The 2025 Union Budget provided a bonanza for the middle class, as the income tax rates were significantly slashed for all classes of taxpayers, who are assessed under the new tax regime. The highlight of the revision was the increase in income tax exemption limit from Rs 7 lakh to Rs 12 lakh.
"A tax payer in the new regime with an income of Rs 12 lakh will get a benefit of Rs 80,000 in tax, which is 100% of tax payable as per existing rates," Finance Minister Nirmala Sitharaman said, during her Budget speech.
For the salaried class, the tax exemption limit rises higher to Rs 12.75 lakh, taking into consideration the standard deduction of Rs 75,000 offered to them under the new tax regime.
Notably, the exemption limit has risen by 12 times over the past 20 years — from Rs 1 lakh in 2005 to Rs 12 lakh which will be applicable from assessment year 2025-26 onwards.
Here's a timeline of how the exemption limit has risen over the past two decades:
2005: The income tax exemption limit stood at Rs 1 lakh.
2012: Exemption limit raised to Rs 2 lakh.
2015: Exemption limit increased to Rs 2.5 lakh.
2019: Exemption limit doubled to Rs 5 lakh.
2023: Exemption limit raised to Rs 7 lakh.
2025: Exemption limit hiked to Rs 12 lakh.
Here's a look at how the revised tax slabs stand:
Prime Minister Narendra Modi, while commenting on the government's decision to lower the income tax, said this provides a significant relief to the middle class. This also provides an opportunity to those who have just joined the workforce, as they would be relieved of taxes, he added.
"Usually the focus of the budget is on how the government treasury will be filled, but this budget is exactly the opposite of that. How will this budget fill the pockets of the citizens of the country, how will the savings of the citizens of the country increase and how will the citizens of the country become partners in development," Modi said.
Apart from nil tax on income up to Rs 12 lakh, the new slabs significantly reduce the tax burden on even those earning higher income.
A person having income of Rs 18 lakh will get a benefit of Rs 70,000 in tax, which 30% of tax payable as per the existing rates.
An individual with an income of Rs 25 lakh gets a benefit of Rs 1,10,000, which is 25% of the tax payable.
Here's a look at how the revised tax rates benefits taxpayers across categories:
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