Finance Minister Nirmala Sitharaman’s announcement in the Union Budget 2025 has sparked both excitement and confusion among taxpayers. The budget promises significant relief for middle-income groups by exempting income up to Rs. 12 lakh from income tax. However, the fine print of the new tax structure has left many taxpayers puzzled about how the system will function.
No Income Tax for Incomes up to Rs. 12 Lakh
In a bold move aimed at easing the tax burden on the middle class, Sitharaman declared that individuals earning up to Rs. 12 lakh annually would not be required to pay income tax. Additionally, with the standard deduction of Rs. 75,000, individuals earning up to Rs. 12.75 lakh will also effectively face no tax liability. This announcement is part of the government’s efforts to boost consumption and economic activity.
Sitharaman elaborated on the revised tax rates, which now offer more relief for those in the middle-income bracket. She stated, “I am now happy to announce that there will be no income tax payable up to income of Rs. 12 lakh under the new regime,” referring to an annual income of Rs. 1 lakh per month (excluding special income such as capital gains).
New Tax Slabs and Tax Rebate
To clarify the new tax structure, Sitharaman introduced updated tax slabs:
- Income up to Rs. 4 lakh: No tax
- Rs.4 lakh to Rs. 8 lakh: 5% tax
- Rs.8 lakh to Rs. 12 lakh: 10% tax
- Rs. 12 lakh to Rs. 16 lakh: 15% tax
- Rs. 16 lakh to Rs. 20 lakh: 20% tax
- Rs. 20 lakh to Rs. 24 lakh: 25% tax
- Above Rs. 24 lakh: 30% tax
The rebate system ensures that those earning up to Rs. 12 lakh (excluding capital gains and other special income) will not pay any tax. In essence, the reduction in tax rates, coupled with the rebate, guarantees zero tax liability for incomes below Rs. 12 lakh.
Public Reaction: Excitement Mixed with Confusion
The announcement was met with a range of reactions on social media. Many people were quick to praise the government for supporting the middle class. One Twitter user expressed gratitude by writing, “Nirmala Ji, I wasn’t aware of your game. Shukriya!” Another called it a “big bonanza for middle-income groups” and congratulated Sitharaman for the relief.
However, the majority of taxpayers found the new tax structure unclear, especially regarding the tax slabs. While Sitharaman stated that there would be no tax for incomes up to Rs. 12 lakh, the tax chart still showed that incomes between Rs. 4 lakh and Rs. 8 lakh would be taxed at 5%, and incomes between ₹8 lakh and Rs. 12 lakh would be taxed at 10%. This caused confusion, with several users expressing their frustrations.
One social media user pointed out, “Very confusing, especially with the tax chart. Why can’t we get clear communication from the ministry?” Another remarked, “If there’s no tax up to Rs. 12 lakh, why do we still have slabs for Rs.4-8 lakh and Rs.8-12 lakh?”
How the Tax System Will Work in Practice
To clarify, the tax slabs have been revised to reduce the burden on individuals earning between Rs. 4 lakh and Rs. 12 lakh. These individuals will now pay reduced rates (5% to 10% depending on income), and with the rebate, their total tax liability will be zero. However, the rebate system is complex, and many taxpayers are uncertain about how to claim it. For now, the system is still under review, and it will take some time for the government to provide further details on how it will function in practice.
Conclusion: A Step Forward or Cause for Concern?
The announcement of no tax on incomes up to Rs. 12 lakh is undoubtedly a significant step in reducing the tax burden on middle-income groups. However, the confusion surrounding the new tax structure and rebate system could make it difficult for taxpayers to navigate the changes effectively. As more information becomes available, the government will need to offer additional clarification to ensure that taxpayers fully understand the new regime and can take advantage of the relief being offered.
