Union Budget 2025-26 – Zero Income Tax Upto 12 Lakhs ( Explained )
The Union Budget 2025-26, announced by the Ministry of Finance, brings a revolutionary change to the income tax structure under the New Tax Regime. Designed to ease the financial burden on the middle class, this reform promises substantial tax savings for salaried individuals. Here’s everything you need to know.
Key Highlights of the New Tax Regime:
- Zero Tax on Income up to ₹12 Lakhs: Under the new structure, individuals earning up to ₹12.00 lakhs annually will not have to pay any income tax. For salaried taxpayers, an additional standard deduction of ₹75,000 pushes the effective zero-tax limit to ₹12.75 lakhs.
- Simplified Tax Slabs and Rates: The revamped tax slabs aim to reduce the tax liability for all taxpayers. Here’s the new structure:
Income Range (₹) Tax Rate 0 – 4,00,000 Nil 4,00,001 – 8,00,000 5% 8,00,001 – 12,00,000 10% 12,00,001 – 16,00,000 15% 16,00,001 – 20,00,000 20% 20,00,001 – 24,00,000 25% Above 24,00,000 30% - Middle-Class Focus: The government’s objective is to boost household consumption, encourage savings, and drive investments by leaving more money in the hands of taxpayers. The simplified structure benefits individuals across all income levels.
Tax Calculation Example:
Let’s consider a salaried individual earning ₹13 lakhs annually. Here’s how the tax calculation works:
- Income Breakdown:
- Annual salary: ₹13,00,000
- Tax Slab Application: Based on the table:
- ₹0 – 4,00,000: Nil tax
- ₹4,00,001 – 8,00,000: 5% of ₹4,00,000 = ₹20,000
- ₹8,00,001 – 12,00,000: 10% of ₹4,00,000 = ₹40,000
- ₹12,00,001 – 13,00,000: 15% of ₹1.00,000 = ₹15,000
Total Tax Payable: ₹75,000*
( *Note: Standard Deduction of Rs 75,000 available or not for 13 Lakhs income is not clear yet )
This calculation shows how the new regime benefits even those earning slightly above the zero-tax limit.
Benefits of the New Tax Regime:
- Higher Disposable Income: Middle-class families can save more, leading to higher household consumption.
- Encouragement for Savings and Investments: With reduced tax liabilities, individuals can channel more funds into long-term savings and investments.
- Simplified Tax Structure: The revamped slabs and straightforward rates make tax compliance easier.
Additional Announcement:
Union Finance Minister Nirmala Sitharaman has also announced that a new Income Tax Bill will be introduced next week. This bill is expected to further streamline and modernize the tax framework, aligning it with the evolving needs of taxpayers.
Conclusion:
The Union Budget 2025-26 is a significant step toward empowering the middle class. With zero tax up to ₹12.75 lakhs for salaried individuals and reduced tax rates across the board, this reform is set to transform personal finance planning for millions. The focus on reducing the tax burden aligns with the government’s goal of driving economic growth through increased household savings and investments.
Share Your Thoughts:
How do you think this new tax regime will impact your financial planning? Let us know in the comments below!