India’s Budget 2025: New Tax Slabs, Rebates & Impact on Your Finances

 

 The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, has introduced significant reforms aimed at stimulating economic growth, enhancing consumer spending, and promoting sustainable development across various sectors. This article delves into detailed analysis of personal Income tax, the key highlights of the budget and analyzes its potential impact on India's economy and its citizens.

Income Tax Reforms: A Boon for the Middle Class

One of the most notable announcements in the Union Budget 2025 is the substantial relief provided to middle-class taxpayers. The government has raised the income tax exemption limit from ₹7 lakh to ₹12 lakh under the new tax regime. This means that individuals earning up to ₹12 lakh annually will not be liable to pay any income tax. Additionally, the budget proposes revised tax rates for higher income brackets, further reducing the tax burden on the middle class. These measures are expected to increase disposable income, thereby boosting household consumption and savings.

Here is a detailed analysis of Personal Income Tax.

Old Tax Regime (Pre-2025)

Rebate U/s 87A: ₹25,000 for income ≤ ₹7 lakh.

Zero tax if income ≤ ₹7 lakh.  

What is Section 87A of the Income Tax Act, 1961

Section 87A provides a tax rebate to individual taxpayers, effectively reducing their tax liability to zero if their taxable income is within a specified limit. The rebate applies only to resident individuals and is not available to firms, companies, or HUFs.

Tax Slabs: 

0%	₹ 3 lakh
5%	₹ 3–6 lakh
10%	₹ 6–9 lakh
15%	₹ 9–12 lakh
20%	₹ 12–15 lakh
30%	> ₹15 lakh

 

New Tax Regime (2025 Amendment)

Rebate U/s 87A: ₹60,000 for income ≤ ₹12 lakh. 

Zero tax if income ≤ ₹12 lakh (rebate cancels tax). 

Tax Slabs: 

0%	≤ ₹4 lakh
5%	₹ 4–8 lakh
10%	₹ 8–12 lakh
15%	₹ 12–16 lakh
20%	₹ 16–20 lakh
25%	₹ 20–24 lakh
30%	> ₹ 24 lakh

Rebate Conditions: 

Only under new regime (Section 115BAC). 

Not applicable for income > ₹12 lakh or for capital gains. 

Why Tax Slabs Exist Even If Tax is Nil Up to ₹12 Lakh?

Tax is calculated using slabs first. 

Rebate U/s 87A then reduces tax liability to zero if total income ≤ ₹12 lakh. 

Example: 

Income = ₹12 lakh 

Tax as per slabs: ₹60,000 (5% on ₹4L + 10% on ₹4L). 

Rebate = ₹60,000 so Net Tax = ₹0 

Key Changes

Parameter	Old Regime	New regime (2025)
Rebate limit	₹ 7 lakh	₹ 12 lakh
Rebate Amount	₹ 25,000	₹ 60,000

 

Implications

Middle-class benefit: Zero tax up to ₹12 lakh (vs. ₹7 lakh earlier). 

Push for new regime: Rebate now exclusive to the simplified regime. 

Clarity: Slabs exist for tax calculation, but rebate ensures effective zero tax for eligible incomes.

85% of Indian Population (Approx. 140 Crs) has an Income of Less than Rs 12 Lakhs, so Approx 119 Crs Indians will benefit from this 'Zero Tax' which will definitely boost Rural & Urban Consumption (increase in GST Collection) thereby having an overall impact on Indian Economy.

 

Agricultural Initiatives: Strengthening the Backbone of the Economy

Agriculture remains a critical sector in India, employing nearly 45% of the workforce and contributing about 15% to the nation's GDP. Recognizing its importance, the government has unveiled several initiatives to bolster agricultural productivity and farmer welfare. The Prime Minister Dhan-Dhaanya Krishi Yojana aims to develop 100 agricultural districts, benefiting approximately 1.7 crore farmers. Furthermore, a six-year mission focusing on self-reliance in pulses has been launched, with special emphasis on crops like Tur, Urad, and Masoor. The establishment of a Makhana Board in Bihar is another significant step to enhance the production, processing, and marketing of this unique aquatic crop.

Infrastructure Development: Laying the Foundation for Future Growth

The Union Budget 2025 places a strong emphasis on infrastructure development as a catalyst for economic revival. The capital expenditure (Capex) has been increased to ₹11.21 lakh crore for the fiscal year 2025-26, up from ₹11.11 lakh crore in the previous year. This investment is expected to enhance connectivity, create jobs, and stimulate economic activities across the country. However, the stock market's reaction was mixed, with infrastructure stocks experiencing a decline due to perceived modest capital spending hikes.

Research, Development, and Innovation: Investing in the Future

To foster a culture of innovation and research, the government has allocated ₹20,000 crore towards implementing private sector-driven research and development initiatives. The PM Research Fellowship will provide ten thousand fellowships for technological research in premier institutions like IITs and IISc. Additionally, the establishment of a second Gene Bank with 10 lakh germplasm lines aims to secure future food and nutritional security by preserving genetic resources.

Export Promotion: Enhancing Global Competitiveness

In a bid to boost exports and strengthen India's position in the global market, the budget has introduced several incentives. These include exemptions for components used in electronics and electric vehicles, such as open cells for LED/LCD TVs and capital goods for lithium-ion batteries. The promotion of Maintenance, Repair, and Overhaul (MRO) activities through tax exemptions is expected to make India a hub for shipbuilding and repairs. Trade facilitation measures, including streamlined assessment processes and extended time limits for compliance, aim to simplify export procedures and encourage businesses to expand internationally.

Corporate Reactions: Winners and Losers

The budget's focus on increasing middle-class spending power and promoting inclusive development has elicited varied responses from the corporate sector. Consumer goods companies, such as Hindustan Unilever, Nestle, and Dabur, witnessed a surge in their stock prices, anticipating increased demand due to higher disposable incomes. Automobile manufacturers like Bajaj Auto, Hero MotoCorp, and Maruti Suzuki also experienced gains, expecting a boost in vehicle sales. On the other hand, infrastructure firms faced declines, possibly due to perceptions of insufficient capital spending increases. Insurance companies saw a dip in their stock prices, as higher tax slabs reduced incentives for tax-saving products.

Economic Outlook: Balancing Growth and Fiscal Prudence

The Economic Survey preceding the budget projected India's GDP growth to be between 6.3% and 6.8% for the fiscal year 2025-26. While the budget's measures aim to stimulate growth, challenges such as global economic uncertainties, inflationary pressures, and the need for fiscal consolidation persist. The government has set a target to reduce the fiscal deficit to 4.4% of GDP, balancing the need for expenditure with fiscal discipline.

Conclusion

The Union Budget 2025 introduces a series of reforms and initiatives designed to invigorate the Indian economy, support the middle class, and promote sustainable development. By focusing on tax relief, agricultural advancement, infrastructure development, research and innovation, and export promotion, the government aims to navigate the nation through current challenges towards a path of inclusive and robust growth. The actual impact of these measures will unfold in the coming months, as stakeholders across various sectors respond to the new policies and initiatives.