Budget 2025 | Relief for middle class: No tax on income up to ₹12 lakh in new tax regime

Finance Minister Nirmala Sitharaman gave taxpayers a big relief in Union Budget 2025-26 by making income up to ₹12 lakh tax-free from ₹7 lakh earlier.

Factoring in the standard deduction of ₹75,000 for the salaried class, an income up to ₹12.75 lakh will be tax-free. This income, however, excludes capital gains, which are taxed at separate short-term and long-term tax rates.

"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," Sitharaman in her Budget speech.

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"To tax payers upto ₹12 lakh of normal income (other than special rate income such as capital gains) tax rebate is being provided in addition to the benefit due to slab rate reduction in such a manner that there is no tax payable by them," she said.

New income tax slabs in the new tax regime

As a result of these proposals, the government will forgo revenue of about ₹1 trillion in direct taxes and ₹2,600 crore in indirect taxes, the minister said.

The FM has not announced any change in the old tax regime. 

Also Read: Budget 2025 | Finance minister Nirmala Sitharaman pledges reform blueprint to propel India towards developed economy

“Under the proposed 2025 tax regime, a person earning ₹25 lakh annually will pay ₹3.43 lakh in total tax, compared to ₹4.57 lakh under the 2024 regime. This translates to 5% more money in hand and a monthly saving of around ₹9,500 — a substantial relief for taxpayers,” said Adhil Shetty, CEO, Bankbazaar.com.

"This rationalisation of income tax has been long-awaited and will go a long way in reaffirming the confidence of the people in the economy. More cash in hand will also mean increased spending, which will drive higher consumption and, in turn, will fuel economic growth," Shetty added.

Also Read: Budget 2025: Govt on course for lower fiscal deficit in FY25 and FY26, says finance minister Nirmala Sitharaman