Finance Minister Nirmala Sitharaman on Saturday announced an increase in the income tax rebate limit from Rs 7 lakh to Rs 12 lakh under the new tax regime. This means that individuals earning up to Rs 12 lakh annually will have zero tax liability. However, the rebate is not applicable for those earning beyond this threshold. If taxable income exceeds Rs 12 lakh by even a single rupee, tax will be levied as per the slab rates.
Previously, individuals earning Rs 12 lakh paid Rs 80,000 in taxes under the new regime. Under the revised structure, a taxable income of Rs 12.1 lakh will result in a tax liability of Rs 61,500. This calculation is based on the applicable tax rates: 5% on income between Rs 4 lakh and Rs 8 lakh, 10% on income between Rs 8 lakh and Rs 12 lakh, and 15% on income between Rs 12 lakh and Rs 16 lakh. Consequently, an individual earning Rs 15 lakh will have to pay Rs 1,05,000 in taxes.
For those earning above Rs 15 lakh, Sitharaman announced a reduction in tax rates. Previously, all income beyond Rs 15 lakh was taxed at 30% under the new regime. Now, the revised rates are 15% for income between Rs 12 lakh and Rs 16 lakh, 20% for Rs 16 lakh to Rs 20 lakh, 25% for Rs 20 lakh to Rs 24 lakh, and 30% for income above Rs 24 lakh.
The finance minister said that individuals earning more than Rs 24 lakh will save up to Rs 1.1 lakh under the new tax structure.
The finance minister noted that the government would forego Rs 1 lakh crore in direct tax revenue and Rs 2,600 crore from indirect taxes as a result of these changes.
Economists have raised concerns about the potential need to cut capital expenditure to offset the revenue loss. Following the announcement, Sensex and Nifty saw mixed movements, with the 30-share Sensex falling by 177 points to 77,323, while the Nifty50 showed marginal gains of 94 points, closing at 23,413.
The revised income tax slabs are as follows:
- Rs 0-4 lakh: NIL
- Rs 4-8 lakh: 5%
- Rs 8-12 lakh: 10%
- Rs 12-16 lakh: 15%
- Rs 16-20 lakh: 20%
- Rs 20-24 lakh: 25%
- Above Rs 24 lakh: 30%
The tax deduction limit for senior citizens has also been doubled from Rs 50,000 to Rs 1 lakh. Sitharaman said that the government will table a new income-tax bill next week, which she added would carry forward the principles of justice outlined in the Bharatiya Nyay Sanhita.
She added that the new structure is expected to reduce the tax burden on the middle class, increase disposable income, and boost household consumption, savings, and investment.
The finance minister also announced that the Tax Deduction at Source (TDS) regime will be rationalised. She said that reforms are not endpoints but a means to achieve better governance and economic stability.
The Economic Survey, presented a day before the Budget, projected India’s GDP growth for the current financial year at 6.4%, the lowest in four years. The growth forecast for FY26 stands between 6.3% and 6.8%.
What does the announcement mean?
For taxpayers under the new regime, salaried individuals can benefit from an extended exemption up to Rs 12.75 lakh due to a standard deduction of Rs 75,000. Those earning Rs 12 lakh will see a tax benefit of Rs 80,000, while those earning Rs 18 lakh will benefit by Rs 70,000.
The new tax regime aims to ease financial pressure on middle-class taxpayers, improve household savings, and stimulate economic growth. The government has also introduced changes to tax rules concerning updated returns, TDS collection, and National Savings Scheme (NSS) withdrawals.
The time limit for filing updated returns will be extended from two years to four years. The threshold for TDS collection on remittances under the Liberalised Remittance Scheme (LRS) will be increased from Rs 7 lakh to Rs 10 lakh. The annual limit for TDS on rent has also been raised from Rs 2.4 lakh to Rs 6 lakh.
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