by CA Nimesh Hariya | Feb 1, 2025 | Income Tax Update
The Union Budget 2025 has introduced several key tax reforms aimed at providing relief to individuals and businesses. Finance Minister Nirmala Sitharaman, in her record eighth consecutive Budget presentation, announced major changes including higher tax exemptions, TDS relief, and incentives for startups. These reforms come at a crucial time when India’s economic growth is facing global uncertainties and inflationary pressures.
Let’s break down the key highlights of Budget 2025 and understand how they impact taxpayers, businesses, and the overall economy.
1. Income Tax Reforms: Higher Exemptions and Simplified Tax Slabs
One of the biggest announcements in Budget 2025 is the revision of income tax slabs, providing significant relief to the middle class.
New Income Tax Slabs for FY 2025-26 (New Regime)
| Annual Income (₹) |
Tax Rate (%) |
| Up to ₹12 lakh |
0% (No Tax) |
| ₹12,00,001 – ₹15,00,000 |
10% |
| ₹15,00,001 – ₹20,00,000 |
15% |
| ₹20,00,001 – ₹25,00,000 |
20% |
| Above ₹25 lakh |
30% |
Key Changes in Taxation:
✅ No income tax up to ₹12 lakh under the new tax regime, significantly increasing the tax-free threshold.
✅ Lower tax rates for incomes up to ₹25 lakh, making tax filing simpler and reducing the burden on middle-income earners.
✅ The old tax regime remains unchanged, allowing taxpayers to choose between the two.
2. TDS (Tax Deducted at Source) Relief for Individuals and Businesses
The government has announced TDS relief measures to reduce the compliance burden on businesses and individuals.
🔹 Higher TDS threshold for interest and salary payments, reducing tax deductions on small income transactions.
🔹 Simplified TDS rules for freelancers, gig workers, and MSMEs, ensuring ease of doing business.
🔹 TDS rationalization for senior citizens, reducing tax deductions on their pension and interest earnings.
Impact: With reduced TDS deductions, individuals and small businesses will experience improved cash flow and fewer compliance hassles.
3. Major Boost for Startups and MSMEs
Recognizing the importance of startups and small businesses in India’s economic growth, the Budget 2025 introduces several incentives:
✔️ Tax holiday for startups extended by 3 years, allowing more businesses to benefit from exemptions.
✔️ Reduction in compliance requirements, making it easier for startups to operate and raise funds.
✔️ Increase in credit guarantee schemes to support small and medium enterprises (MSMEs).
Impact: This move encourages entrepreneurship and innovation, making India a more attractive destination for startups.
4. GST and Indirect Tax Changes
The government has proposed several changes in GST laws to make compliance easier:
🔹 Lower GST rates on essential goods and services, benefiting common consumers.
🔹 Streamlined GST refund process, helping exporters and businesses improve cash flow.
🔹 Simplified tax filing process for small businesses, reducing the compliance burden.
Impact: These GST changes aim to promote ease of doing business and reduce tax-related complications.
5. Economic Outlook and Government’s Vision
📌 The Budget 2025 was presented amidst global economic uncertainties and trade challenges, including new tariff threats from the US.
📌 Infrastructure investment and job creation remain key priorities, with an increase in capital expenditure.
📌 Focus on digital economy, green energy, and Make in India, ensuring long-term growth.
Final Takeaway: The Budget 2025 focuses on taxpayer relief, business-friendly policies, and economic stability. With higher exemptions, TDS relief, and startup incentives, the government aims to boost disposable income, encourage entrepreneurship, and simplify tax compliance.
Conclusion: How Will Budget 2025 Impact You?
- Salaried individuals earning up to ₹12 lakh will pay no income tax, increasing their savings.
- Business owners and MSMEs will benefit from lower compliance requirements and credit support.
- Startups get tax holidays and funding incentives, promoting innovation.
- Investors and exporters will see better GST refund processes and policy stability.
With higher disposable income and simplified tax filing, Budget 2025 brings major financial relief to taxpayers and businesses.
What do you think of these tax reforms? Share your views in the comments!
Disclaimer: This article is for informational purposes only and should not be considered financial or tax advice. Please consult a professional before making any tax-related decisions.
by CA Nimesh Hariya | Feb 1, 2025 | Income Tax Update
The Union Budget 2025 has brought a major relief for taxpayers, particularly the middle-class segment. In a historic move, Finance Minister Nirmala Sitharaman announced that individuals earning up to ₹12 lakh annually will now pay zero income tax under the new tax regime. This announcement significantly increases the exemption threshold, providing more disposable income to taxpayers and simplifying the tax structure.
Additionally, the new tax slabs have been restructured to provide progressive tax benefits for incomes up to ₹25 lakh, while maintaining a 30% tax rate for higher income groups. Let’s take a detailed look at the revised income tax slabs for FY 2025-26 (AY 2026-27) and analyze their impact.
