Reforms which would have more money in the middle-class pockets, Union Finance Minister Nirmala Sitharaman had plans to bring significant revisions in the new regime of income tax slabs, announced during her Budget 2025 speech. All these changes are aimed at reducing the tax burden on individual people, along with this household consumption, savings, and investment will also increase. The Budget 2025 is now a big win for taxpayers as no income tax will be imposed on earnings up to ₹12 lakh.
This update means that under the new structure, people earning up to ₹12 lakh a year (₹12.75 lakh with standard deductions) will not pay any income tax. The new slabs bring in a progressive tax system:
Income Tax slabs for taxpayers according to Budget 2025
- Up to ₹4 lakh: Nil
- ₹4-8 lakh: 5%
- ₹8-12 lakh: 10%
- ₹12-16 lakh: 15%
- ₹16-20 lakh: 20%
- ₹20-24 lakh: 25%
- Above ₹24 lakh: 30%
Sitharaman said that these changes would “substantially reduce the tax burden on the middle class,” leaving them with more disposable income.
Simplifying Tax Compliance: A New Direct Tax Code
In addition to the new slabs, the Finance Minister announced the introduction of a new Direct Tax Code next week. The code is expected to simplify tax compliance for individuals. The new code will replace the Income Tax Act of 1961, which currently spans 23 chapters and 298 sections.
The major changes under the new code include:
- Scrap FY and AY: It will eradicate confusion created by dual-year systems.
- Taxing the Income from Insurance: All life insurance corporation (LIC) policy incomes may face a tax of 5%.
- Standard Dividend Tax: Instead of a slab rate, a standardized tax at 15% for dividend income may be adopted.
Notably, the new code will not offer taxpayers the option to choose between the old and new regimes, marking a significant shift in India’s tax framework.
Other Key Announcements
The Budget also included several other taxpayer-friendly measures:
- TDS Rationalization: Tax Deduction at Source (TDS) rates will be simplified to ease compliance.
- Higher Deduction for Senior Citizens: The tax deduction limit for senior citizens has been doubled to ₹1 lakh.
- Extended Return Filing Deadline: The deadline for filing updated returns has been extended to four years, giving taxpayers more flexibility.
Why Budget 2025 is a Boost for the Middle-Class Taxpayers
The new slabs for taxes and the new Direct Tax Code are expected to be highly relief-giving for the middle class and may encourage higher spending and savings, while simplifying the tax structure, thereby making compliance much easier and more transparent and encouraging trust in the system to greater extents.
By these measures, the government tries to fast-track post-pandemic economic recovery, and such measures would likely play a significant role in uplifting growth and improving the financial well-being of millions.
Also, see: Finance Minister Nirmala Sitharaman announces multiple big projects for Bihar in Budget speech