Happy With Income Tax Announcements In Budget 2025? Here's How Much It Will Cost Centre
For salaried taxpayers, this limit will be raised to Rs 12.75 lakh, due to a standard deduction of Rs 75,000.
Finance Minister Nirmala Sitharaman has unveiled significant tax relief for the salaried class under the new income tax regime. Announcing a major change, she stated that individuals with an income of up to Rs 12 lakh (approximately Rs 1 lakh per month) will be exempt from paying any income tax, excluding special rate incomes like capital gains. For salaried taxpayers, this limit will be raised to Rs 12.75 lakh, due to a standard deduction of Rs 75,000.
"The new structure will substantially reduce the tax burden on the middle class, leaving more money in their hands," FM Sitharaman said in the parliament.
Slab Rate Changes Bring Relief
In addition to the reduced slab rates, tax rebates will be offered to individuals earning up to Rs 12 lakh in normal income (excluding special income). As a result, no income tax will be payable by taxpayers in this income bracket. For instance, an individual with a Rs 12 lakh income will receive a tax benefit of Rs 80,000, which amounts to a 100% reduction in the tax payable as per the existing tax structure. Similarly, a person earning Rs 18 lakh will benefit from a Rs 70,000 reduction (about 30% of their tax liability), while a taxpayer with an income of Rs 25 lakh will see a tax benefit of Rs 1,10,000 (approximately 25% reduction in their tax obligation).
Government Revenue Loss
Despite the clear benefits for taxpayers, the new proposals come at a cost to the government. The policy changes are expected to result in a loss of Rs 1 lakh crore in direct taxes (Income Tax). Additionally, indirect taxes, including GST and customs duties, will see a loss of around Rs 2,600 crore.
In other words, the government is willing to forgo this amount of revenue to implement these new tax proposals, likely aimed at stimulating economic growth or providing relief to taxpayers.
Despite the announced cuts in income tax rates, the Centre has projected a significant increase in gross income tax receipts for the financial year 2025-26. The budgeted receipts for 2025-26 are set at Rs 14.38 lakh crore, marking a 21.1% increase compared to the revised estimate of Rs 12.57 lakh crore for 2024-25.
For the ongoing fiscal year 2024-25, the revised estimate of Rs 12.57 lakh crore for gross income tax revenues is already higher than the original budgeted amount of Rs 11.87 lakh crore, reflecting a stronger-than-expected tax collection performance.
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