Union Budget 2025-26 announces major tax reliefs for middle class, boosting domestic consumption
Mumbai: At a time when the economy is slowing, the Union Budget 2025-26 on Saturday announced major tax reliefs for the middle class to bolster their spending power thereby invigorating domestic consumption. Finance Minister Nirmala Sitharaman while presenting the Budget announced that under the New Tax Regime (NTR), no income tax will be payable for salaried individuals with total income upto Rs 12.75 lakh compared to Rs 7 lakh currently. The Budget also changed the tax slab rates under the NTR resulting in tax savings for all classes of taxpayers as the limit for minimum income subject to tax has been increased from Rs 3 lakh to Rs 4 lakh. Interestingly, these benefits were not there in the old tax regime, showing the government’s intent to phase out the Old Tax Regime (OTR) gradually.
According to CS Shetty, chairman, State Bank of India, the rationalisation of personal tax reforms could unleash a potential consumption boom of at least Rs 3.3 trillion spend over baseline.
Under the NTR, with slabs adjusted for inflation, the 30 per cent tax rate will now trigger an income of above Rs 24 lakh instead of Rs 15 lakh. This change in the 30 per cent slab marks a 60 per cent adjustment. For income upto Rs 4 lakh there will be no tax, for income between Rs 4 lakh to Rs 8 lakh the tax rate will be 5 per cent, Rs 8 lakh to Rs 12 lakh – 12 per cent, Rs 12 lakh to Rs 16 lakh (tax rate will be 15 per cent), Rs 16 lakh to Rs 20 lakh (20 per cent), Rs 20 lakh to Rs 24 lakh (25 per cent).
In addition, the time limit for filing updated tax returns has been extended to 4 years from 2 years. Taxpayers can now declare the value of two self-occupied properties as NIL.
Kinjal Bhuta, secretary of Bombay Chartered Accountants Society explained, "The slab rates and the reduced tax rates in the New regime have created a wide rift between the tax effect in old and new regimes, and considering that even if a person claims around Rs 4 to 5 lakh in tax deductions in the old regime, still the new regime taxation shall be more beneficial and tax efficient in majority of the income groups."
"Consider an example of a person earning Rs.24 lakhs annually and claims deductions of Rs.4.75 lakhs on section 80C, 80CCD, 80D and home loan interest of 2 lakh, the tax shall be approx. Rs.4.05 lakhs. If the same person opts for the new regime, the approximate tax shall be Rs.2.92 lakhs. This translates into annual savings of Rs.1.13 lakhs or Rs 9500/- monthly on taxes," added Bhuta.
