People earning up to Rs 12 lakh annually would be exempt from paying income tax, FM Sitharaman announced.
New Delhi: On Friday, at the start of the Budget Session and hours before his cabinet colleague, Finance Minister Nirmala Sitharaman was set to present her record-breaking eighth consecutive budget, Prime Minister Narendra Modi, known for expressing his thoughts through few words and subtle gestures, shared his wish with the media. He prayed that Goddess Lakshmi would bless the poor and the middle class of the country.
By the time Sitharaman wrapped up her nearly 75-minute budget speech on Saturday, it was clear that Goddess Lakshmi, revered as the Goddess of Wealth and Prosperity, had indeed favoured the working class, just as PM Modi had indicated the day before.
Sitharaman unveiled sweeping reforms in the new income tax regime, introducing revamped tax slabs and rates aimed at benefiting salaried and individual taxpayers. The most significant announcement was that people earning up to Rs 12 lakh annually would now be exempt from paying income tax.
“Democracy, Demography and Demand are the key support pillars in our journey towards Viksit Bharat. The middle class provides strength for India’s growth. This Government under the leadership of Prime Minister Modi has always believed in the admirable energy and ability of the middle class in nation building. In recognition of their contribution, we have periodically reduced their tax burden. Right after 2014, the ‘Nil tax’ slab was raised to Rs 2.5 lakh, which was further raised to Rs 5 lakh in 2019 and to Rs 7 lakh in 2023. This is reflective of our Government’s trust on the middle-class taxpayers. I am now happy to announce that there will be no income tax payable up to income of Rs 12 lakh (i.e. average income of Rs 1 lakh per month other than special rate income such as capital gains) under the new regime. This limit will be Rs 12.75 lakh for salaried taxpayers, due to standard deduction of Rs 75,000. Slabs and rates are being changed 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,” Sitharaman said in an announcement that was being widely anticipated by the salaried class, and as expected, generated a sense of celebration as posts in WhatsApp groups and social media showed.
As per budget documents, while those with annual income of up to Rs 12 lakh will have no tax liability, those with higher incomes too will have savings of up to Rs 1.1 lakh on account of rate rationalization under the new tax regime (NTR).
Under the NTR, the new tax slabs are: nil tax on annual income of up to Rs 4 lakh, 5% on Rs 4 lakh-8 lakh, 10% on Rs 8 lakh-12 lakh, 15% on Rs 12 lakh-16 lakh, 20% on Rs 16 lakh-20 lakh, 25% on Rs 20 lakh-24 lakh, and 30% on annual income above Rs 24 lakh.
Significantly, the Finance Minister, who is often caricaturized as someone who is focused on securing more revenue for the government sometimes at the expense of the working class, stated that due to these pro-people provisions, the government will forego a revenue of about Rs 1 lakh crore in direct taxes and Rs 2,600 crore in indirect taxes.
The government also announced doubling the tax deduction limit on interest for senior citizens, from Rs 50,000 to Rs 1 lakh and increasing the annual TDS limit on rent from Rs 2.40 lakh to Rs 6 lakh.
Later, PM Modi, visibly happy with the budget presented by Sitharaman and the subsequent feedback that it generated from the middle class, which is seen as among the most loyal supporters of Modi, congratulated his ministerial colleague for presenting what he called was a “Janta Janardan, people’s budget”.
“It will spike savings, investment, consumption and growth rapidly. The budget shifts focus from government revenue to individual savings and participation in development. Usually, the focus of the budget is on how the government treasury will be filled, but this budget is exactly the opposite of that. The measures outlined the government’s aim to increase savings and involve citizens in economic growth,” the PM said.
The people centric budget, even though both the ruling party and opposition parties would not like to accept it publicly for now, is likely to make a visible impact on the upcoming Delhi elections scheduled for 5 February and the Bihar Assembly elections that will be held in November this year.
150 Central Schemes
Apart from giving the much needed relief to the middle class by way of tax cuts, an analysis of the budget shows that it has been formed with the objective to foster economic growth by supporting various sectors and improving the quality of life for citizens. There are a total of 150 Central schemes with a budget outlay of more than Rs 1,000 crore spanning multiple ministries.
