NO INCOME TAX upto ₹12 Lakhs under New Tax Regime

Union Finance Minister Nirmala Sitharaman made a groundbreaking announcement during the Lok Sabha’s budget speech on February 1, 2025. The announcement has far-reaching implications for the middle-class population, salaried individuals, and business professionals across India. The key highlight of her speech was the declaration that individuals earning up to ₹12 lakh annually will not have to pay any income tax under the new tax regime. This significant tax relief aims to boost disposable income, encourage savings, and stimulate economic growth.

Key Highlights of the New Income Tax Regime:

1. Zero Tax for Income Up to ₹12 Lakh:
   One of the most significant announcements was that individuals with an annual income of up to ₹12 lakh will now be exempt from paying income tax under the new tax regime. This is a substantial increase from the previous exemption limit, which was much lower. The move is designed to provide relief to the middle class, ensuring that more money remains in the hands of taxpayers, thereby enhancing their purchasing power.
   
   

2. Revised Tax Slabs and Rates:
   The finance minister mentioned that new tax slabs and rates will be introduced, aiming to simplify the tax structure and reduce the tax burden on the middle-income group. Although specific details of the revised slabs are expected to be detailed in the upcoming Income Tax (I-T) bill, the changes are anticipated to make the tax system more progressive and equitable.
   
   

3. Introduction of a New Income Tax Bill:
   To support these changes, the government will be introducing a new Income Tax (I-T) bill in Parliament next week. This bill is expected to consolidate and streamline the tax laws, reduce complexities, and introduce reforms that align with the government’s vision of a modern and efficient tax system.
   
   

4. Flexibility to Choose Between Two Tax Regimes:
   Taxpayers will continue to have the option to choose between the old tax regime and the new tax regime when filing their income tax returns.

   • Old Tax Regime: Allows for various exemptions and deductions, such as on housing rent allowance (HRA), insurance premiums, and other investments under sections like 80C, 80D, etc.

   • New Tax Regime: Introduced in 2020, this regime offers lower tax rates but fewer deductions and exemptions. It has been the default regime for individuals with income from business or profession since FY 2023-24, while salaried individuals can freely switch between the two regimes each financial year.

Impact on Different Income Groups:

• Middle-Class Families:
  The new tax exemption limit up to ₹12 lakh will provide significant relief to middle-class families. This will lead to increased disposable income, allowing families to spend more on essential needs, healthcare, education, and investments, thereby boosting overall consumption in the economy.
  
  

• Salaried Employees:
  Salaried individuals, especially those in the income bracket of ₹7 lakh to ₹12 lakh, will benefit the most. They can choose the regime that offers them maximum tax savings based on their income and deductions.
  
  

• Business Professionals:
  For professionals and business owners, the new tax regime remains the default, encouraging a simplified tax filing process with minimal exemptions but lower tax rates.

Why This Change Matters:

1. Boost to Consumption:
   By increasing the exemption limit, the government aims to increase household spending, which is crucial for economic growth, especially in the post-pandemic recovery phase.

2. Encouragement for Savings and Investments:
   With more disposable income, individuals are likely to invest more in savings schemes, mutual funds, insurance, and other financial products, contributing to the financial sector’s growth.

3. Simplification of the Tax System:
   The introduction of a new I-T bill and revised tax slabs aims to simplify the complex tax structure, making it easier for taxpayers to understand and comply with tax laws.

4. Support for Economic Growth:
   The increased spending and investment capacity of the middle class will act as a catalyst for economic development, creating a positive impact on sectors like real estate, retail, and financial services.

What’s Next?

The new Income Tax Bill is expected to be presented in Parliament next week, which will provide more details about the revised tax slabs, exemptions, and compliance requirements. This bill will likely address various aspects of the tax system, including measures to prevent tax evasion, promote transparency, and ensure fair taxation across income groups.

Key Takeaways:

• No Income Tax for Annual Income Up to ₹12 Lakh under the new regime.
• Revised Tax Slabs and Rates to benefit all taxpayers.
• Introduction of a New I-T Bill in Parliament soon.
• Option to Choose between the old and new tax regimes.
• Focus on boosting consumption, savings, and investments.

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