Tax reforms were announced on January 1, 2025, by Finance Minister Nirmala Sitharaman, aimed at growth and relief for the middle class. Tax reforms included full tax rebates for people earning up to INR 12.75 lakh, essentially marking a great shift in India’s tax policy.
Main Changes to Income Tax
Tax-exempt individuals who earn INR 12.75 Lakh or less
Under the new tax structure, all individuals earning up to ₹12.75 lakh will be able to get rid of income taxes. This might mean more disposable income for the huge population and may directly impact spending on consumer goods and economic activity.
Slabs
Tax slabs would now categorize individuals:
- Income up to ₹4 lakh: Not taxed
- Income between ₹4 lakh and ₹8 lakh: 5% on income
- Income between ₹8 lakh and ₹12 lakh: 10%
- Income between ₹12 lakh and ₹16 lakh: 15%
- Income between ₹16 lakh and ₹20 lakh: 20%
- Income between ₹20 lakh and ₹24 lakh: 25%
- Income in excess of ₹24 lakh: 30%
With this, a simplified tax structure will be introduced along with granting progressive relief amongst various income groups.
Increase in Standard Deduction
The automatic deduction has been increased from ₹50,000 to ₹75,000, providing some relief to salaried workers and pensioners.
Potential for Earning
The modified taxation structure is expected to benefit millions of middle-class taxpayers, especially urban residents with great living costs. With the increase of exemption and change in rates, it allows for increased disposable income, which is believed to incite higher consumption and savings.
Economic Measures
Implementation of personal tax cuts on a large scale is expected to give direct stimuli to domestic demand. This is crucial as the world experiences economic uncertainty. The reforms would enhance household consumption, driving growth in real sectors, namely consumer products, automobiles, and housing.
Additional Budget Highlights
Financing Agriculture and Rural Development: The budget is aimed at stimulating agricultural productivity and raising rural incomes by encouraging the provision of high-yield crops and offering subsidized farmer credit.
Infrastructure Investing: A moderate increase in spending is planned to develop infrastructure projects, which is supposed to give impulses for the creation of jobs and stimulate economic activity.
Support for Gig Economy Workers: Initiatives marking the formalization of gig economy workers are being introduced, and in this way, help the beneficiaries to access different benefits such as health care and welfare programs.
The Union Budget 2025 reiterates the commitment of the government in favor of the middle class and triggering economic growth through rich tax reforms and investment partnerships. The Union Budget aims to ameliorate the decent standardized living of such middle-class folks in the union through tax reduction measures that floor economic stimulus.
