Synopsis: The Union Budget 2025 introduces significant reforms to India's tax structure, aiming to provide substantial relief to the middle class. Key measures include zero tax on incomes up to ₹12 lakh and a simplified tax regime. CBDT Chairman Ravi Agrawal anticipates that these changes will encourage 95-97% of taxpayers to adopt the new tax regime, up from the current 74-75%.
In a landmark move to alleviate the tax burden on the middle class, the Union Budget 2025 has introduced a series of reforms aimed at simplifying the tax structure and enhancing disposable income.
Central Board of Direct Taxes (CBDT) Chairman Ravi Agrawal emphasized that the primary motivation behind the restructuring of tax slabs is to provide substantial relief to middle-income earners.
Currently, approximately 74-75% of India's 8-8.5 crore individual taxpayers have adopted the new tax regime.
Agrawal projects that with the recent amendments, this figure will rise to 95-97%.
He stated, "A straight computation of income tax is available in the new tax regime with reduced rates. About 74% of the people have already adopted the new tax regime. I am sure that with this change... more people would be prompted to join the NTR."
The revised tax slabs under the new regime are as follows:
- ₹0 to ₹4,00,000: No tax
- ₹4,00,001 to ₹8,00,000: 5%
- ₹8,00,001 to ₹12,00,000: 10%
- ₹12,00,001 to ₹16,00,000: 15%
- ₹16,00,001 to ₹20,00,000: 20%
- ₹20,00,001 to ₹24,00,000: 25%
- Above ₹24,00,000: 30%
Finance Minister Nirmala Sitharaman, in her budget speech, announced that there would be no income tax for earnings up to ₹12 lakh.
She remarked, "The middle class provide strengths to the economy. In recognition of their contribution, we have periodically reduced the tax burdens. I am now happy to announce that there will be no income tax up to an income of ₹12 lakhs."
Additionally, a standard deduction of ₹75,000 is available for the salaried class.
Agrawal highlighted that such changes foster positive sentiment in the economy, leading to increased consumption and growth.
He explained, "Once that growth happens, the people consume, and expenditure happens and then the economy grows, and when the economy grows, it again comes back in some form through taxes. So, basically, it is an integrated sort of exercise."
The CBDT chief also underscored a strategic shift towards a 'non-intrusive' tax administration.
Current systems, such as simplified ITR-1 forms and pre-filled returns, are designed to be user-friendly.
The new tax regime further facilitates ease in tax filing by removing deductions and exemptions, encouraging individuals to manage their taxes independently.
The board is actively leveraging technology to 'widen and deepen' the tax base.
The use of 'data analytics' assists in informing taxpayers about potential discrepancies, prompting them to correct their filings.
This approach has led to 90,000 individuals revising their returns and contributing ₹1,000 crore in taxes, while about 90 lakh people filed updated returns, adding ₹8,500 crore to government revenues.
Conclusion:
The Union Budget 2025's tax reforms represent a significant step towards simplifying India's tax structure and providing substantial relief to the middle class.
By increasing the tax-exempt income threshold and streamlining the filing process, the government aims to boost disposable income, stimulate economic growth, and promote a more transparent and efficient tax administration.
The anticipated shift of a majority of taxpayers to the new regime reflects confidence in these measures to foster a more robust and inclusive economy.
Disclaimer: The information provided in this article is based on the Union Budget 2025 announcements and statements from government officials as of February 3, 2025. Tax laws are subject to change, and individuals are advised to consult with a tax professional or refer to official government resources for the most current information and personalized advice.
