5 key tax reforms for middle class introduced in Budget 2025

February 05,2025

The Union Budget 2025 presented by Finance Minister Nirmala Sitharaman on February 1, 2025, witnessed several key income tax reforms aimed especially at the middle class. These reforms aim to simplify the tax structure and ease the compliance burden.

"The new bill will be clear and direct in text with close to half of the present law, in terms of both chapters and words. It will be simple to understand for taxpayers and tax administration, leading to tax certainty and reduced litigation," said the FM in her budget speech.

That said, let us look at the important tax-related announcements from Budget 2025.

TAX-FREE INCOME UP TO RS 12 LAKH

Under the new tax regime, there will be no tax payable up to income of Rs 12 lakh.

With the standard deduction of Rs 75,000, the effective income limit stands at Rs 12.75 lakh for the salaried class.

REVISION OF INCOME TAX SLABS

The government has proposed revisions to the tax slabs under the new regime:

0-4 lakh rupees: Nil

4-8 lakh rupees: 5%

8-12 lakh rupees: 10%

12-16 lakh rupees: 15%

16-20 lakh rupees: 20%

20-24 lakh rupees: 25%

Above 24 lakh rupees: 30%

This new tax structure aims to ease the financial burden of the middle class, enhancing their disposable income and giving a boost to their consumption levels.

TAX RELIEF FOR SENIOR CITIZENS

Budget 2025 has increased the limit for tax deduction on interest from Rs 50,000 to Rs 1,00,000 for senior citizens. This would help result in greater savings among retirees.

EXTENSION IN UPDATED TAX RETURN FILING

Union Budget 2025 has extended the time limit to four years from the current two years for filing the updated income tax returns, thereby allowing more time for taxpayers to voluntarily disclose their correct income.

TAX EXEMPTION ON NSS WITHDRAWALS

Withdrawals made from the National Pension Scheme (NPS) on or after August 29, 2024, will be exempted from tax.

Nirmala Sitharaman in her budget speech mentioned, "A number of senior and very senior citizens have very old National Savings Scheme accounts. As interest is no longer payable on such accounts, I propose to exempt withdrawals made from NSS by individuals on or after the 29th of August, 2024."