Introduction
Union Budget for the fiscal year 2025-26.In her Budget for fiscal 2025-26 which Finance Minister Nirmala Sitharaman unveiled on February 1, 2025, there are important structural change to income tax. It is supposed to ease the burden of tax middle class, promote growth, and boost disposable income.
Key Highlights of the 2025 Income Tax Reforms
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Zero Tax Liability for Incomes Up to ₹12 Lakh
Under the new tax regime, individuals with an annual income up to ₹12 lakh will be exempt from income tax. This change is expected to benefit a substantial segment of taxpayers, effectively increasing their disposable income.
2. Revised Tax Slabs and Rates
The tax slabs have been restructured to provide relief across various income brackets. The updated tax rates are as follows:
| Income Range (₹) | Tax Rate |
| Up to ₹4 lakh | Nil |
| ₹4 lakh to ₹8 lakh | 5% |
| ₹8 lakh to ₹12 lakh | 10% |
| ₹12 lakh to ₹16 lakh | 15% |
| ₹16 lakh to ₹20 lakh | 20% |
| ₹20 lakh to ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
These adjustments aim to reduce the tax burden on middle-income earners and promote higher savings and consumption.
3. Standard Deduction Increase
The standard deduction for salaried individuals has been increased from ₹50,000 to ₹75,000. This enhancement further reduces taxable income, providing additional relief to taxpayers.
4. Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) Revisions
The limit for TDS on interest for senior citizens has been doubled from ₹50,000 to ₹1 lakh. Additionally, the annual limit for TDS on rent has been increased from ₹2.40 lakh to ₹6 lakh, aiming to ease the compliance burden on landlords and tenants.
5. Extension of Time-Limit to File Updated Returns
The deadline to file updated income tax returns has been extended from two to four years. This extension provides taxpayers with more time to rectify errors or omissions in their returns, promoting greater compliance.
Implications for Taxpayers
These are aimed at increasing the middle class’s purchasing power, ensuring growth in the economy, and enhancing savings and investments. Reducing the burden of taxation should increase consumer demand, which is one of the prime drivers of India’s GDP.
Conclusion
The 2025 income tax reforms represent a substantial shift towards a more taxpayer-friendly system. By increasing the tax-free income threshold, revising tax slabs, and enhancing deductions, the government has taken significant steps to support the middle class and foster economic growth. Taxpayers are encouraged to review these changes and consult with tax professionals to optimize their tax planning strategies.
