• Presenting the Union Budget 2025-26 in the Parliament, Union Finance Minister Nirmala Sitharaman proposed an across-the-board change in tax slabs and rates to benefit all tax-payers.
• The changes offer significant relief to the middle class, particularly those earning up to Rs 12 lakh annually.
Key Changes in the New Tax Regime (2025-26):
1) Tax Slabs Revised:
The new tax regime introduces fresh tax slabs with the aim to reduce the tax burden for middle-class earners.
• No tax on incomes up to Rs 4 lakh.
• 5 per cent tax for income between Rs 4 lakh and Rs 8 lakh.
• 10 per cent tax for income between Rs 8 lakh and Rs 12 lakh.
• For higher incomes, the tax rate increases progressively from 15 per cent (Rs 12-16 lakh) to 30 per cent (above Rs 24 lakh).
2) Tax Rebate under Section 87A:
• A significant increase in the tax rebate means that individuals with a net taxable income up to Rs 12 lakh (after exemptions like standard deductions) will not pay any income tax.
• For someone earning exactly Rs 12 lakh, while taxes apply based on the slabs, the rebate will reduce the final tax liability.
3) Standard Deduction:
• The exemption limit is effectively increased to Rs 12.75 lakh for salaried individuals, accounting for the standard deduction. These further benefit those with regular income.
Old vs New Regime:
Old Regime: The basic exemption limit was Rs 2.5 lakh, with various deductions available (e.g., Section 80C, housing loan interest, etc.). Tax rates were as follows:
• 5 per cent for income between Rs 2.5 lakh and Rs 5 lakh.
• 20 per cent for income between Rs 5 lakh and Rs 10 lakh.
• 30 per cent for income above Rs 10 lakh.
However, this regime offered the option of various deductions, which could lower the taxable income.
New Regime
In contrast, the new regime simplifies the tax structure but does not allow for the same deductions. The focus here is on providing tax relief, especially for those earning up to Rs 12 lakh.
Tax Savings:
• Income of Rs 12 lakh: A saving of Rs 80,000 under the new tax regime compared to the previous system.
• Income of Rs 18 lakh: A saving of Rs 70,000.
• Income of Rs 25 lakh: A saving of Rs 1,10,000.
Important Considerations:
• Capital Gains Tax: Income from capital gains is still taxed separately under different rules and is not eligible for the rebate.
• Effectivity: The new tax regime will be applicable starting from the financial year 2025-26, which begins on April 1, 2025, subject to Parliament’s approval.
• This new tax regime appears to favour individuals with incomes below Rs 12 lakh, simplifying the process and reducing their tax liabilities. However, those who previously benefited from various deductions under the old regime might find the new system less advantageous.
Other Important Announcements in Budget
Focus on Key Sectors for Growth:
1) Agriculture:
• Launch of Prime Minister Dhan-Dhaanya Krishi Yojana covering 100 districts to improve agricultural productivity.
• A ‘Mission for Aatmanirbharta in Pulses’ to focus on pulses like Tur, Urad, and Masoor.
• Increased Kisan Credit Card loan limits from Rs 3 lakh to Rs 5 lakh.
2) MSMEs:
• Enhanced credit availability and support for women, SC, and ST entrepreneurs.
• National Manufacturing Mission to strengthen ‘Make in India’ initiatives.
3) Investment:
• Investment in people and infrastructure, including 50,000 Atal Tinkering Labs and improved broadband connectivity for rural areas.
• Government’s commitment to a Rs 1.5 lakh crore infrastructure fund and initiatives for MSME export promotion.
4) Exports:
• Government support for developing domestic manufacturing capacities for global supply chains.
• Initiatives to help MSMEs tap into export markets with digital platforms and improved infrastructure for logistics.
5) Infrastructure and Innovation:
• A Rs 20,000 crore initiative for private sector-driven R&D and innovation.
• New plans to promote regional connectivity, including an enhanced UDAN scheme for regional flights.
• National Geospatial Mission to improve urban planning with better data collection.
6) Fiscal and Regulatory Reforms:
• The fiscal deficit for FY-25 is expected to be 4.8 per cent, with a target of reducing it to 4.4 per cent in FY-26.
• Major decriminalisation of certain tax offences, like delays in TCS payments, and the introduction of the Jan Vishwas Bill 2.0 for decriminalising over 100 provisions in various laws.
7) Customs Duty and Domestic Manufacturing:
• Customs duties on essential items like lifesaving drugs have been reduced or exempted to promote public health.
• Exemptions for key materials to support the domestic manufacturing of lithium-ion batteries and shipbuilding.
8) Social Welfare Initiatives:
• Provisions for gig workers’ identity cards, healthcare access under PM Jan Arogya Yojana, and a Rs 1 lakh crore Urban Challenge Fund for city development.
Overall, the Union Budget for 2025-26 emphasizes comprehensive reforms to support the middle class, improve the agricultural sector, boost MSMEs, and invest in infrastructure and innovation to drive India’s growth. The aim is to increase savings, consumption, and investment while ensuring long-term economic development and inclusivity.
(The author is a trainer for Civil Services aspirants.)