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Income Tax Update

Income Tax Budget 2025 Updates: No Income Tax Up to Rs 12 Lakhs Grand Relief for the Middle Class

3 min Read Feb 1, 2025

Finance Minister Nirmala Sitharaman presented the Union Budget 2025, bringing significant relief to the common man. This marks her eighth consecutive budget speech. The biggest announcement is the exemption of income tax for individuals earning up to ₹12 lakh annually. This move increases disposable income, providing a much-needed boost to consumption and economic growth. However, this benefit is applicable only if an individual opts for the new tax regime.

"The middle class provides strength 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 Rs 12 lakhs," FM Nirmala Sitharaman said while presenting the budget.

Key Announcement in Budget 2025


No Tax on Income up to ₹12.75 Lakh:


The Section 87A rebate has been increased to ₹12 lakh, providing major relief to middle-class taxpayers. Salaried individuals can also claim a ₹75,000 standard deduction, making total income up to ₹12.75 lakh tax-free.

New Tax Slab Structure:

  • ₹0 – ₹4 lakh: No tax
  • ₹4 lakh – ₹8 lakh: 5% tax
  • ₹8 lakh – ₹12 lakh: 10% tax
  • ₹12 lakh – ₹16 lakh: 15% tax
  • ₹16 lakh – ₹20 lakh: 20% tax
  • ₹20 lakh – ₹24 lakh: 25% tax
  • ₹24 lakh & above: 30% tax

     

 TDS (Tax Deducted at Source) Changes:

  • The TDS limit on rent under Section 194I has been increased from ₹2.4 lakh to ₹6 lakh. This reduces the compliance burden for small landlords and businesses receiving rental income.
  • The threshold for senior citizens to receive tax-free interest income has been doubled from ₹50,000 to ₹1 lakh, easing the tax burden on retirees and encouraging savings.

 

TCS (Tax Collected at Source) Changes:

  • The TCS limit on foreign remittances under the Liberalized Remittance Scheme (LRS) has been raised from ₹7 lakh to ₹10 lakh. This change allows for higher limits before tax deductions apply, benefiting those making large foreign remittances for travel, education, or medical treatment.
  • The TCS on educational remittances funded by loans has been removed, providing relief to students and their families.

 More Tax Benefits for Homeowners: Homeowners will now benefit from more generous tax deductions. Taxpayers can claim deductions on two self-occupied properties without any conditions, helping homeowners save on taxes and giving them more flexibility to manage their finances.
 

Extended Time for Filing Updated Returns: The time limit for filing updated tax returns has been extended from 2 years to 4 years for any Assessment Year. This gives taxpayers more time to make necessary amendments to their returns, ensuring greater accuracy and reducing penalties for those who may have missed the original filing deadlines.
 

Senior Citizens' Tax Benefits: Senior citizens can now earn up to ₹1 lakh in interest tax-free, a significant increase from the previous limit of ₹50,000. This change is aimed at easing the financial burden on seniors who depend on interest income for their living expenses.
 

National Savings Scheme (NSS) Exemption: Withdrawals from the National Savings Scheme (NSS) made after August 29, 2024, will be tax-exempt. This move is intended to offer greater savings incentives and ease the tax burden on individuals withdrawing from their NSS accounts.
 

NPS Vatsalya Accounts: Vatsalya accounts under the National Pension System (NPS) will now receive the same tax benefits as regular NPS accounts. This change is aimed at encouraging greater participation in the pension system and ensuring that all NPS accounts receive equal treatment.
 

New Income Tax Bill: The government has announced plans to introduce a new Income Tax Bill in the budget session. The proposed bill is expected to be about 50% shorter than the current law, reducing complexity and making it easier for both taxpayers and administrators to navigate. This move is expected to bring more clarity, simplicity, and reduce tax-related disputes.

The government’s commitment to simplifying taxation, reducing compliance burdens, and boosting economic activity remains evident in the 2025 budget. These reforms are expected to drive consumption, encourage entrepreneurship, and strengthen the financial stability of Indian households.