The Finance Minister has offered huge relief to taxpayers in the Union Budget 2025. This is something many middle-class taxpayers had been craving for.
Let’s check out the major highlights of Union Budget 2025, including the relief to middle class income taxpayers.
Pay No Taxes for Income up to Rs 12 Lacs
Yes, you heard that right, but this relief is applicable only to taxpayers opting for new tax regime.
- This relief is applicable only if you file returns under the New Tax regime. No relief available to those who file ITR under the old tax regime. This is along expected lines. All the future relief will likely come to the New Tax regime and the taxpayers will gradually move out from the Old regime to the New tax regime.
- The income tax slabs and applicable tax rates have been modified for the New Tax regime. No change in tax slabs and tax rate for the old tax regime.
- No income tax if you earn up to Rs 12 lacs subject to conditions. The limit goes upto Rs 12.75 lacs for salaried taxpayers because of standard deduction of Rs 75,000 under the New Tax regime.
| Existing Slab under the New Tax Regime | Proposed Tax Slabs under the New Tax Regime | |||
| Up to Rs 3 lacs | NIL | Up to Rs 4 lacs | NIL | |
| Between 3 lacs and 7 lacs | 5% | Between 4 lacs and 8 lacs | 5% | |
| Between 7 lacs and 10 lacs | 10% | Between 8 lacs and 12 lacs | 10% | |
| Between 10 lacs and 12 lacs | 15% | Between 12 lacs and 16 lacs | 15% | |
| Between 12 lacs and 15 lacs | 20% | Between 16 lacs and 20 lacs | 20% | |
| Above Rs 15 lacs | 30% | Between 20 lacs and 24 lacs | 25% | |
| Above Rs 24 lacs | 30% | |||
| *Budget 2025 proposes to enhance tax rebate under Section 87A from Rs 7 lacs to Rs 12 lacs | ||||
- As you can see, the income above Rs 4 lacs is subject to taxes. Then, how can we say that the income up to Rs 12 lacs is exempt from taxes? That is done through tax rebates. For income up to Rs 12 lacs, there shall be a tax rebate (up to total income tax payable) under Section 87A. This rebate brings down the total tax for income up to Rs 12 lacs (12.75 lacs for salaried taxpayers) to zero.
- Note that this relief is only applicable for your regular income. Taxes on capital gains remain unchanged. For instance, if you earn Rs 8 lacs from salary and Rs 4 lacs through LTCG from sale of stocks/equity mutual funds, you will NOT have to pay any tax on Rs 8 lacs, but you will pay capital gains taxes on Rs 4 lacs of capital gains. 12.5% LTCG tax on Rs 2.75 lacs (Rs 4 lacs gains – Rs 1.25 lacs exemption).
- What if my income is just a little above Rs 12 lacs? Marginal relief is available for resident taxpayers if your income is just a little over Rs 12 lacs. With the concept of marginal relief, your tax liability cannot be more than the amount of breach. For instance, if your income is Rs 12 lacs, then your tax liability is zero because of tax rebate. However, if your income is Rs 12.1 lacs, there is tax rebate available under Section 87A and your tax liability comes to ~61,500. Effectively, you are worse off by earning Rs 10K more. This is not fair and that’s where marginal relief kicks in. You will only have to pay Rs 10K in taxes (that’s your excess over Rs 12 lacs) and not Rs 61,500.
| Income After Std. Deduction | Existing | After Union Budget 2025 | Difference (Savings) | ||||
| Income | Tax Rebate | Net Tax Liability | Income | Tax Rebate | Net Tax Liability | ||
| 400,000 | 5,000 | 5,000 | – | – | – | – | – |
| 600,000 | 15,000 | 15,000 | – | 10,000 | 10,000 | – | – |
| 800,000 | 30,000 | – | 30,000 | 20,000 | 20,000 | – | 30,000 |
| 1,000,000 | 50,000 | – | 50,000 | 40,000 | 40,000 | – | 50,000 |
| 1,200,000 | 80,000 | – | 80,000 | 60,000 | 60,000 | – | 80,000 |
| 1,400,000 | 120,000 | – | 120,000 | 90,000 | – | 90,000 | 30,000 |
| 1,600,000 | 170,000 | – | 170,000 | 120,000 | – | 120,000 | 50,000 |
| 1,800,000 | 230,000 | – | 230,000 | 160,000 | – | 160,000 | 70,000 |
| 2,000,000 | 290,000 | – | 290,000 | 200,000 | – | 200,000 | 90,000 |
| 2,400,000 | 410,000 | – | 410,000 | 300,000 | – | 300,000 | 110,000 |
| 5,000,000 | 1,190,000 | – | 1,190,000 | 1,080,000 | – | 1,080,000 | 110,000 |
Other Important Changes
- Threshold for TDS deduction on interest payment by banks for senior citizens enhanced from Rs 50,000 to Rs 1 lac per annum.
- Contributions to NPS Vatsalya (NPS account for minors) will also now be eligible for tax benefits under Section 80 CCD (1B), just like the regular NPS scheme. Section 80CCD(1B) allows exclusive tax benefit of Rs 50,000 for investment in NPS. However, please understand the tax benefit for their own contribution to NPS or NPS Vatsalya account is applicable only to those filing ITR under the OLD tax regime. If you file your returns under the New Tax regime (or intend to shift to the New Tax regime due to the concessions in this Budget), this announcement does not affect you.
- Annual income from up to 2 self-occupied properties shall be deemed as zero. This relief was available earlier too, but only on the fulfilment of certain conditions.
- Threshold limit for TCS (tax collection at source) for remittances under Liberalized Remittance Scheme (LRS) increased from Rs 7 lacs to Rs 10 lacs.
- No TCS if the remittance under LRS is for education purposes. However, such remittance must be out of loan taken from a specified financial institution. This is very useful. You don’t have to borrow extra just to account for TCS.
- Earlier, the TDS deduction threshold on payment of rent by a company to a taxpayer was Rs 2.4 lacs per annum (or 20K per month). This means you had to deduct TDS at 10% if the rental payment breached Rs 20K per month. Now, the threshold limit has been enhanced to Rs 6 lacs per annum (or Rs 50,000 per month).
Source/Additional Links
- FAQs on Income Tax website
- Budget Speech by the Finance Minister
- Budget Memorandum
- Finance Bill 2025