FM Nirmala Sitharaman: No Income Tax Up to ₹12 Lakh for 1 Crore Indians

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Key Takeaways

India’s Union Budget 2025-26 raises the tax-free income limit to Rs 12 lakh, benefiting over one crore taxpayers.
Revised tax slabs simplify compliance and reduce liabilities, enhancing financial savings for middle-class earners under the new tax regime.
Increased disposable income is expected to boost consumption, savings, economic growth, and incentivize a shift to the simpler tax system.

Finance Minister Nirmala Sitharaman announced a major relief for middle-class taxpayers in India’s Union Budget for the fiscal year 2025-26. According to her declaration, individuals earning an annual income of up to Rs 12 lakh under the new tax regime will not have to pay any income tax. This policy change expands the tax-free income threshold and is expected to benefit an additional one crore taxpayers across the country. The announcement marks an important step in providing financial savings for millions belonging to the middle class, while also simplifying India’s tax structure.

A Significant Increase in the Tax-Free Threshold

FM Nirmala Sitharaman: No Income Tax Up to ₹12 Lakh for 1 Crore Indians

Earlier, the income tax exemption limit under the new tax regime was capped at Rs 7 lakh annually. With the recent hike to Rs 12 lakh, taxpayers earning within this bracket will now enjoy a complete rebate, effectively reducing their tax liability to zero. Under the earlier system, individuals in this income range had to pay Rs 80,000 as income tax. The updated exemption limit ensures they keep that amount as savings, a welcome change for most middle-income earners.

Additionally, salaried employees will further benefit from the standard deduction of Rs 75,000 offered under the new tax regime, effectively increasing the tax-free limit to Rs 12.75 lakh annually. The Finance Minister explained that the tax rebate applies strictly to “normal income”—which includes regular earnings from salaries, wages, or businesses—while excluding special rate incomes such as capital gains. By targeting middle-class earners and regular income sources, this measure provides focused tax relief where it’s most needed.

Revised Tax Slabs Under the New Tax Regime

The Union Budget also introduced adjustments to tax slabs for various income levels under the new tax regime. These new slabs aim to create a clear and easier-to-follow tax structure. The updated tax rates are as follows:

0 to Rs 4 lakh: Nil 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

Notably, taxpayers with income up to Rs 12 lakh will see their tax liability completely offset by applicable rebates. Those earning beyond Rs 12 lakh and up to Rs 24 lakh are also likely to experience some level of tax savings due to the rationalized rates under the new system.

Middle-Class-Centric Reforms

The rationale for these changes, as articulated by Nirmala Sitharaman, focuses on delivering real financial relief to middle-class earners and simplifying tax compliance. “We are providing a tax rebate in addition to the benefit due to slab rate reduction so that there is no payable tax for them,” Sitharaman stated. The larger goal appears to be aligning the tax structure with the needs of the middle class, while also encouraging transparency and ease of filing taxes.

The changes also include an enhancement of the existing rebate under Section 87A. Starting from the assessment year 2026-27, the rebate limit has been increased from Rs 7 lakh to Rs 12 lakh, under Section 115BAC of the Income Tax Act. Furthermore, the maximum rebate amount will climb from Rs 25,000 to Rs 60,000, making the new tax regime far more appealing than its predecessor for most middle-income salary earners.

Historical Context and Wider Political Impact

Historically, changes to tax exemption limits have taken years to materialize. For comparison, the income tax exemption limit under the previous United Progressive Alliance (UPA) government rose from Rs 1 lakh to Rs 2 lakh over seven years (2005 to 2012). In contrast, during Prime Minister Narendra Modi’s term, the exemption thresholds have climbed more aggressively since 2014. The jump from Rs 7 lakh to Rs 12 lakh, announced in one budget, represents one of the largest increases in recent memory.

Union Home Minister Amit Shah echoed the positive sentiment of this announcement, emphasizing its alignment with Prime Minister Modi’s consistent focus on the middle class. “The middle class is always in PM Modi’s heart. Zero income tax till Rs 12 lakh income will enhance the financial well-being of this segment,” he remarked. The changes have garnered praise, not only as a significant financial relief but also as a politically astute move targeting a crucial segment of the population.

For context, raising the tax-free threshold from Rs 7 lakh to Rs 12 lakh is projected to benefit over one crore Indian taxpayers. Prime Minister Modi noted that this is the single largest tax exemption threshold increase recorded since 2005.

Other Budget Reforms for Taxpayers

Beyond personal income tax relief for the middle class, the 2025-26 Union Budget also introduced several other measures aimed at reducing compliance burdens and addressing taxpayer concerns:

Senior Citizens’ Benefits:
The tax deduction limit for senior citizens on interest income has been doubled from Rs 50,000 to Rs 1,00,000 annually. This provides much-needed relief to retirees, many of whom depend on interest income for their financial stability.
Simplification of TDS (Tax Deducted at Source):
Tax Deducted at Source rates and thresholds have been rationalized to make the system less complex. This makes it easier for businesses and individuals to comply with tax regulations.
Impact on Revenue and Deficit Management:
The wide array of tax cuts, including the updated income slabs, is expected to cost the government over Rs 1 trillion in forgone revenue. However, Sitharaman assured that her team will work toward maintaining a manageable fiscal deficit to keep India’s public debt under control. “We will make every effort to ensure that central government debt remains on a declining path as a percentage of GDP,” she said.

