Tax Cuts In Budget 2025 Will Help You Save More, But Don’t Forget To Secure The Money

The income tax reforms introduced in the budget are among the biggest in the last decade — simplified and rationalised to put more money in people's hands without compromising the fiscal deficit.

The new structure will substantially reduce the taxes of the middle class, boosting household consumption, savings, and investment.

Source : ABPLIVE AI

Today was a day of celebration for the middle class as Finance Minister Nirmala Sitharaman presented a landmark Union Budget. The income tax reforms introduced in the budget are among the biggest in the last decade — simplified and rationalised to put more money in people's hands without compromising the fiscal deficit. The announcements were made in the new, simplified tax regime without deductions introduced in 2020.

Higher Income Tax Rebate

The changes to income tax are two-fold. First, the rebate under Section 87A of the Income Tax Act has been hiked. The rebate was originally introduced in the budget of 2013 and was limited to Rs 2,000 for individuals with a total income not exceeding Rs 5 lakh. Over the years, the limit and eligibility criteria have been revised. This year, the rebate has been raised to Rs 60,000 for a total taxable income not exceeding Rs 12 lakh, up from last year’s rebate of Rs 25,000 capped for a taxable income of Rs 7 lakh. So, for people with a taxable income between Rs 7,75,000 and Rs 12,75,000, this is savings of up to Rs 83,200.

This has huge implications on the tax-payer base. As per the data put out by the Income Tax department, 8 crore taxpayers filed in the assessment year 2023-24. Of them, 7.3 crore or 91 per cent had a gross income of Rs 15 lakh or less. Based on this data, roughly 85 per cent of taxpayers will pay no tax from next year if they opt for the new tax regime.

Inflation-Adjusted Tax Slabs

Second, the slabs and rates were also revised across the board to benefit all taxpayers. The new structure will substantially reduce the taxes of the middle class and leave more money in their hands, boosting household consumption, savings, and investment. After the announcement, the new tax rates stand as follows:

New Tax slabs	Tax Rate
0-4 lakh rupees	Nil
4-8 lakh rupees	5 per cent
8-12 lakh rupees	10 per cent
12-16 lakh rupees	15 per cent
16-20 lakh rupees	20 per cent
20- 24 lakh rupees	25 per cent
Above 24 lakh rupees	30 per cent

A key highlight is the revision of tax slabs in response to inflation, addressing a long-standing demand of taxpayers. Under the updated structure, the 30 per cent tax rate now applies to income above Rs 24 lakh, up from Rs 15 lakh earlier—a 60 per cent shift. Given the fact that it has been five years since the time this slab was revised, this rationalisation was a long awaited and much welcome move. 

The revised tax slabs under the proposed 2025 regime will result in monthly savings for those individuals earning more than Rs 7 lakh. Those earning between Rs 7-12 lakh as taxable income stand to save Rs 83,200 in taxes. Someone earning Rs 20 lakh will see a whopping 31% drop in their tax liability, which translates into a monthly saving of Rs 7800 or Rs 93,600 annually, and a 5.3 per cent hike in take-home earnings. 

Old vs New Tax Regime

The government has not struck down the old regime with deductions yet, and we have two different regimes currently in operation, though that may change with the new Direct Tax Code set to be unveiled next week. Both regimes have their own characteristics and should be selected with care depending on your finances. While the old tax regime allows multiple exemptions and deductions under Sections 80C, 80D, HRA, and home loan interest, the new tax regime has almost no exemptions or deductions, except for employer’s NPS contribution and standard deduction. The old tax regime is complex due to various tax-saving options but works well for those who have significant deductions to claim. On the other hand, the new tax regime is simpler and hassle-free.

For instance, for a taxable income (i.e., income after all the available deductions) of Rs 15 lakh under the old regime, you would pay Rs 2,73,000 in taxes.

However, for the same taxable income under the new tax regime (2024), you would pay Rs 1,45,600 in taxes.

After the budget 2025 changes, your total tax payment would stand at Rs 1,09,200.

So, when you decide your tax regime, ideally calculate your salary, taxable income, and all available deductions to see which one is most beneficial.

Secure Yourself

This long-overdue tax restructuring not only restores public confidence in the economy but also puts more money in people's hands, encouraging spending, boosting consumption, and driving economic growth. However, in the absence of deductions that encourage investments and insuring, you must be especially careful about securing yourself for the present and future.

(The author is the CEO of BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar)