Finance Minister Nirmala Sitharaman’s 2025 Budget delivered “the biggest tax relief in at least a decade”. The overhaul predominantly helps salaried taxpayers by raising exemption limits and widening slabs. Under the new tax regime, individuals now pay no income tax on annual earnings up to Rs 12.8 lakh (compared to the old Rs 7 lakh limit). Likewise, the highest tax bracket (30%) was pushed back: it will apply only on income above Rs 24 lakh (up from Rs 15 lakh previously). Meanwhile, the standard deduction for salaried employees was hiked from Rs 50,000 to Rs 75,000. These changes are designed to immediately boost take-home pay for middle-class professionals.
To illustrate the impact:
• An individual earning Rs 12 lakh per year will now pay zero tax, whereas under the old regime they would have paid around Rs 5,000. In fact, many taxpayers up to Rs 12 lakh get complete exemption.
• Someone on Rs 15 lakh per year sees their tax bill tumble by about Rs 80,000 annually (roughly 5% of their salary), thanks to the expanded no-tax slab.
• A higher-earning professional at Rs 25 lakh per annum now pays Rs 3.43 lakh in tax instead of the previous Rs 4.57 lakh – a saving of Rs 1.14 lakh. That extra Rs 9,500 per month (on average) is left in the employee’s pocket.
Key changes to note:
• Zero tax till Rs 12.8L: The basic exemption limit (new regime) jumped from Rs 7L to Rs 12.8L.
• 30% bracket starts at Rs 24L: Earlier anyone earning above Rs 15L paid 30%; now that kick-in point is Rs 24L.
• Standard deduction Rs 75k: Salaried individuals can deduct Rs 75,000 from income before tax, up from ?50,000.
• More in-hand pay: Overall, Budget estimates suggest an individual earning up to Rs 12 lakh gets about Rs 80,000 more per year after taxes, and higher earners similarly gain ~5% more disposable income.
Industry experts are enthusiastic about the consumer boost. Sankakshi Sakshi, a chief economist at HDFC Bank, noted that rationalising slabs should “spur consumer demand and savings” for the middle class. Radhika Gupta of Edelweiss Asset Management sums it up: putting cash back in people’s hands through tax cuts “will energise consumption and growth” just when demand was weak. Mahindra’s MD Anish Shah also called the move a short-term demand stimulus, saying raising disposable income is clearly a positive step.
What does this mean for investors?
For salaried earners, the immediate effect is simply more disposable cash. Those extra rupees can flow into savings and investment. Fixed-income and mutual fund products may see new retail inflows as taxpayers have higher liquidity. Some analysts expect this boost to consumer spending (roughly 60% of GDP) to support corporate revenues in sectors like housing, autos and retail. However, the government will forgo about Rs 1 trillion in annual revenue on these cuts, so fiscal deficits and borrowing plans will guide market reactions.
Ultimately, the Budget’s tax relief is a clear win for the middle-class professional class – from young engineers to senior executives – who get to keep more of their paycheque. It makes the new (optional) tax regime much more attractive, encouraging more filers to shift over to it. As we head into FY2025-26, millions more Indian households will feel a bit richer every month. The hope is that this “meaningful tax relief” (to quote investor calls) will spur the very consumption that the economy has been craving.
This content is for educational purposes only and does not constitute investment advice.