Budget 2025: Major Tax Relief for Middle-Class; No Tax on Income Up to ₹12 Lakh

Highlights:

• No income tax up to ₹12.75 lakh (including standard deductions) under the new tax regime.
• Revised tax slabs introduced, including a new 25% tax rate for income between ₹20 lakh and ₹24 lakh.
• TDS rates rationalized, and senior citizen tax deduction limit doubled to ₹1 lakh.
• New Direct Tax Code to be introduced, potentially scrapping financial and assessment year concepts.

Revised Income Tax Slabs for FY25 (New Regime Only)

Income Slab (₹)	Tax Rate (%)
0 – 4 lakh	Nil
4 – 8 lakh	5%
8 – 12 lakh	10%
12 – 16 lakh	15%
16 – 20 lakh	20%
20 – 24 lakh	25%
Above 24 lakh	30%

Tax Cuts to Boost Middle-Class Savings & Investment

Finance Minister Nirmala Sitharaman, presenting Budget 2025, announced significant tax relief for the middle class. The new tax regime now exempts income up to ₹12.75 lakh (including standard deductions), a move expected to boost household consumption, savings, and investment.

With lower tax rates across all slabs, this new structure is set to substantially reduce the tax burden on salaried professionals, entrepreneurs, and investors.

Additional Tax Reforms & Senior Citizen Benefits

• TDS (Tax Deducted at Source) rates rationalized for better compliance.
• Tax deduction limit for senior citizens doubled to ₹1 lakh.
• Deadline for updated return filings extended to four years, giving taxpayers more time for compliance.

New Direct Tax Code on the Horizon

In a landmark announcement, Sitharaman confirmed that a new Direct Tax Code (DTC) will be introduced next week. This move aims to simplify tax compliance and replace the outdated Income Tax Act of 1961.

Expected Changes in the New Tax Code:

• Abolition of financial year (FY) and assessment year (AY) concepts, simplifying tax calculations.
• Standardized dividend tax at 15%, instead of current slab-based taxation.
• Possible 5% tax on income from life insurance policies, which were previously tax-exempt.
• No option between old and new tax regimes, indicating a complete shift to the revised structure.

Impact on Stock Market & Economy

The massive tax cuts and simplified tax code are expected to boost disposable income, increase retail investment in equities and mutual funds, and drive consumption-driven sectors. Market analysts anticipate positive reactions in banking, FMCG, and auto stocks, alongside a potential surge in retail trading activity.

Investor Takeaway

For investors and traders, Budget 2025 presents significant opportunities:

1. Higher disposable income means greater retail participation in equities & mutual funds.
2. Dividend tax standardization could benefit high-dividend-paying stocks.
3. Rationalization of TDS & compliance reforms might improve ease of doing business.

With a pro-growth and tax-friendly budget, India’s economy is set for stronger domestic consumption, higher capital market participation, and robust GDP growth in FY26.