Union Budget 2025: Tax bonanza for middle class

Union Budget 2025: Income up to ₹12 lakh tax-free; people earning at least ₹25 lakh will save ₹1.1 lakh; tax rate changes, new Income Tax Bill show government responsive says Nirmala Sitharaman

If your car is sputtering, and a faulty fading battery appears to be the cause, the only immediate alternative is to try and jumpstart it by hooking it up with another running car.

Finance Minister Nirmala Sitharaman sought to do just that on Saturday (February 1, 2025) with her Union Budget for 2025-26 — jumpstart slowing economic activity with a significant ₹1 lakh crore tax stimulus for households of the sort the government has generally refrained from — in the hope that India’s weakening domestic demand will rebound and bring the economy back to the fast lane.

Union Budget 2025 | Highlights

Ms. Sitharaman began her speech by stating the Budget seeks to accelerate growth, uplift household sentiments and enhance the spending power of India’s rising middle class, and ended with the biggest relief measure for taxpayers in recent times — no income tax would be payable for annual incomes of up to ₹12 lakh, up from the present limit of ₹7 lakh.

Finance Secretary Tuhin Kanta Pandey said the change under the new personal income tax regime, where no other exemptions are permitted, could help one crore tax payers have a zero-tax liability, except on incomes from sources like capital gains that attract special rates. For salaried tax payers, the tax-free income threshold will be ₹12.75 lakh a year, thanks to standard deduction of ₹75,000.

The post-pandemic pent-up demand has been diminishing and long stretches of high inflation have also been hurting consumption in recent quarters. Moreover, the government’s preferred “multiplier effect” driver of public capex to spur growth has also slipped this year dragging growth to an estimated 6.4% this fiscal even as global headwinds remain dodgy.

Several economists, and top Central bank officials have been advocating a consumption push to restoke growth impulses and catalyse slack private investments. Ms. Sitharaman seems to have listened and agreed wholeheartedly.