In the Union Budget 2025, Finance Minister Nirmala Sitharaman introduced significant reforms to India’s personal income tax structure, primarily benefiting the middle class. The key change is the increase in the tax exemption threshold from ₹7 lakh to ₹12 lakh, meaning individuals with an annual income up to ₹12 lakh (after all deduction) are now exempt from paying income tax. For salaried taxpayers, this threshold effectively rises to ₹12.75 lakh when accounting for the standard deduction of ₹75,000.
Union Budget 2025
♦ In the Union Budget 2025, Finance Minister Nirmala Sitharaman introduced significant reforms to India’s personal income tax structure, primarily benefiting the middle class. The key change is the increase in the tax exemption threshold from ₹7 lakh to ₹12 lakh, meaning individuals with an annual income up to ₹12 lakh (after all deduction) are now exempt from paying income tax. For salaried taxpayers, this threshold effectively rises to ₹12.75 lakh when accounting for the standard deduction of ₹75,000.
The revised income tax slabs under the New Tax Regime are as follows:
| Annual Income (₹) | Tax Rate (%) |
| 0 – 4,00,000 | Nil |
| 4,00,001 – 8,00,000 | 5 |
| 8,00,001 – 12,00,000 | 10 |
| 12,00,001 – 16,00,000 | 15 |
| 16,00,001 – 20,00,000 | 20 |
| 20,00,001 – 24,00,000 | 25 |
| Above 24,00,000 | 30 |
illustration: 1
Compute Tax for ₹12 Lakh Income
Using the above slabs, let’s calculate:
- Income up to ₹4,00,000 → No tax (0%)
- ₹4,00,001 to ₹8,00,000 → 5% of ₹4,00,000 = ₹20,000
- ₹8,00,001 to ₹12,00,000 → 10% of ₹4,00,000 = ₹40,000 Total tax before rebate = ₹60,000
Apply Section 87A Rebate
As per the new tax system, if your taxable income is ₹12 lakh or less, you are eligible for
₹60,000 rebate under Section 87A.
Thus, from ₹60,000 tax, ₹60,000 gets deducted:
₹60,000 – ₹60,000 = ₹ 0 payable.
illustration: 2
Compute Tax for ₹13 Lakh Income
Using the above slabs, let’s calculate:
- Income up to ₹4,00,000 → No tax (0%)
- ₹4,00,001 to ₹8,00,000 → 5% of ₹4,00,000 = ₹20,000
- ₹8,00,001 to ₹13,00,000 → 10% of ₹4,00,000 = ₹50,000
Total tax before rebate = ₹70,000
Section 87A Rebate: No Available
Since taxable income exceeds ₹12 lakh, no rebate applies.
Thus, from ₹70,000 tax, ₹0 gets deducted:
₹70,000 – 0 = ₹ 70,000 payable. (Plus Cess)
Tax Benefit for Different Categories of Taxpayers (Income up to 24 Lakh)
A comparative analysis of the tax liability under the existing and proposed tax slabs shows significant benefits:
| Total Income | Tax as per existing rates[as per Finance (No.2) Act, 2024] | Tax as per proposed rates | Benefit of Rate/ Slab | Rebate Benefit [with reference to (3)] | Total Benefit [computed when compared to current slab rates] | Tax Payable under new regime |
| (1) | (2) | (3) | (4)=(3)-(2) | (5) | (6)=(4)+(5) | (7) |
| 8 lac | 30,000 | 20,000 | 10,000 | 20,000 | 30,000 | 0 |
| 9 lac | 40,000 | 30,000 | 10,000 | 30,000 | 40,000 | 0 |
| 10 lac | 50,000 | 40,000 | 10,000 | 40,000 | 50,000 | 0 |
| 11 lac | 65,000 | 50,000 | 15,000 | 50,000 | 65,000 | 0 |
| 12 lac | 80,000 | 60,000 | 20,000 | 60,000 | 80,000 | 0 |
| 13 lac | 1,00,000 | 75,000 | 25,000 | 0 | 25,000 | 75,000 |
| 14 lac | 1,20,000 | 90,000 | 30,000 | 0 | 30,000 | 90,000 |
| 15 lac | 1,40,000 | 1,05,000 | 35,000 | 0 | 35,000 | 1,05,000 |
| 16 lac | 1,70,000 | 1,20,000 | 50,000 | 0 | 50,000 | 1,20,000 |
| 17 lac | 2,00,000 | 1,40,000 | 60,000 | 0 | 60,000 | 1,40,000 |
| 18 lac | 2,30,000 | 1,60,000 | 70,000 | 0 | 70,000 | 1,60,000 |
| 19 lac | 2,60,000 | 1,80,000 | 80,000 | 0 | 80,000 | 1,80,000 |
| 20 lac | 2,90,000 | 2,00,000 | 90,000 | 0 | 90,000 | 2,00,000 |
| 21 lac | 3,20,000 | 2,25,000 | 95,000 | 0 | 95,000 | 2,25,000 |
| 22 lac | 3,50,000 | 2,50,000 | 1,00,000 | 0 | 1,00,000 | 2,50,000 |
| 23 lac | 3,80,000 | 2,75,000 | 1,05,000 | 0 | 1,05,000 | 2,75,000 |
| 24 lac | 4,10,000 | 3,00,000 | 1,10,000 | 0 | 1,10,000 | 3,00,000 |
| 25 lac | 4,40,000 | 3,30,000 | 1,10,000 | 0 | 1,10,000 | 3,30,000 |
| 50 lac | 11,90,000 | 10,80,000 | 1,10,000 | 0 | 1,10,000 | 10,80,000 |
* For income above 12 lac, in the case of resident individuals, marginal relief shall be allowable.
