Budget 2025: A Game Changer for the Middle Class with Major Tax Relief

The tax relief introduced in Budget 2025 is a much-needed step toward addressing the concerns of the middle class. Recognizing their contribution to the economy, this budget provides essential relief from the rising cost of living. While further measures are necessary to tackle the long-term challenges faced by the middle class, this budget marks a major step in the right direction. It has reshaped the direct tax framework for the middle class, unlike the previous budget, which was focused on long-term vision. This time, the emphasis has been on providing immediate relief from the tax burden.

| Budget 2025: A Game Changer for the Middle Class with Major Tax Relief |

Responsive Government: Commitment to Tax Simplification

Union Finance Minister Nirmala Sitharaman highlighted the Modi government’s dedication to responding to public demands, emphasizing the swift implementation of income tax simplification measures.

“One thing which I certainly would like to highlight is responding to the voice of the people, which is what Prime Minister Modi is known for in his administration. It’s a very responsive government,” Sitharaman stated in Delhi.

She further mentioned that the draft of the ‘Direct Tax Code,’ aimed at reforming India’s Income Tax Regime and announced in July 2024, has been completed. The Bill is scheduled to be introduced in Parliament next week. She also emphasized that the budget prioritizes rationalization, including reduced and simplified customs tariffs, aligning with the government’s broader reform agenda.

Income Tax Relief: A Major Announcement

Amid high expectations for tax relief, Finance Minister Nirmala Sitharaman announced that the new Income Tax Bill will be introduced next week. This upcoming bill is designed to be more concise and easier to understand than the existing Income Tax Act. A key highlight of the tax structure revision is that annual incomes up to ₹12 lakh under the new tax regime will now be exempt from income tax, an increase from the previous ₹7 lakh exemption limit. This provides a significant advantage to middle-income earners. However, individuals earning income under special tax rates, such as capital gains, lottery winnings, online gaming income, and crypto trading, will not benefit from this change.

PM Modi Calls it a ‘People’s Budget’

Prime Minister Narendra Modi praised Finance Minister Nirmala Sitharaman and her team for delivering what he described as a ‘people’s budget.’ According to PM Modi, this budget will help fulfil the aspirations of Indians by boosting savings, investments, consumption, and economic growth. He emphasized that the Union Budget 2025 is designed not to fill the government’s coffers but to put more money in the hands of the people.

Key Changes in the New Tax Regime

The restructuring of tax slabs under the new tax regime makes it more favourable for middle-income individuals. For instance, earlier, an income of ₹12 lakh attracted ₹80,000 in tax, but now, no tax will be payable, offering a direct relief of ₹80,000. Similarly, an individual earning ₹24 lakh in the current year will see a tax relief of ₹1,10,000. Previously, incomes exceeding ₹15 lakh were taxed at a 30% slab rate; however, now the 30% tax rate applies only to incomes above ₹24 lakh. This represents a substantial tax relief for the middle class.

Simplified Compliance and Reduced Burden

The Income Tax Department will focus on reducing the compliance burden and fostering greater trust among taxpayers. A key reform is the extension of the deadline for filing updated returns from the current two-year limit to four years, encouraging self-assessment. Additionally, for senior citizens, the rationalized TDS liability on deposit interest has been increased from ₹50,000 to ₹1 lakh. The annual TDS exemption limit on rent has also been raised from ₹2.40 lakh to ₹6 lakh.

Economic Growth and Increased Savings

Lower taxes will provide individuals with more disposable income to spend on essential needs, healthcare, education, and investments, thereby stimulating consumption and contributing to economic growth. Tax relief will ease the financial burden on middle-class families, allowing them to better manage household expenses and plan their future effectively. With additional funds at their disposal, individuals will be able to enhance their savings for retirement, children’s education, and other long-term financial goals. Overall, Budget 2025 offers much-needed relief to the middle class, ensuring greater transparency in taxation and reducing the overall tax burden. These reforms will not only drive economic participation but also improve the financial well-being of millions of Indians.

Ms. Kanakshi Nema is an Assistant Professor at the School of Law, UPES, Dehradun, specializing in Taxation Law and Technology Laws. With a deep understanding of the dynamic intersection of law, finance, and technology, she actively contributes to discussions on fiscal policies, emerging tax trends, and their socio-economic impact.