Middle Class to Save Big, No Income Tax on ₹12 Lakh Income
Budget focuses on Growth and Innovation
Unveils New Tax Regime Offering Major Relief to Salaried Indians
Budget Proposes Rs 50.65 Lakh Crore Expenditure with Focus on
Infrastructure, MSMEs, and Agriculture”
Exemption on Incomes up to ₹12 Lakh”
“New Income Tax Bill to Replace 1961 Act, Aims to Simplify Tax Compliance
Expenditure Hiked by 7.4%, Government Focuses on Infrastructure and MSME Growth
New Delhi, Srinagar: Union Finance Minister Nirmala Sitharaman presented the Union Budget for the 2025-26 fiscal year on February 1, 2025, marking the third budget term under the Bharatiya Janata Party (BJP)-led government.
The Budget, touted as a step towards a more inclusive and balanced growth for the nation, is seen as particularly beneficial to India’s salaried middle class, many of whom have been grappling with high inflation and stagnant wages. In her address, the Finance Minister laid out a series of measures designed to boost household savings, consumption, and the ease of doing business.
Key Highlights of the Budget
Income Tax Relief for the Middle Class: One of the most significant announcements in this year’s budget was the proposal to relieve the salaried middle class from income tax burdens, marking a key focus on tax reform and support for India’s growing middle-income population. In a major reform to the income tax structure, the government unveiled a new income tax regime that will directly benefit the salaried class, specifically individuals earning up to ₹12 lakh annually. Under this new regime, individuals earning ₹12 lakh will be exempt from paying any income tax, resulting in a direct saving of ₹80,000 per annum from the next fiscal year. Additionally, the finance minister stated that individuals with annual incomes of ₹24 lakh or more will save up to ₹1.10 lakh in taxes, further easing the financial strain on the middle and upper-middle classes. To implement these changes, the government will introduce a new Income Tax Bill in Parliament in the coming week, which will replace the old Income Tax Act of 1961. This is a part of the broader tax reform effort, aimed at simplifying tax compliance and making the taxation process more efficient. The finance minister acknowledged the difficulties faced by the middle class, citing high inflation rates and the burden of rising costs. By implementing tax cuts and providing significant tax relief, the government aims to improve disposable income for middle-class households, stimulating greater consumption and savings, which are essential drivers of economic growth.
Tax Slabs, Rates: The new tax regime, as outlined in the Union Budget 2025-26, proposed the following structure for personal income tax:
Total Income per annum ₹ 0 – ₹ 4 Lakh: NIL Tax
₹ 4 Lakh to ₹ 8 Lakh: 5% Tax
₹ 8 Lakh to ₹ 12 Lakh: 10% Tax
₹ 12 Lakh to ₹ 16 Lakh: 15% Tax
₹ 16 Lakh to ₹ 20 Lakh: 20% Tax
₹ 20 Lakh to ₹ 24 Lakh: 25% Tax
Above ₹ 24 Lakh: 30% Tax
This revised tax structure is designed to ease the financial load on lower and middle-income groups while ensuring that the tax burden on the wealthy remains progressive. It also reflects the government’s acknowledgment of the economic challenges faced by ordinary Indians due to rising living costs and the overall economic slowdown.
Focus on Agriculture, MSMEs, Investments: Union Budget 2025-26 also introduced several key measures aimed at enhancing the growth of core sectors like agriculture, MSMEs, and investments. Agriculture, being a crucial pillar of India’s economy, received special attention with the launch of schemes such as the ‘Prime Minister Dhan-Dhaanya Krishi Yojana,’ which is set to cover 100 low agricultural productivity districts. This initiative is expected to increase productivity, improve irrigation systems, and offer better post-harvest storage facilities. For Micro, Small, and Medium Enterprises (MSMEs), the Budget proposed significant enhancements in credit availability. The government announced an increase in the credit guarantee for MSMEs from ₹5 crore to ₹10 crore. In addition, a new scheme for women, Scheduled Castes (SCs), and Scheduled Tribes (STs) first-time entrepreneurs was introduced, providing access to term loans of up to ₹2 crore over the next five years. Investments in infrastructure were prioritized, with proposals for a ₹1 lakh crore Urban Challenge Fund to implement measures aimed at transforming cities into growth hubs. An ambitious National Manufacturing Mission was also announced to bolster the “Make in India” campaign, encouraging manufacturing and industrial growth across sectors.
