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If you earn up to Rs 12 lakh per year, you won't have to pay a single rupee in taxes!
And if your income is up to Rs 12.75 lakh, the standard deduction of Rs 75,000 will ensure that you remain tax-free.
But what does this mean for you? Ramalingam Kalirajan explains.
The Union Budget 2025 has introduced sweeping changes to the income tax structure, offering significant relief to middle-class taxpayers. With a higher exemption limit and a new tax slab, the government aims to boost disposable income and encourage spending.
Let's break it down.
No Tax Till Rs 12.75 Lakh: Is It A Game Changer?
One of the most striking announcements is the increase in the tax exemption limit.
If you earn up to Rs 12 lakh per year, you won't have to pay a single rupee in taxes! And if your income is up to Rs 12.75 lakh, the standard deduction of Rs 75,000 will ensure that you remain tax-free.
This is a major shift from the previous exemption of Rs 7 lakh. Clearly, the government is focused on easing the tax burden on the salaried class. But how does this affect those earning beyond this threshold?
Revised Tax Slabs: How Much Will You Pay?
The new tax regime now has revised slabs, making the structure more progressive. Here's a quick look at the updated rates:
|
Income Slab (Rs) |
Tax Rate |
|
0 to 400,000 |
Nil |
|
400,001 to 800,000 |
5% |
|
800,001 to 1,200,000 |
10% |
|
1,200,001 to 1,600,000 |
15% |
|
1,600,001 to 2,000,000 |
20% |
|
2,000,001 to 2,400,000 |
25% |
|
Above 2,400,000 |
30% |
This means that if you earn Rs 20 lakh annually, your tax liability will be calculated at different rates for different income brackets.
The highest tax rate of 30% will now apply only to those earning above Rs 24 lakh per year.
Section 87A Rebate: More Savings for the Middle Class
The government has also enhanced the rebate under Section 87A:
Previously, individuals earning up to Rs 7 lakh could claim a rebate of Rs 25,000.
Now, anyone earning up to Rs 12 lakh can claim a rebate of Rs 60,000, effectively bringing their tax liability to zero.
However, this rebate does not apply to capital gains, NRIs, HUFs, or companies -- it is strictly for resident individuals with normal income.
Why These Tax Cuts Matter
What's the real impact of these changes? Let's consider a few key benefits:
More Disposable Income: Lower taxes mean more money in hand for savings, investments, or simply enjoying life!
Boost to the Economy: When people spend more, businesses thrive, and the economy grows.
Encouragement for the New Tax Regime: With such benefits, more people might opt for the simpler New Tax Regime instead of the old system that allowed deductions.
But is this enough? Some may argue that the government could have increased deductions in the old tax regime instead of pushing for the new one. Would that have been a better approach?
What Should You Do Next?
If your annual income is up to Rs 12 lakh, you're lucky -- zero tax liability means more money for investments, retirement planning, or lifestyle upgrades.
If you earn above this threshold, recalculating your tax liability under the new slabs can help you make better financial decisions.
With these tax changes set to roll out from April 1, 2025, now is the best time to reassess your tax planning strategy.
Ramalingam K, an MBA in Finance, is a Certified Financial Planner. He is the Director and Chief Financial Planner at holisticinvestment, a leading financial planning and wealth management company.
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