BUDGET
Tax bonanza for middle class, no tax on income up to INR 1.2 mln
This story was originally published at 14:53 IST on 1 February 2025
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--To focus on personal income tax reforms
--To undertake personal income tax reforms to aid middle class
--Moot 30% tax on income above INR 2.4 mln under new regime
--Moot 25% tax on INR 2.0 mln-INR 2.4 mln income under new regime
--Moot 20% tax on INR 1.6 mln-INR 2.0 mln income under new regime
--Taxpayers with income of INR 2.5 mln get benefit of INR 110,000
--Those with INR 1.8 mln income to get tax benefit of INR 70,000
--Propose 20% tax on income of INR 1.6 mln-INR 2 mln
--5% tax on income of INR 400,000 to 800,000
--Moot 15% tax on INR 1.2 mln-INR 1.6 mln income under new regime
--Moot 5% tax on INR 400,000-INR 800,000 income under new regime
--Moot 10% tax on INR 0.8 mln-INR 1.2 mln income under new regime
--House applauds new income tax rule
--No tax on income up to INR 1.2 mln
NEW DELHI – There will be no tax on income of up to INR 1.2 million, Finance Minister Nirmala Sitharaman said while presenting the Budget for 2025-26 (Apr-Mar) on Saturday. The move is aimed at reducing the tax burden on individuals under the new tax regime and giving a fillip to falling consumption demand in the economy. The standard deduction under the new tax regime was retained at INR 75,000, translating to exemption from income tax for individuals with annual income of INR 1.275 million.
"The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment," Finance Minister Nirmala Sitharaman said in her eighth Budget speech. The revised tax structure will lead to the government foregoing revenue to the tune of INR 1 trillion per year.
Sitharaman's move comes against the backdrop of experts batting for the need to increase disposable income in the hands of taxpayers to boost consumption in the economy and support GDP growth, which is seen slowing to a four-year low of 6.4% in FY25.
Even as the increase in consumption demand is seen at 7.3% in FY25 according to the first advance estimate by the statistics ministry, experts remain unimpressed as urban consumption remains weak, which is also reflected in corporate earnings over the last two quarters at least. Multiple fast moving consumer goods companies have said that slowing urban demand has hit their sales and profits.
The benefit of the tax exemption for income up to INR 1.2 million will be given through a tax rebate, Sitharaman explained. "A taxpayer in the new regime with an income of INR 1.2 million will get a benefit of INR 80,000 in tax, which is 100% of tax payable as per existing rates. A person having income of INR 1.8 million will get a benefit of INR 70,000 in tax, which is 30% of tax payable as per existing rates," she said.
At the beginning of her speech, Sitharaman said "uplifting household sentiments, and enhancing the spending power of India's rising middle class" were two efforts of the Budget for FY26. "The middle class provides strength for India's growth," she said.
Details of the new tax rates under the new tax regime are as follows:
Income Tax rate
| 0-400,000 | Nil |
| 400,000-800,000 | 5% |
| 800,000-1.2 million | 10% |
| 1.2-1.6 million | 15% |
| 1.6-2.0 million | 20% |
| 2.0-2.4 million | 25% |
| Above 2.4 million | 30% |
Existing tax rates under the new tax regime are as follows:
Income Tax rate
0-300,000 | Nil |
300,000-700,000 | 5% |
700,000-1 mln | 10% |
1-1.2 mln | 15% |
1.2-1.5 mln | 20% |
1.5-5 mln | 30% |
5-10 mln | 30% |
10-20 mln | 30% |
Above 20 mln | 30% |
End
Reported by Priyasmita Dutta
Edited by Avishek Dutta
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