 to 12 lakh and continues until 25% for incomes exceeding Rs 20 to 24 lakh. It’s flat 30% above Rs 24 lakh.
How Is Income Tax Calculated?
A multi-step system exists for tax implementation by separating the complete income stream across various brackets for individual rate application. A person does not need to pay tax at a flat rate for their whole income.
The income tax system does not permit either tax-excluded amounts to become the basis for taxation or allow solely remuneration-based income following tax exemptions to trigger taxation requirements.
The yearly income of Rs 15 lakh reduced by standard deduction of Rs 75,000 does not imply complete exemption of Rs 12 lakh in taxable income.
Within the tax calculation system the first Rs 4 lakh of the Rs 15 lakh income remains untaxed. On taxable income between Rs 4-8 lakh the rate of taxation amounts to 5% which generates a tax payment of Rs 20,000.
The second Rs 4 lakh income within Rs 8-12 lakh slab will incur a 10% tax rate which produces a tax obligation of Rs 40,000. All tax liabilities from the remaining Rs 3 lakh will be computed through the Rs 12-16 lakh rate which determines a 15% charge equal to Rs 45,000.
A total of Rs 1,05,000 liability will arise from the taxation process when dealing with a Rs 15 lakh annual total income.
Understanding The Rebate
The tax benefit generates an income reduction benefit. Taxpayers who earn Rs 12 lakh as their annual salary experience tax rates based on the defined tax brackets. The actual tax amount becomes Rs 60,000 because the person receives no tax liability for 0-4 lakh brackets combined with tax liabilities of Rs 20,000 from 4-8 lakh brackets and Rs 40,000 from 8-12 lakh brackets.
The government grants a complete rebate of Rs 60,000 that makes the total Rs 12 lakh income tax-free for taxpayers.
Can It Offer More Advantages Than the Present System?
The proposed taxes would lead to a total benefit of Rs 80,000 for someone with a Rs 12 lakh total income because their current tax liability stands at Rs 80,000 under the existing structure. When taxpayers change their current slab system they become entitled to an extra tax relief benefit of Rs 20,000. One more example featured by the Finance Minister appeared among her Budget presentation details.
We will examine the case of earnings at Rs 15 lakh. According to the new rate structure tax liabilities amount to Rs 1.4 lakh but under existing slabs they would be Rs 1.05 lakh. A slab relief amounting to Rs 35,000 results from this adjustment. The tax system includes no other allowances beyond the main exemption.
Is It Better Than Old Regime?
Under the old system tax exemptions are permitted with a corresponding increase in taxation rates. The Budget failed to modify the existing taxation structure in the old regime therefore indicating that it will stay intact. Before the new system went into effect the government taxed all earnings above Rs 10 lakh at the rate of 30%.
People earning Rs 12 lakh would fall within the tax brackets to pay Rs 1,72,500 as per the slab system. A person with 15 lakh annual earnings must pay taxes amounting to Rs 2,62,500. Taxpayers determine the end figure through their exemption claims, who may take a call on opting for the new or old regimes based on an assessment of his financial profile.
Questions Answered
Will the Government Allow Tax-Free Income for Earnings Under Rs 12 Lakh?
The Budget official document outlines that government rebates can be taken by individuals whose annual earnings do not exceed Rs 12 lakh. The maximum amount that can deduct taxes for individuals with a fixed salary is Rs 12.75 lakh while taking into account Rs 75,000 as standard deduction.
The government budget displays its rebate system which begins with Rs 10,000 when income reaches Rs 8 Lakh then increases to Rs 80,000 for people earning Rs 12 Lakh.
People receiving 16 lakh annual salary will need to understand tax calculation methods.
An income of Rs 16 lakh per year will face no tax liability up to the first Rs 4 lakh tier. A 5 per cent tax amount of Rs 20,000 applies to income falling between Rs 4 lakh to Rs 8 lakh. In this income range spanning Rs 8 lakh to Rs 12 lakh the tax rate amounts to 10 percent which results in a tax invoice of Rs 40,000.
The tax rate stands at 15 percent for incomes between Rs 12 lakh and Rs 16 lakh regarding which the tax amount comes out to Rs 60,000. Your taxation amount comes to Rs 1,20,000 based on these parameters. Your tax payments now amount to Rs 1,20,000 while your current bill total is Rs 1,70,000.
If you earn Rs 50 lakh then your taxes will decrease by Rs 1,10,000.
Persons with high annual salaries will receive more than 1 Lakh Rupees of tax advantage through the new rate structures.
A person making Rs 50 lakh per year now faces Rs 10,80,000 income tax obligation under the new tax structure which is Rs 1,10,000 less than their current tax amount. Through these slabs the government hopes to improve both middle-class purchasing power to drive consumption as well as provide reduced tax burden for high-income people.
What About Old Tax Regime?
The additional income brackets in the Budget document pertain to individuals using the New Tax Regime which the government supports as its flexible structure eliminates exemptions for better tax simplification.
No reference to the existing taxation framework or “old tax regime” exists either in the Budget statement of Nirmala Sitharaman or the official document rendering the previous tax brackets unchanged.
The question arises should individuals make the switch from using old tax structure to adopting new tax structure?
Your choice to use the new taxation system should be determined by both your financial details and the amount of tax exemptions available under the existing framework.
With a Rs 16 lakh yearly income and a claimed Rs 4 lakh in exemptions you would pay tax on Rs 12 lakh. The tax burden for taxpayers with specified incomes amounts to Rs 1,72,500 when applying the old tax slab structure whereas opting for the new system reduces this amount to Rs 1,20,500.
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