Focus On Education, Innovation, Artificial Intelligence: The Union Budget 2025-26 also addressed the country’s educational and technological ambitions, with a particular focus on innovation and the future of work. The Finance Minister announced that 50,000 Atal Tinkering Labs will be established in government schools over the next five years, which will focus on fostering creativity and innovation in young students. In addition, a Centre of Excellence in Artificial Intelligence (AI) will be set up for education, with a total outlay of ₹500 crore. The government intends to harness AI to revolutionize the education sector, providing cutting-edge learning tools and creating new opportunities for students in tech-related fields.
Infrastructure, Connectivity: Connectivity and infrastructure development were another key focus area in the Budget. The Union Government proposed to extend the UDAN (Ude Desh ka Aam Naagrik) scheme, which enhances regional air connectivity, to 120 new destinations. The scheme aims to make air travel more affordable and accessible to a larger section of the population. This is expected to improve transportation links, particularly in rural and remote areas, and create new economic opportunities. Additionally, the government set aside ₹20,000 crore for research, development, and innovation initiatives aimed at the private sector. This will help spur growth in industries such as technology, pharmaceuticals, and renewable energy.
Fiscal Deficit, Financial Sector Reforms: The Union Budget 2025-26 outlined a fiscal deficit target of 4.8% of GDP for the fiscal year 2024-25, with plans to bring this down to 4.4% in 2025-26. This reflects the government’s ongoing commitment to fiscal consolidation and ensuring long-term financial stability. Several financial sector reforms were proposed, including the extension of the Foreign Direct Investment (FDI) cap in the insurance sector from 74% to 100%, allowing greater foreign participation in India’s growing insurance market.
Benefits For Senior Citizens, Tax Compliance: The Budget also contained provisions aimed at benefiting senior citizens, including an increase in the tax deduction limit for interest earned by senior citizens from ₹50,000 to ₹1 lakh. In addition, the government introduced a series of measures to promote voluntary tax compliance, including extending the time limit for filing updated returns from two to four years. This will provide taxpayers with greater flexibility in filing their returns and addressing any discrepancies in their tax filings.
Impact Of The Budget On The Economy: The 2025-26 Union Budget is designed to provide a significant boost to India’s economic growth by focusing on key sectors like agriculture, MSMEs, infrastructure, education, and innovation. The tax reforms introduced are expected to boost household savings and consumption, thereby stimulating domestic demand. With the middle class, often referred to as the backbone of India’s economy, set to benefit from these tax cuts, there is optimism that the new Budget will lead to stronger economic growth in the coming year. The proposed allocation of ₹50.65 lakh crore for the fiscal year 2025-26 represents a 7.4% increase over the current fiscal’s expenditure, signaling the government’s intent to boost investment in key sectors and support economic recovery. Union Finance Minister Nirmala Sitharaman’s third budget marks a transformative shift in India’s tax and economic policies. The significant relief provided to the middle class, especially in terms of income tax cuts, comes at a time when the nation is looking to accelerate economic recovery and inclusive growth. Along with reforms in agriculture, MSMEs, education, and innovation, the 2025-26 Budget paves the way for a stronger, more resilient economy. As the government sets its sights on achieving fiscal consolidation, enhancing infrastructure, and promoting investment, it is clear that the new tax proposals are aimed at empowering India’s citizens, stimulating growth, and creating a more competitive, prosperous nation.
