Finance Minister Nirmala Sitharaman on Saturday gave major relief to the middle class by raising exemption limit and rejigging slabs and proposed zero tax for income groups for upto Rs 12 lakhs.
“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 tax payers, due to the Standard Deduction of Rs 75,000,” Finance Minister Nirmala Sitharaman said while presenting the Union Budget for 2025-26 in Lok Sabha.
The higher exemptions and rejigs have been effected under the new income tax regime.
“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.
As per the rejig, for people earning more than Rs 12 lakh per annum, there will be nil tax for income up to Rs 4 lakh, 5 per cent for income between Rs 4 and 8 lakh, 10 per cent for Rs 8-12 lakh, 15 per cent for Rs 12-16 lakh.
A 20 per cent income tax will be levied on income between Rs 16 and 20 lakh, 25 per cent on Rs 20-24 lakh and 30 per cent above Rs 24 lakh per annum.
A tax payer in the new regime with an income of Rs 12 lakh will get a benefit of Rs 80,000 in tax. A person having income of Rs 18 lakh will get a benefit of Rs 70,000 in tax.
A person with an income of Rs 25 lakh gets a benefit of Rs 1.10 lakh.
Apart from big bang reforms in the personal income tax, the Budget gave a big push to local manufacturing and the creation of more jobs as the Finance Minister announced a slew of measures including enhanced credit guarantee cover for micro and small enterprises, and making India a global hub for toys.
The credit guarantee cover for Micro and Small Enterprises has been proposed to be increased from Rs 5 crore to Rs 10 crore. For start-ups, the credit guarantee cover would be doubled to Rs 20 crore besides bringing down the guarantee fee down to 1% for loans in 27 focus sectors.
Providing impetus to private investment, Sitharaman said that each infrastructure-related ministry will come up with a 3-year pipeline of projects that can be implemented in PPP mode.
Continuing its focus on infrastructure building, the Budget has estimated a capital expenditure of Rs 11.21 lakh crore (or 3.1 per cent of GDP) in 2025-26.
Despite new schemes to support farmers, small businesses and the middle class, the government's finances are seen improving. The fiscal deficit or gap between total revenue and expenditure of the central government is estimated to be 4.4% of GDP in FY26 as against 4.8% (Revised Estimate) in FY25.
The FM said Rs 1.5 lakh crore will be provided towards 50-year interest free loans to states, for infrastructure development.
An asset monetisation plan will be launched for 2025-30 period to infuse Rs 10 lakh crore capital in new projects.
Presenting the Budget for 2025-26, she also announced an outlay of Rs 500 crore for setting up a centre of excellence in artificial intelligence for education.
Further, the Budget outlay for Jal Jeevan Mission is being enhanced to achieve 100 per cent coverage, she said.
Sitharaman also said that urban sector reforms relating to governance, urban land and planning will be incentivised.
The Finance Minister announced a fresh contribution of Rs 10,000 crore to the Fund of Funds (FoF) for startups, supplementing the government’s existing Rs 10,000 crore commitment.
She highlighted that the FoF for startups has so far received commitments amounting to over Rs 9 lakh crore, reflecting its significant role in fostering entrepreneurial growth in the country.
Sitharaman stated that additional infrastructure would be developed in the Indian Institutes of Technology (IITs) established post-2014. Among these, IIT Patna is set to witness an expansion, underscoring the government’s commitment to strengthening higher education institutions across the country.
To bolster advancements in artificial intelligence (AI) for education, the Budget 2025 has earmarked Rs 500 crore for setting up three Centres of Excellence. These centres will focus on leveraging AI to enhance educational tools, research, and skill development, aligning with the government’s vision of a technology-driven knowledge economy.