
New Delhi: The Budget 2025-26 gave relief to the middle class with regard to tax incidence and rejigged slabs.
Sitharaman announced that annual income of up to Rs 12 lakh will be exempt from I-T under the new income tax regime. For salaried taxpayers, this income threshold will be Rs 12.75 lakh after taking into account standard deduction.
It is pertinent to note that while the new tax slabs intend to minimize or eliminate taxes for those earning up to Rs 12 lakh, it does not imply a simple “no tax” rule. The tax slabs and potential rebates will determine the actual tax payable. You will need to calculate your tax based on the rebates and new slabs.
A taxpayer in the new regime with an income of Rs 12 lakh will get a benefit of Rs 80,000 in tax. A person having an income of Rs 18 lakh will get a benefit of Rs 70,000 in tax.
A person with an income of Rs 25 lakh gets a benefit of Rs 1.10 lakh.
New Tax Slabs
Income Levels | Tax Slabs |
Rs 0-4 lakh | NIL |
Rs 4-8 lakh | 5 percent |
Rs 8-12 lakh | 10 percent |
Rs 12-16 lakh | 15 percent |
16-20 lakh | 20 percent |
Rs 20-24 lakh | 25 percent |
Above 24 lakh | 30 percent |
“The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings and investment,” Sitharaman said in her Budget speech.
The new income tax regime offers lower tax rates and only a standard deduction of Rs 75,000 and a Rs 15,000 deduction for family pension.
However, the Budget has not made any changes in tax slabs under the old income tax regime, which includes a host of tax exemptions and deductions.
The finance minister Nirmala Sitharaman also said that the government will introduce a new Income Tax Bill next week.
The new Income Tax Code will be announced next week, and the I-T Department will “trust first, scrutinise later”, the Finance Minister said while presenting the Budget 2025-26.
“Transformative tax reforms” promised
The finance minister unveiled “transformative” tax reforms that ranged from a simpler income tax law to a higher TCS threshold for remittances and income tax benefits for the middle class.
Sitharaman in the 2025-26 Budget promised to bring a simpler, less voluminous new law to replace six decades-old law governing income tax, saying it will have the spirit of “Nyay” (justice) and will work on the principle of “trust first, scrutinize later”.
She also extended the time limit to 4 years for individuals filing updated tax returns. Updated returns are filed by taxpayers who had omitted to report their correct income. Currently, such returns can be filed within two years of the relevant assessment year.
Nearly 90 lakh taxpayers have voluntarily updated their incomes by paying additional tax.
Sitharaman in her Budget speech said the objectives of her taxation proposal are reforms in Personal Income Tax with special focus on middle class, rationalization of TDS/TCS for easing difficulties and voluntary compliance.
The Budget increased the threshold for tax deduction at source for better clarity and uniformity.
TCS, TDS and more
In the FY26 Budget, the limit for TDS deduction on interest for senior citizens has been doubled to Rs 1 lakh from the present Rs 50,000.
Similarly, the annual limit of Rs 2.40 lakh for TDS on rent is being increased to Rs 6 lakh. This will reduce the number of transactions liable to TDS, thus benefitting small tax payers receiving small payments, Sitharaman said.
The threshold to collect tax at source (TCS) on remittances under RBI’s Liberalized Remittance Scheme (LRS) too has been increased from Rs 7 lakh to Rs 10 lakh.
The TCS on remittances for education purposes, where such remittance is out of a loan taken from a specified financial institution, has been exempted.