The Union Budget 2025 has brought a major tax relief for the middle class, with Finance Minister Nirmala Sitharaman announcing that individuals earning up to ₹12 lakh annually will have zero tax liability under the new tax regime. Additionally, salaried individuals can claim a standard deduction of ₹75,000, effectively making income up to ₹12.75 lakh tax-free. This move is aimed at simplifying tax compliance and increasing disposable income for millions of taxpayers.
 

The new tax regime was introduced as an alternative to the traditional tax structure, offering lower tax rates but with limited exemptions and deductions. Previously, the tax-free income threshold under this regime was ₹7 lakh. The decision to raise it to ₹12 lakh, with an effective limit of ₹12.75 lakh for salaried individuals, marks one of the most significant tax reforms in recent years.
 

Impact of Tax Exemption on Salaried Individuals and the Economy

The increased tax exemption limit is expected to benefit a large number of salaried professionals, particularly those who do not claim deductions under the old tax regime. By eliminating tax liability for those earning up to ₹12.75 lakh annually, the government aims to ease financial stress on middle-income earners and enhance consumer spending.During her Budget 2025 speech, Finance Minister Nirmala Sitharaman stated, “There will be no income tax payable up to an income of ₹12 lakh under the new tax regime. For salaried taxpayers, this limit is ₹12.75 lakh, considering the standard deduction of ₹75,000.”

Experts believe this move will encourage more taxpayers to opt for the new regime, which was previously seen as less attractive due to its limited exemptions. Advocate Vaibhav Jajoo of Dhruva Advisors LLP highlighted the significance of the reform, saying, “Making income up to ₹12.75 lakh tax-free under the new tax regime is a welcome move that will provide relief to the middle class and stimulate economic growth.”For individuals who do not make use of tax-saving instruments like Section 80C deductions (which cover provident funds, life insurance premiums, housing rent allowance, and other investments), the new tax regime becomes a more viable option. Without tax deductions, these taxpayers can maximize their take-home salary and improve their financial planning.
 

The decision to expand tax exemptions is also expected to increase savings and boost investments in various sectors. With additional disposable income, consumers are likely to spend more on housing, automobiles, and other discretionary expenses, providing a ripple effect that supports broader economic growth.
While the old tax regime remains an option for those who prefer exemptions and deductions, Budget 2025 has significantly enhanced the appeal of the new regime. Taxpayers must now evaluate which system benefits them the most based on their financial habits and long-term investment plans.
 

The Indian government’s latest tax reforms reflect its commitment to easing the burden on the salaried class and driving economic progress. By making income up to ₹12.75 lakh tax-free, Budget 2025 ensures that individuals retain more of their earnings, leading to better financial stability and increased spending power. The move is expected to reshape India’s tax landscape and encourage greater participation in the formal economy, ultimately contributing to national growth and prosperity.