Budget 2025: Tax Relief Expected for Salaried Individuals Earning Up to Rs 15 Lakh – Full Details Inside

The upcoming Budget 2025-26 is expected to introduce significant tax incentives for individuals earning up to Rs 15 lakh annually. These reforms aim to enhance disposable incomes, particularly benefiting urban taxpayers, who constitute the majority of the tax base and play a crucial role in driving consumption.

Modifications to the Tax Framework

Since its introduction in the financial year 2020-21, the simplified tax regime has garnered substantial interest, with over 70% of taxpayers opting for it due to its streamlined structure and regular enhancements. Currently, under this system, income up to Rs 3 lakh is exempt from tax. The subsequent slabs are as follows: Rs 3-6 lakh is taxed at 5%, Rs 6-9 lakh at 10%, Rs 9-12 lakh at 15%, Rs 12-15 lakh at 20%, and income above Rs 15 lakh is taxed at 30%. A standard deduction of Rs 75,000 allows individuals earning up to Rs 7.75 lakh to avoid any tax liability.

Proposals under consideration suggest raising the basic exemption limit from Rs 3 lakh to Rs 4 lakh, with corresponding adjustments in other income brackets. For instance, the 5% tax rate might extend to earnings between Rs 4 lakh and Rs 7 lakh, making the system more favorable for middle-income earners.

Alleviating Inflation's Impact

In response to rising inflation, particularly in urban regions where most taxpayers reside, the government is considering easing the tax burden for individuals earning around Rs 13–14 lakh annually. This demographic has been particularly affected by the reduced purchasing power caused by inflation. By adjusting the tax brackets upwards by Rs 1 lakh each, the government aims to reduce the financial strain on these taxpayers, encouraging greater spending and economic activity.

Tax experts suggest that increasing the thresholds for lower and middle-income tax brackets, particularly up to the 20% rate, could significantly enhance disposable income and drive consumption. This would provide much-needed relief to urban residents, who face the brunt of inflationary pressures.

Strong Fiscal Position Enables Reforms

With personal income tax collections increasing by 25% to Rs 7.41 lakh crore between April and November FY25, the government is well-positioned to implement these reforms. Unlike corporate tax collections, personal income taxes have consistently exceeded expectations, providing the fiscal room needed to introduce relief measures.

The proposed adjustments in the tax regime could be transformative, offering relief to taxpayers while also stimulating economic growth. If implemented, the Budget 2025-26 could deliver a dual benefit, fostering a more consumption-driven economy and easing the financial burden on individuals.