Union Budget 2025: 9 out of 10 taxpayers will now pay zero income tax

In her post Budget press conference, Nirmala Sitharaman said that an additional one crore taxpayers will pay no tax post her announcement. Here's how

Finance Minister Nirmala Sitharaman gave a major relief to the beleagured middle-class of the country by announcing hike in tax rebate in Budget 2025. In her post-Budget press conference, Sitharaman said that an additional one crore taxpayers will pay no tax post her announcement.

 

This effectively means that 9 out of 10 salaried individual taxpayers will now pay zero income tax.

 

What did Nirmala Sitharaman announce in Budget 2025?

 

In her Budget speech, Sitharaman said there will be no income tax payable up to Rs 12 lakh under the new tax regime. This earlier limit for income tax rebate under the new tax regime was Rs 7 lakh.

 

 

Considering the standard deduction of Rs 75,000, there will be no tax up to Rs 12.75 lakh of individual income.

 

However, this only applies to salary income and not from other sources, such as capital gains, which will remain taxable.

 

How does it change the taxpayer base?

 

According to income tax return statistics for Assessment Year 2023-24, 75.46 million salaried individuals filed tax returns. Out of these, 58.92 million individuals had annual salary income less than Rs 7 lakh, thus giving them exemption from any tax. This translates to 78.1 per cent of salaried taxpayers paying no tax.

 

This calculation includes individuals who reported zero salary income (37.5 million) and those with income up to Rs 7 lakh (21.4 million).

 

Taking the AY 2023-24 data as base, if the revised Rs 12 lakh rebate limit is to be considered, then the number of individuals exempted from paying income tax would further rise to 67.76 million. This would mean that 89.8 per cent of salaried individuals would not have any tax liability.

 

If we consider the Rs 12.75 lakh as rebate limit, then the number of individuals exempted from paying income tax would be 69.22 million. This would mean that 91.7 per cent of salaried individuals would not have any tax liability. 

 

This effectively means 9 out of 10 individuals will now pay zero direct tax.

 

Who would benefit from this tax rebate?

 

The move would help roughly 1.5 crore individuals who fall in the Rs 7 lakh to Rs 12 lakh income range, who won't need to pay tax on their salaried income anymore.

 

What if your salary is above Rs 12 lakh?

 

It must be noted that the government has increased the tax rebate limit and not the basic exemption. The income limit for rebate under Section 87A has been increased from Rs 7 lakh to Rs 12 lakh for taxpayers under Section 115BAC(1A). Additionally, the rebate amount under clause (a) of the first proviso to Section 87A has been raised from Rs 25,000 to Rs 60,000.

 

This means if your salaried income is above Rs 12 lakh (or Rs 12.75 lakh considering the standard deduction), you will be liable to pay taxes as per the tax slabs.

 

The Finance Minister also announced revised tax slabs. Here are the revised numbers: 

Source: Ministry of Finance