Cascading Benefits for the Economy

The financial boost created by these tax reforms extends beyond the middle class. While immediate beneficiaries are those earning up to Rs 12 lakh annually, even those in higher tax brackets can expect savings. For example, individuals earning Rs 20 lakh annually could save around Rs 1.1 lakh due to rate rationalizations under the new system. Increased disposable income among millions of taxpayers is predicted to lead to higher household spending, increased consumer savings, and improved investment rates. These outcomes could provide much-needed momentum for India’s economy at a time when global markets face uncertainties.

The broader economic benefits, however, hinge on how families and businesses utilize their increased disposable incomes. The government anticipates that leaving money in the hands of the people will help revitalize sectors like retail, housing, and small-scale industries. Over time, this could strengthen domestic economic growth.

Incentives to Shift to the New Tax Regime

While this move benefits existing taxpayers under the new tax regime, the government has openly encouraged more people to transition to this system. The older regime, which offers a chart of deductions and exemptions, continues to be available. However, the new tax regime—with no income tax up to Rs 12 lakh for standard earners—may draw more individuals over to its structure due to its simplicity and straightforward savings.

Summing Up

The declaration of zero income tax for individuals earning up to Rs 12 lakh, coupled with a slew of related reforms, signals a decisive shift in India’s fiscal policy. This change has two primary goals: first, to ease the financial strain on middle-income families; and second, to simplify tax compliance for regular income earners. As FM Nirmala Sitharaman explained, the focus is on ensuring “no tax payable for them,” a move that directly addresses growing demands for transparency and relief within the tax framework.

With an estimated one crore taxpayers benefiting immediately and millions more gaining indirectly via recalibrated tax rates, this announcement represents one of the most impactful reforms in recent memory. Over time, these changes could significantly boost India’s domestic consumption and create a ripple effect across various sectors of its economy.

For official information regarding changes in India’s tax regulations and updates about relevant forms, you can visit the Income Tax India Portal. As reported by VisaVerge.com, this tax gesture reflects the government’s broader strategy of empowering India’s middle class while addressing fiscal responsibilities. For many, the reform couldn’t have come at a more crucial time.

Zero tax for 1 crore more Indians after rebate hike

Finance Minister Nirmala Sitharaman announced that individuals earning up to Rs 12 lakh annually will now pay zero income tax under the new tax regime, up from the previous limit of Rs 7 lakh. This expansion is set to benefit an additional one crore taxpayers.

Why it matters:
The changes provide substantial relief to middle-class Indians, increasing disposable incomes and encouraging higher savings, investment, and consumption. It’s part of the government’s push to streamline taxation while boosting economic activity.

By the numbers:
Here’s the revised tax structure:
– 0 to Rs 4 lakh: Nil tax
– Rs 4 lakh to Rs 8 lakh: 5%
– Rs 8 lakh to Rs 12 lakh: 10%
– Rs 12 lakh to Rs 16 lakh: 15%
– Rs 16 lakh to Rs 20 lakh: 20%
– Rs 20 lakh to Rs 24 lakh: 25%
– Above Rs 24 lakh: 30%

Those earning up to Rs 12 lakh will see their tax liability reduced to zero due to the rebate, compared to Rs 80,000 under the current system.
Salaried individuals using the Rs 75,000 standard deduction can enjoy tax-free income up to Rs 12.75 lakh.
The government expects to forgo 1 trillion rupees in revenue from these changes.

The big picture:
These tax reforms come amid the government’s continued efforts to ease the burden on the middle class, a demographic central to many recent policies. The move also incentivizes taxpayers to shift to the new tax regime, which offers lower rates but limits access to exemptions.

What they’re saying:
Union Home Minister Amit Shah noted, “The middle class is always in PM Modi’s heart. Zero Income Tax till Rs 12 Lakh Income… [will enhance] financial well-being.”
Prime Minister Narendra Modi hailed the hike as “the largest jump in tax exemption since 2005.”

Between the lines:
The rebate applies only to “normal income” (e.g., salary, wages, business profits) and excludes income from special rates like capital gains. This ensures the benefit is targeted toward middle-class earners.

Yes, but:
– While the middle class gains significantly, the changes may primarily benefit taxpayers opting for the new regime. The traditional tax structure, which allows for a wider range of deductions, sees no similar relief.
– Critics argue the significant revenue loss could strain efforts to maintain fiscal deficit targets.

The bottom line:
The move to zero income tax for those earning up to Rs 12 lakh annually underscores the government’s focus on uplifting the middle class and simplifying tax structures. While economic ripple effects remain uncertain, the immediate impact promises significant financial relief for millions of Indian taxpayers.

Learn Today

Tax-Free Threshold: The maximum income level at which an individual is not required to pay income tax.
Income Tax Rebate: A refund or reduction in tax liability granted to taxpayers, often based on specific conditions or income levels.
Section 115BAC: A section of India’s Income Tax Act outlining provisions for the new tax regime, offering benefits like revised rates.
Disposable Income: The amount of money left with an individual after all taxes and deductions, used for savings or expenditure.
Fiscal Deficit: The gap between the government’s total revenue and total expenditure, indicating borrowed funds needed to cover expenses.

This Article in a Nutshell

India’s Tax Relief: A Middle-Class Windfall

Finance Minister Nirmala Sitharaman’s 2025-26 Union Budget doubles tax-free income to ₹12 lakh under the new regime, offering savings up to ₹80,000 annually. Benefiting one crore taxpayers, this reform simplifies compliance while boosting disposable income. Aimed at empowering the middle class, it signifies India’s shift toward economic inclusivity and fiscal transparency.
— By VisaVerge.com