Income tax relief for the middle class! Top 5 income tax changes from Budget 2025 you should know

By Kuldip Kumar and Tanu Gupta
Budget 2025 income tax slab changes FY 2025-26: The Honorable Finance Minister presented her 8th consecutive budget, and this was perhaps one of those budgets that exceeded individual taxpayers’ expectations. Although an indication was given in the Economic Survey about the need to boost consumption, particularly among the urban middle class, the budget clearly addressed these concerns.A budget for a “Viksit Bharat,” proposed to transform six major domains, with taxation being one of them.
Today’s proposals rightly focused on middle-income taxpayers, marking a significant step for the government to forgo one lakh crore of revenue in order to increase the disposable income of taxpayers. This essentially aims at enhancing the spending power of India’s middle class and uplifting household sentiment.
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Some of the personal tax proposals announced in the budget are as follows:
No tax for a large number of taxpayers: The proposal to increase the rebate limit under Section 87A of the Income-Tax Act, 1961, from INR 7 lakh to INR 12 lakh is set to reduce the tax liability to “zero” for a large number of taxpayers.
Reduced burden for other taxpayers: The proposal to enhance the basic exemption limit from INR 3 lakh to INR 4 lakh, along with the restructuring of other slabs (including the introduction of a new 25% slab for income between INR 20 lakh and INR 24 lakh), ensures that the 30% tax slab now starts at INR 24 lakh (currently INR 15 lakh). This is an attempt to ensure that every taxpayer benefits from these changes, providing more disposable income. These adjustments are proposed under the new tax regime.
Ensuring more disposable income in taxpayers’ hands: Additional changes include increasing the TDS threshold limits for interest, rent, and other payments, as well as raising the TCS threshold for LRS payments from INR 7 lakh to INR 10 lakh. The removal of TCS on remittances for education funded through educational loans further ensures that taxpayers receive immediate financial relief. These measures are intended to boost the purchasing power of taxpayers and stimulate the economy.
Simplicity as a theme: While presenting the budget, the Finance Minister emphasized the continuation of simplifying the tax system. The changes in tax rates and slabs under the new regime are likely to make the old regime redundant.
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More ease in compliance: The extension of the time period for filing updated returns in certain cases from 2 years to 4 years will allow taxpayers more time to correct their returns if they find errors. However, this comes at the cost of higher taxes. Nevertheless, it insulates them from penalties and prosecution. Similarly, extending the decriminalization provisions of TDS to TCS is another step to ease the lives of taxpayers.
Picture abhi baaki hai (The story isn’t over yet): This is not the end. The Finance Minister also announced the introduction of a new income tax bill next week, which will be half the length of the current laws, providing greater clarity and reducing litigation. While some changes have already been proposed to simplify the tax laws—such as removing conditions for exempting two self-occupied houses—many more changes are expected in the new income tax bill.
In short, a big thumbs up to the Finance Minister for presenting an excellent budget for the middle class!
(Kuldip Kumar and Tanu Gupta are Partners, Mainstay Tax Advisors)