Key Highlights:
- Higher Tax Rebate: No tax on income up to ₹12 lakh (₹12.75 lakh for salaried).
- Basic Exemption Limit Increased: Raised from ₹3 lakh to ₹4 lakh.
- Higher Savings: Those earning ₹12 lakh save ₹80,000, while ₹25 lakh earners save ₹1.1 lakh.
- New Tax Slabs 2025: Revised rates under the new tax regime reduce tax liability.
On February 1, 2025, Finance Minister Nirmala Sitharaman presented her eighth consecutive Union Budget, bringing significant income tax relief for the middle class. The new tax regime 2025 introduces a higher tax exemption limit, expanded income tax slabs, and other measures that will impact salaried employees, investors, and senior citizens.
Major Income Tax Reforms in Budget 2025
- Increased Tax Exemption Limit: The basic exemption limit has been raised from ₹3 lakh to ₹4 lakh, reducing the tax burden for many individuals.
- Revised Income Tax Slabs 2025: Individuals earning up to ₹12 lakh (or ₹12.75 lakh for salaried taxpayers with the standard deduction) will now pay zero tax. This change is expected to leave more disposable income in taxpayers’ hands.
- Higher Tax Rebate: The tax rebate limit under the new tax regime has been raised from ₹7 lakh to ₹12 lakh, benefiting those with monthly incomes up to ₹1 lakh.
The finance ministry estimates that these income tax benefits will result in a revenue forgone of ₹1 lakh crore, directly boosting the purchasing power of the middle-class taxpayer.
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How Much Tax Can You Save?
- If you earn ₹12 lakh, you will save ₹80,000—100% of the tax you were previously paying.
- If you earn ₹18 lakh, you get a ₹70,000 tax reduction (30% of the earlier tax amount).
- If you earn ₹25 lakh, you will benefit from a ₹1.1 lakh tax saving (25% of your earlier tax outgo).
Simplification of Tax Rules: New Income Tax Bill 2025
The government has announced plans to introduce a new Income Tax Bill in Parliament next week. The aim is to simplify tax rules, reduce disputes, and make the tax filing process easier for both taxpayers and administrators.
Impact on Investors and Mutual Funds
With higher disposable income, individuals are likely to increase investments in mutual funds and other asset classes. However, the government did not restore indexation benefits for long-term debt mutual funds, which was a major expectation from mutual fund investors.
The market was also expecting capital gains tax reforms, including a 12.5% tax rate on long-term capital gains for debt mutual fund units. However, these demands were not addressed in Budget 2025.The Union Budget 2025 brings major income tax benefits for the middle class, with higher tax exemption limits, expanded income tax slabs, and relief for senior citizens and students. While investors were disappointed by the lack of capital gains tax reforms, th