Sitharaman proposed several initiatives to boost agricultural productivity and rural prosperity. This includes the Prime Minister Dhan-Dhaanya Krishi Yojana, which will target 100 low-productivity districts, benefiting 1.7 crore farmers.
A 6-year Mission for atma-nirbharta (self reliance) in pulses will focus on improving the production of Tur, Urad, and Masoor, ensuring remunerative prices for farmers.
The government also announced to increase the limit of the Kisan Credit Card from Rs 3 lakh to Rs 5 lakh, benefiting 7.7 crore farmers, fishermen, and dairy farmers. Additionally, a rural prosperity and resilience programme was announced to address under-employment in agriculture through skilling, technology, and investment, aiming to reduce rural migration.
The budget also introduced measures to support MSMEs, including enhancing the Credit Guarantee Cover for micro and small enterprises from Rs 5 crore to Rs 10 crore, which is expected to generate additional credit of Rs 1.5 lakh crore over five years. A fund of funds for startups with a Rs 10,000 crore corpus will be established, and a new scheme will provide term loans up to Rs 2 crore for 5 lakh women, Scheduled Castes, and Scheduled Tribes first-time entrepreneurs.
The budget also proposes Customized Credit Cards with a Rs 5 lakh limit for micro-enterprises, with 10 lakh cards to be issued in the first year.
The Finance Minister stated that the government will develop 50 top tourist destinations in India through partnerships with states, focusing on skill development, homestays, and streamlined e-visa facilities. MUDRA loans will be provided for homestays, and states will receive performance-linked incentives for effective destination management.
In the field of healthcare, Sitharaman added 36 lifesaving drugs to the list of medicines fully exempt from Basic Customs Duty (BCD) and 6 lifesaving medicines to the list attracting a concessional duty of 5%.
In education, 10,000 additional medical
Recognizing the need to focus on the AI, Sitharaman sanctioned Rs 2,000 crore for the IndiaAI Mission for 2025-26, which is nearly a fifth of the scheme’s total outlay of Rs 10,370 crore. The fresh allotment for the next fiscal comes as the government has shortlisted 10 companies that will provide nearly 19,000 graphics processing units (GPUs) for setting up artificial intelligence (AI) data centres in the country, and fund building foundational models.
The budget has allocated Rs 20,000 crore for a private sector-driven Research, Development, and Innovation initiative. Similarly, a deep tech fund will be explored to support next-generation startups. It was announced that the National Geospatial Mission will develop foundational geospatial infrastructure, and a Gyan Bharatam Mission will document and conserve over 1 crore manuscripts.
Apart from that a Centre of Excellence in Artificial Intelligence for education will be established with an outlay of Rs 500 crore.
In the field of urban development and infrastructure, an urban challenge fund of Rs 1 lakh crore will support initiatives like “Cities as Growth Hubs” and “Creative Redevelopment of Cities”.
Similarly, the Jal Jeevan Mission, which is one of PM Modi’s pet projects, will be extended until 2028 with an enhanced outlay for rural piped water supply schemes. Additionally, aiming at completing stuck housing projects and provide relief to homebuyers whose apartments have been delayed for years in the country, Sitharaman announced that a Special Window for Affordable and Mid-Income Housing (SWAMIH) fund 2 will be established with Rs 15,000 crore allocation to help complete an additional 1 lakh housing units.
REFORMS
The budget had introduced several reforms, including raising the FDI limit in the insurance sector from 74% to 100% for companies investing premiums in India. This is expected to bring more options and better service for customers.
The government announced a High-Level Committee for regulatory reforms which will review non-financial sector regulations.
To promote states to put efforts to attract investment, an Investment Friendliness Index of States will be launched in 2025. Similarly, a Jan Vishwas Bill 2.0 will decriminalize over 100 legal provisions, building on the 180 provisions decriminalized in 2023.
The budget has proposed simplifying the customs duty structure by removing 7 tariff rates, leaving only 8 rates, including zero. Additionally, the Social Welfare surcharge will be exempted on 82 tariff lines subject to a cess. Additionally, the time limit for the end-use of imported inputs will be extended from six months to one year, providing operational flexibility for industries.
Pushing strongly for “ease of business”, a New Income Tax Bill will be introduced in the coming days which will simplify the tax code by reducing its text by 50%. The bill aims to provide clarity, reduce litigation, and ensure tax certainty.