+ Let’s understand Marginal relief
In the new regime under secLion 115BAC(1A), marginal relief is available to only resident individuals who have income marginally above Rs. 12 lacs.
For example, for a person having income of Rs. 12, 10,000/-, in the absence of marginal relief, the tax, works out to be Rs.61,500/-(5% of Rs.4 lacs+10% of 4 lac and 15% of Rs.10 thousand).
However, due to marginal relief, the amount of tax to be actually paid is Rs. 10,000/-.
♦ No rebate is not available on income from capital gains or loLi eries or any other income on which special rate has been provided in the Act. It is available only on the tax payable as per slabs under secLion 115BAC.
♦ The changes proposed in Finance Bill, 2025 with regard to threshold of TDS and TCS
| S. No. | Section of the Act | Present TDS/TCS threshold (in Rs.) | Proposed TDS/TCS threshold (in Rs.) |
| 1. | 193 – Interest on securities | Nil | 10,000/- |
| 2. | 194A – Interest other than Interest on securities | (i) 50,000/- for senior citizen;(ii) 40,000/- in case of others when payer is bank, cooperative society and post office(iii) 5,000/- in other cases |
(i) 1,00,000/- for senior citizen(ii) 50,000/- in case of others when payer is bank, co-operative society and post office(iii) 10,000/- in other cases |
| 3. | 194 – Dividend, for an individual shareholder | 5,000/- | 10,000/- |
| 4. | 194K – Income in respect of units of a mutual fund or specified company or undertaking |
5,000/- | 10,000/- |
| 5. | 194B – Winnings from lottery, rossword puzzle etc. | Aggregate of amounts exceeding 10,000/- during the financial year |
10,000/- in respect of a single transaction |
| 6. | 194BB – Winnings from horse race | ||
| 7. | 194D – Insurance commission | 15,000/- | 20,000/- |
| 8. | 194G – Income by way of commission, prize etc. on lottery tickets |
15,000/- | 20,000/- |
| 9. | 194H – Commission or brokerage | 15,000/- | 20,000/- |
| 10 | 194-I Rent | 2,40,000/- during the financial year |
50,000/- per month or part of a month |
| 11 | 194J – Fee for professional or technical services | 30,000/- | 50,000/- |
| 12 | 194LA – Income by way of enhanced compensation | 2,50,000/- | 5,00,000/- |
| 13 | 206C(1G)-Remittance under LRS and overseas tour program package |
7,00,000/- | 10,00,000/- |
♦ Reduction in compliance burden by omission of TCS on sale of specified goods
Section-206C(1H): Every seller who receives any amount as consideration for sale of any goods (other than goods exported outside India, or goods covered in subsection (1) or (1F) or (1G) of section 206C) of the value or aggregate of such value exceeding fifty lakh rupees in any previous year shall collect TCS at the rate of 0.1%.
It is therefore proposed that provisions of TCS on sale of goods will not be applicable from 01.04.2025 onwards.
Conclusion
The Union Budget 2025 brings substantial tax relief to individuals earning up to ₹12 lakh, making them effectively tax-free. The revised tax slabs, enhanced Section 87A rebate, and marginal relief provisions significantly benefit the middle class while simplifying compliance for taxpayers and businesses.
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