New Income Tax Slabs Under the Revised Tax Regime (FY 2025-26)
| Annual Income (₹) |
Tax Rate (%) |
| Up to ₹12 lakh |
0% (No Tax) |
| ₹12,00,001 – ₹15,00,000 |
10% |
| ₹15,00,001 – ₹20,00,000 |
15% |
| ₹20,00,001 – ₹25,00,000 |
20% |
| Above ₹25 lakh |
30% |
Key Change: The tax-free limit has been raised from ₹7 lakh to ₹12 lakh under the new regime, benefiting millions of salaried employees, professionals, and self-employed individuals.
In addition to the new slabs, a 4% health and education cess will be applicable on the total tax amount. Further, surcharges remain in place for high-income earners exceeding ₹50 lakh per year.
How Does This Benefit Taxpayers?
✅ 1. Higher Tax-Free Income Limit
Previously, individuals earning up to ₹7 lakh were exempt under the new tax regime (with rebate under Section 87A). This limit has now been raised to ₹12 lakh, ensuring more savings for salaried individuals and middle-class taxpayers.
✅ 2. Reduced Tax Liability for Middle-Income Groups
- If you earn between ₹12 lakh and ₹25 lakh annually, you will pay significantly less tax than before.
- Example: A person earning ₹15 lakh will now pay only 10% tax on ₹3 lakh (i.e., ₹30,000), compared to the previous tax liability of ₹60,000 under the old slabs.
✅ 3. More Disposable Income
With the tax burden reduced, individuals will have higher take-home salaries, leading to increased consumer spending, savings, and investment.
✅ 4. Simpler Tax Structure
The government aims to encourage taxpayers to switch to the new tax regime, as it eliminates the need for complex deductions and exemptions while offering lower tax rates.
Comparison: Old vs. New Tax Regime (FY 2025-26)
While the new tax regime offers lower tax rates and a higher exemption limit, the old tax regime still allows various deductions and exemptions. Let’s compare both options:
Old Tax Regime (For Individuals Below 60 Years)
| Income Tax Slab (₹) |
Tax Rate (%) |
| Up to ₹2,50,000 |
0% |
| ₹2,50,001 – ₹5,00,000 |
5% |
| ₹5,00,001 – ₹10,00,000 |
20% |
| Above ₹10,00,000 |
30% |
Deductions Available Under Old Regime
- Section 80C: ₹1.5 lakh deduction (PPF, EPF, LIC, ELSS, etc.)
- Section 80D: ₹25,000 deduction for health insurance (₹50,000 for senior citizens)
- Section 80TTA: ₹10,000 deduction on savings account interest
- Section 80CCD(1B): ₹50,000 additional deduction for NPS contributions
- House Rent Allowance (HRA) & Leave Travel Allowance (LTA) exemptions
Important: The government has not changed the tax slabs under the old regime, so individuals must choose between the old and new regimes based on their financial situation.
Who Should Choose the New Tax Regime?
With the new tax regime becoming the default choice from April 1, 2023, taxpayers must actively opt for the old regime if they want to claim deductions. But should you make the switch?
✔ New Tax Regime is Better If:
- You earn up to ₹12 lakh, as you pay zero tax.
- You do not claim many deductions under the old regime.
- You prefer simplified tax filing without exemptions.
❌ Stick to the Old Regime If:
- You claim deductions above ₹2.5–3 lakh annually (e.g., investments, home loan, HRA).
- You have high medical or insurance-related expenses.
📌 Example:
- A taxpayer earning ₹15 lakh with no deductions under the new regime will pay ₹30,000 tax.
- The same individual under the old regime (with ₹3 lakh deductions) will pay ₹60,000 tax.
- Verdict: If deductions exceed ₹3 lakh, the old regime may be beneficial.
Surcharge Rates for High-Income Earners
While most taxpayers benefit from the new slabs, individuals earning above ₹50 lakh annually will continue to pay surcharges as follows:
Surcharge Rates Under the New Tax Regime
| Income Range (₹) |
Surcharge (%) |
| Up to ₹50 lakh |
Nil |
| ₹50 lakh – ₹1 crore |
10% |
| ₹1 crore – ₹2 crore |
15% |
| Above ₹2 crore |
25% |
🔹 For the highest income group (₹5 crore+), the surcharge remains capped at 25%, down from 37% last year.
Government’s Vision Behind the Tax Changes
📌 1. Boosting Middle-Class Savings: By increasing the tax-free limit, the government aims to provide more liquidity to individuals.
📌 2. Encouraging Shift to the New Regime: The government is phasing out deductions under the old regime and making the new regime more attractive.
📌 3. Simplification of Tax Filing: By reducing the reliance on deductions, tax filing becomes easier for individuals and salaried employees.
📌 4. Economic Growth & Consumption Boost: With more disposable income, taxpayers are likely to spend more, invest more, and contribute to GDP growth.
Final Thoughts: What Should Taxpayers Do?
- If your income is below ₹12 lakh, the new tax regime is clearly the best choice, as you pay zero tax.
- If you earn above ₹12 lakh, compare the tax benefits between the two regimes before making a decision.
- The government is making the new tax regime more attractive, so it may be wise to transition gradually.
What are your thoughts on the new tax slabs? Will you switch to the new regime or stick with the old one? Let us know in the comments!
Disclaimer: This article is for informational purposes only and does not constitute tax or financial advice. Please consult a tax professional before making financial decisions.
