New Delhi, Feb 1 : In a move aimed at reducing the financial burden on the middle class and accelerating India’s journey towards becoming a Viksit Bharat (Developed India), the government has introduced a revamped income tax structure under the Finance Bill, 2025. With revised tax slabs, higher income thresholds for nil tax liability, and increased rebates, the new tax regime promises significant savings for individual taxpayers.
Officials explained that these reforms are part of a larger strategy to enhance disposable incomes, boost consumer spending, and drive economic growth. One of the most notable changes is the increase in the income threshold for zero tax liability from ₹7 lakh to ₹12 lakh. The government expects this change to benefit nearly one crore taxpayers and inject close to ₹1 lakh crore into the economy, promoting consumption and investment.
Simplified and Beneficial Tax Slabs
The new regime offers broader slabs and lower rates, making taxation simpler and more favorable for most individuals. For instance, income up to ₹4 lakh is now tax-free, while those earning between ₹4 lakh and ₹8 lakh will be taxed at just 5%. The tax rates increase progressively to 30% for those earning more than ₹24 lakh annually. Compared to the previous structure, middle-income earners will see the most substantial benefits.
An individual earning ₹12 lakh annually, for example, who previously paid approximately ₹80,000 in taxes, will now have zero tax liability. Additionally, marginal relief provisions ensure that individuals earning slightly above ₹12 lakh do not face steep tax burdens. This approach ensures fairness and avoids penalizing taxpayers with minor income increases.
Empowering the Middle Class for National Growth
By raising the nil tax threshold, the government aims to give a significant boost to the middle class, which is considered the backbone of the Indian economy. With more money in their hands, middle-class families are expected to increase their spending on housing, consumer goods, and services, creating a ripple effect across various sectors.
Financial experts have emphasized that empowering the middle class is essential for driving sustainable growth. With higher disposable incomes, they can contribute more to consumption, savings, and investments—critical pillars for long-term economic stability and growth. The reforms, therefore, align with the government’s broader development agenda of achieving inclusive growth and reducing financial disparities.
Enhanced Standard Deduction and Rebates
The government has also increased the standard deduction for salaried taxpayers from ₹50,000 under the old regime to ₹75,000 under the new one. As a result, individuals earning up to ₹12.75 lakh annually will have no tax liability after accounting for this deduction.
Additionally, the maximum rebate of ₹60,000 ensures that individuals with incomes slightly above ₹12 lakh will see minimal tax obligations, thanks to marginal relief provisions. The relief mechanism is designed to protect taxpayers from a sudden spike in tax liability due to a marginal increase in their income. For instance, those earning ₹12.1 lakh will only pay a nominal tax of ₹10,000 instead of facing a full tax calculation based on slabs.
Wider Economic Implications
With over 8.75 crore taxpayers having filed income tax returns for the assessment year 2024-25, the revised slabs are expected to benefit a vast segment of the population. The estimated ₹1 lakh crore freed up due to lower tax liabilities will provide a significant boost to household spending and savings, spurring economic activity.
The government’s decision to redirect these savings into the hands of taxpayers reflects its commitment to long-term development goals. Increased spending by the middle class is expected to create demand in key sectors, further supporting industrial output and employment generation.
No Rebate for Special Income Sources
The government has clarified that the rebate under the new regime applies only to regular income and not to income from capital gains, lotteries, or other sources taxed at special rates. This ensures that high-value or speculative earnings remain appropriately taxed, while regular salary and business income earners enjoy the benefits of reduced tax rates.
A Step Towards a Developed India
The revised tax regime underscores the government’s vision of fostering a financially empowered and self-reliant middle class. By easing tax liabilities and increasing disposable incomes, the government aims to create a cycle of growth, where higher spending leads to increased demand, production, and job creation.
As India moves closer to achieving its $5 trillion economic goal, these tax reforms mark a significant step towards building a more inclusive and robust economy. With the middle class gaining financial momentum, the dream of a Viksit Bharat appears more achievable than ever before.
With inputs from IANS
