5 Key Tax Reforms for the Middle Class Announced in Budget 2025

5 Key Tax Reforms for the Middle Class Announced in Budget

5 Key Tax Reforms for the Middle Class Announced in Budget The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, introduced several landmark reforms aimed at easing the tax burden for the middle class. 5 Key Tax Reforms for the Middle Class Announced in Budget With a clear focus on simplifying the tax structure and improving compliance, the government proposed new tax slabs, higher tax-free income limits, and extended timelines for filing updated returns.

In her budget speech, the Finance Minister emphasized the need for clarity and simplicity in tax laws. “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,” she said.

Let’s take a closer look at the 5 key tax reforms introduced in Budget 2025 and their impact on the middle class.

1. Tax-Free Income Raised to ₹12 Lakh

One of the most significant reforms in Budget 2025 is the increase in the tax-free income limit under the new tax regime. This change aims to provide substantial relief to salaried and self-employed individuals.

• No tax will be payable on income up to ₹12 lakh.
• With the addition of the standard deduction of ₹75,000, the effective tax-free income limit becomes ₹12.75 lakh for salaried taxpayers.

Impact on Taxpayers:

This move will directly benefit the middle class by reducing tax liability and increasing disposable income. It also encourages taxpayers to shift to the new tax regime, which is designed to be more straightforward compared to the old regime with multiple deductions and exemptions.

2. Revised Income Tax Slabs

The budget proposes a completely new tax slab structure under the new regime. The revised slabs aim to reduce tax rates for middle-income groups and simplify tax calculations.

Here’s the breakdown of the new tax slabs:

Impact on Taxpayers:

• Higher income earners in the ₹12 lakh to ₹24 lakh bracket will experience noticeable savings.
• This structure encourages higher consumer spending, which will boost the economy while providing tax relief.5 Key Tax Reforms for the Middle Class Announced in Budget
• By making the tax structure more progressive, the government ensures that higher-income groups contribute more tax proportionately.

3. Higher Tax Deduction Limit for Senior Citizens

In a move aimed at supporting senior citizens, Budget 2025 has increased the tax deduction limit on interest income under Section 80TTB.

• The deduction limit has been raised from ₹50,000 to ₹1,00,000.

Impact on Senior Citizens:

This will provide significant tax relief to senior citizens who rely on interest income from bank deposits, post office savings, and fixed deposits. It also encourages them to save more without worrying about tax deductions.

4. Extended Time Limit for Filing Updated Returns

The government has extended the time limit for filing updated income tax returns (ITR).

• Earlier, taxpayers had two years to file an updated return to correct errors or omissions.
• This time limit has now been extended to four years from the end of the relevant assessment year.

Impact on Taxpayers:

This extension provides taxpayers with a longer window to voluntarily rectify mistakes or disclose unreported income without facing heavy penalties. 5 Key Tax Reforms for the Middle Class Announced in Budget It is expected to improve compliance and help taxpayers avoid litigation.

5. Tax Exemption on National Savings Scheme (NSS) Withdrawals

The government has granted full tax exemption on withdrawals made from the National Savings Scheme (NSS) on or after August 29, 2024.

Why This Change?
In her budget speech, the Finance Minister said, “A number of senior and very senior citizens have very old National Savings Scheme accounts. 5 Key Tax Reforms for the Middle Class Announced in Budget As interest is no longer payable on such accounts, I propose to exempt withdrawals made from NSS by individuals on or after August 29, 2024.”

Impact on Taxpayers:
5 Key Tax Reforms for the Middle Class Announced in Budget This exemption provides immediate relief to individuals with dormant NSS accounts, allowing them to withdraw their funds without any tax liability. It also simplifies tax treatment for these accounts, making it easier for senior citizens to access their savings.

Conclusion

The Union Budget 2025 marks a turning point for middle-class taxpayers, offering higher tax-free income limits, revised tax slabs, and more time for filing updated returns. 5 Key Tax Reforms for the Middle Class Announced in Budget These reforms will ease the tax burden and promote financial well-being for millions of families.

If you’re a taxpayer, it’s essential to understand how these changes affect your tax liability and adjust your financial planning accordingly.

Stay tuned for more updates on Budget 2025. 5 Key Tax Reforms for the Middle Class Announced in Budget For detailed explanations and tax-saving tips, subscribe to our YouTube channel, Taxgyany, where we simplify tax-related matters for you.

Have questions about Budget 2025? Drop them in the comments below, and we’ll help you navigate these new reforms!

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