It continued the Narendra Modi government 3.0 focus on income tax relief for the salaried class initiated by the NDA government in 2014 and broke away from the UPA's practice of offering small doses of tax savings to the middle class.
The Union Budget 2025-26 presented by Union Minister for Finance and Corporate Affairs Nirmala Sitharaman announced that in the new regime, there will be no tax payable under the Income-tax Act, except in the following cases: there shall be no income-tax payable if the total income does not exceed Rs 12 lakh—that is, average income of Rs 1 lakh per month except special rate income such as capital gains. For salaried taxpayers, this will be Rs 12.75 lakh, because of a standard deduction of Rs 75,000.
The jump in income tax exemption limit, under the new tax regime, from a salary of Rs 7 lakh per annum to Rs 12 per annum, is the biggest recorded since 2005 of the UPA era.
Under the UPA government, the income tax exemption limit was Rs 1 lakh in 2005 and it took the Manmohan Singh government seven years to double this exemption limit to Rs 2 lakh in 2012.
Keeping the long-standing demand from the salaried, middle-class taxpayers, PM Modi increased the income tax exemption limit by 25 per cent to raise it to Rs 2.5 lakh in 2014.
Modi 2.0 was started in the year 2019 with another mega bonanza for the middle-class tax payer through rising the exemption limit under income tax to Rs 5 lakh from Rs 2.5 lakh.
An effort of the Modi government to keep pace with expectations of young aspirational India's workforce saw the introduction of the less complicated new tax regime in FY 2020-21 in order to offer lower tax rates to the taxpayers, without any common deductions and exemptions.
It is preposterous because the new tax regime is always based on the fact that millennials have a tendency to spend rather than conserve.
In 2023, FM Sitharaman increased the rebate limit by Rs 2 lakh, pushing up the exemption limit of income tax in the new regime by Rs 7 lakh.
Being supported by the tax compliance increase in salaried people, FM Sitharaman offered the new bonanza to new tax regime payees, thus raising the effective exemption limit up to Rs 12 lakh.
Union Home Minister Amit Shah hailed the big jump in income tax exemption limit announced in Union Budget 2025-26 and said in a post on X, “The middle class is always in PM Modi’s heart. Zero Income Tax till Rs 12 Lakh Income. The proposed tax exemption will go a long way in enhancing the financial well-being of the middle class. Congratulations to all the beneficiaries on this occasion.”
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