How much You save through the new Budget 2025-26?

 

Well, this has been a historic budget for India where the direct taxpayers have been given something. No doubt consumption in segments will boost up and the impact will be for Fy-26.

Among all these, there is confusion about the tax savings from the proposed new rates and slabs. 

• No Income Tax up to ₹12 Lakh: Under the new regime, individuals with an annual income up to ₹12 lakh are not required to pay any income tax, which significantly boosts the disposable income for middle-class taxpayers.
• New Tax Slab and Rates: A new 25% tax slab has been introduced for incomes ranging from ₹15 lakh to ₹25 lakh. This adjustment means that those earning ₹18 lakh will pay ₹70,000 less in taxes, and those with an income of ₹25 lakh will save over ₹1.1 lakh compared to the previous tax year.
• Increase in Basic Exemption Limit: There's a proposal to elevate the basic exemption limit to ₹5 lakh from ₹3 lakh, reducing tax liabilities for individuals with annual incomes up to this amount
• Reduction in Tax for All Income Brackets

• The proposed tax rates are lower than the present tax rates across all income levels.
• Example:
• For Rs. 8 lakh income, the tax is reduced from Rs. 30,000 to Rs. 20,000.
• For Rs. 50 lakh income, the tax is reduced from Rs. 11.90 lakh to Rs. 10.80 lakh.
1. Full Rebate for Income Up to Rs. 12 Lakh
• A rebate is introduced for incomes up to Rs. 12 lakh, effectively bringing their tax liability to zero.
• Example:
• If a person earns Rs. 12 lakh, their tax is Rs. 60,000 under the proposed structure, but a full rebate of Rs. 60,000 makes the final tax zero.
• Similarly, for Rs. 11 lakh, the tax of Rs. 50,000 is fully rebated.
2. Partial and No Rebates for Higher Incomes
• Beyond Rs. 12 lakh, no rebate is provided, meaning individuals must pay the revised tax.
• Example:
• Rs. 16 lakh income:
• New tax: Rs. 1.20 lakh
• Total benefit: Rs. 50,000 (compared to the old system)
• Rs. 20 lakh income:
• New tax: Rs. 2.00 lakh
• Total benefit: Rs. 90,000
3. Maximum Benefit of Rs. 1.1 Lakh for Higher Income Groups
• The highest benefit (Rs. 1,10,000) is observed for incomes of Rs. 24 lakh and Rs. 50 lakh, reducing their final payable tax.
• However, these individuals still have to pay tax, unlike those earning below Rs. 12 lakh.

 

3. Implications of the Changes

a) Positive Impact on Middle-Class Earners

• Individuals earning Rs. 12 lakh or below will have zero tax liability due to rebates.
• Those earning Rs. 16–20 lakh see a significant tax reduction.

b) Limited Impact on High-Income Earners

• Although high-income earners (Rs. 24–50 lakh) get a tax cut, they still pay substantial taxes.
• The maximum absolute benefit is capped at Rs. 1.1 lakh.

c) Encouragement for Earnings Up to Rs. 12 Lakh

• The system incentivizes earnings up to Rs. 12 lakh, ensuring full tax exemption in this range.
• A person earning Rs. 12 lakh pays zero tax, while someone earning Rs. 13 lakh pays Rs. 60,000, creating a disincentive for earning slightly above Rs. 12 lakh.

What More?

Standard Deduction Hike: The standard deduction under the new tax regime for salaried individuals and pensioners has been increased from ₹75,000 to ₹1 lakh, further lowering taxable income and providing additional financial relief.

Rebate under Section 87A: Discussions suggest an increase in the tax rebate limit under Section 87A to ₹7 lakh, meaning individuals with taxable incomes up to this amount would not pay income tax.  There's a significant rebate under Section 87A of the Income Tax Act for individuals opting for the new tax regime. For the financial year 2024-25, if your total income does not exceed Rs 7 lakh after considering the standard deduction, you are eligible for a 100% tax rebate. This means you effectively pay no tax if your taxable income post-deductions is below this threshold. However, posts on X have indicated that for incomes up to Rs 12 lakh, the tax calculated can be completely offset by this rebate, implying no net tax liability.

Enhanced Deductions: There are expectations for enhancements in deductions under sections like 80C (for investments) and 80D (for health insurance premiums), encouraging more savings and investments.

Introduction of Direct Tax Code: The government is contemplating introducing a Direct Tax Code to simplify the taxation process, potentially making tax compliance easier for taxpayers

 Conclusion:

The tax reductions, particularly for the middle class, are strategically designed to boost economic activity. By increasing consumer purchasing power, these changes could trigger a wave of demand across key sectors, fueling economic growth. However, the effectiveness of this policy will depend on how much of the tax savings are spent versus saved, as well as how businesses respond to rising demand. Overall, the proposed tax cuts create a strong foundation for a consumption-driven economic expansion, aligning with broader goals of sustained GDP growth and improved living standards. Significant tax relief is provided for the middle class, especially those earning below Rs. 12 lakh. High-income earners benefit moderately but still face considerable tax liabilities. The tax rebate threshold set at Rs. 12 lakh may create distortions in taxpayer behavior, as individuals might adjust their earnings to stay within this limit.