In Budget 2025, Finance Minister Nirmala Sitharaman announced changes to the income tax system, which will directly benefit middle-class taxpayers. These changes are aimed at reducing the tax burden for individuals, especially for those earning up to ₹12 lakh annually. The government hopes that by keeping more money in people’s hands, household spending, savings, and investments will increase.
No Tax for Earnings Up to ₹12 Lakh
One of the key highlights of the new tax structure is that individuals earning up to ₹12 lakh will no longer have to pay any income tax. For salaried individuals, this limit will increase slightly to ₹12.75 lakh due to a standard deduction of ₹75,000. This means that if you earn ₹1 lakh per month (excluding income from special sources like capital gains), you won’t have to pay any tax.
What Does Normal Income Mean?
When we talk about income that is tax-free under the new regime, it refers to ‘normal income’. This includes earnings from salaries, pensions, or bank interest. It doesn’t include income from special sources such as capital gains. So, if your income is from a regular salary or pension, you will benefit from these new tax slabs.
How the Changes Benefit Different Income Levels
Let’s look at how these changes will benefit people at different income levels:
– A person earning ₹16 lakh will save ₹50,000 in tax, reducing their total tax from ₹1.7 lakh to ₹1.2 lakh.
– If you earn ₹20 lakh, your tax savings will be ₹90,000, cutting your tax from ₹2.9 lakh to ₹2 lakh.
– If your income is ₹24 lakh, you’ll save ₹1.1 lakh, reducing your total tax from ₹4.1 lakh to ₹3 lakh.
– Those earning ₹50 lakh will save ₹1.1 lakh, with their tax reduced from ₹11.9 lakh to ₹10.8 lakh.
Tax Savings for Middle-Income Groups
The proposed tax changes are specifically designed to help middle-income groups by offering tax relief at various income levels. By reducing tax burdens, the government hopes to give people more money to spend or invest, which will help the economy grow.
For Example, Tax on ₹20 Lakh Income Under the Revised Slabs will be:
So according to this if a person earns Rs. 20 lakhs, on the first 4 lakhs he doesn’t have to pay any tax, for the next 4 lakhs he would have to pay Rs. 20000 and for the last 3 segments that is 8-12 lakhs and 12-16 lakhs and 16-20 lakhs he has to pay tax at a 10%, 15% & 20% rate. Thereby the person’s total tax liability will be (Rs. 20,000 + Rs. 40,000 + Rs. 60,000 + Rs. 80,000) = Rs. 200,000
Note: Salaried taxpayers earning up to ₹12.75 lakh would not have to pay taxes due to ₹75,000 standard deduction in the new regime. Thus, once the tax is deducted from the salary they can claim for a tax refund by filing a tax report at the end of the year stating their salary is less than Rs. 12,00,000 p.a.
| Income Range (₹) | Proposed Tax Rate | Tax Amount (₹) |
| ₹0 – ₹4,00,000 | Nil | ₹0 |
| ₹4,00,001 – ₹8,00,000 | 5% | ₹20,000 |
| ₹8,00,001 – ₹12,00,000 | 10% | ₹40,000 |
| ₹12,00,001 – ₹16,00,000 | 15% | ₹60,000 |
| ₹16,00,001 – ₹20,00,000 | 20% | ₹80,000 |
| Total Tax | ₹2,00,000 |
Table showing Tax savings at different levels
| Income (₹) | Tax at present slab (₹) | Tax at proposed slab (₹) | Tax savings due to the proposed slab (₹) |
| 12 lakh | 80,000 | 60,000 | No Tax (because of Standard Deduction) |
| 16 lakh | 1,70,000 | 1,20,000 | 50,000 |
| 20 lakh | 2,90,000 | 2,00,000 | 90,000 |
| 24 lakh | 4,10,000 | 3,00,000 | 1,10,000 |
| 50 lakh | 11,90,000 | 10,80,000 | 1,10,000 |
This new tax structure ensures a more affordable tax burden annually, helping individuals keep more of their income.
Written By: Dipangshu Kundu
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