In the highly awaited Union Budget 2025, Finance Minister Nirmala Sitharaman unveiled substantial reforms to the income tax system, designed to enhance disposable income for the middle class and promote greater compliance.
The government has introduced a revised tax framework aimed at providing both simplification and relief to taxpayers. A significant alteration is the enhancement of the basic exemption limit. Under the new tax regime, the income threshold has been elevated, with the exemption limit for individuals now set at ₹3 lakh, up from ₹2.5 lakh in the prior year. This adjustment is expected to benefit millions of taxpayers, especially those within the middle-income bracket, by alleviating their overall tax obligations.
The Budget also presents a decrease in tax rates within the new framework, designed to encourage a greater number of individuals to embrace the simplified tax system. According to the updated tax brackets, individuals with an income ranging from ₹5 lakh to ₹10 lakh will incur a tax rate of 10%, whereas those with earnings between ₹10 lakh and ₹20 lakh will benefit from a reduced rate of 15%. Additionally, the highest tax rate for incomes exceeding ₹20 lakh has been adjusted to 30%, offering some relief to higher-income earners.
The Budget has suggested raising the standard deduction for salaried individuals to ₹75,000, an increase from the previous year’s ₹50,000. This adjustment is anticipated to enhance disposable income, facilitating greater savings for middle-class taxpayers and consequently encouraging consumer spending.
Furthermore, the government has underscored the significance of adhering to tax regulations. The Budget has proposed more stringent actions to combat tax evasion, which include increased monitoring and the use of artificial intelligence to detect tax fraud. Additionally, there is an initiative to promote digital filing, electronic verification, and the streamlining of tax return procedures, all designed to enhance transparency within the tax system.
The Finance Minister emphasized the importance of enhancing equity within the system, particularly for individuals at the lower end of the income scale. To assist low-income taxpayers, a new initiative has been launched that provides direct tax rebates, allowing them to reap the benefits of tax reductions without the complications associated with filing tax returns.
The income tax reforms outlined in Budget 2025 demonstrate the government’s approach to enhancing disposable income, fostering compliance, and promoting economic growth.