Modi Government Announces Significant Increase in Income Tax Exemption Limit in Budget 2025-26
n a major move aimed at providing relief to the salaried middle class, the Narendra Modi government has broken away from the previous practice of offering incremental tax savings, announcing a significant increase in the income tax exemption limit in the Union Budget 2025-26.
New Delhi: In a major move aimed at providing relief to the salaried middle class, the Narendra Modi government has broken away from the previous practice of offering incremental tax savings, announcing a significant increase in the income tax exemption limit in the Union Budget 2025-26. Finance Minister Nirmala Sitharaman revealed that individuals with a total income of up to Rs 12 lakh will now pay no income tax under the new tax regime.
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Income Tax Exemption Raised to Rs 12 Lakh in Budget 2025-26
Under the new tax regime, salaried individuals will be exempt from paying income tax on earnings up to Rs 12 lakh per annum. This amount includes an average monthly income of Rs 1 lakh, excluding special rate income such as capital gains. For salaried taxpayers, the exemption limit will rise to Rs 12.75 lakh due to a standard deduction of Rs 75,000.
This increase marks a significant departure from the previous tax exemption limits, with a sharp rise from the previous Rs 7 lakh exemption limit. The hike in tax exemption is the largest since the UPA government, which had raised the limit from Rs 1 lakh in 2005 to Rs 2 lakh by 2012.
A Decade of Income Tax Relief for the Middle Class
The move builds on the tax relief measures initiated by the Modi government in 2014. Prime Minister Narendra Modi’s administration increased the income tax exemption limit by 25% to Rs 2.5 lakh in 2014, fulfilling long-standing demands from the salaried middle class. In 2019, the exemption limit was further raised to Rs 5 lakh, offering significant tax relief.
The introduction of the new, simplified tax regime in 2020 provided lower tax rates without common deductions and exemptions, catering to a younger, aspirational workforce. In 2023, Finance Minister Nirmala Sitharaman further increased the rebate limit, effectively raising the income tax exemption under the new regime to Rs 7 lakh.
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Boost to Tax Compliance and Financial Well-being
The government’s efforts to improve tax compliance have proven successful, with more salaried individuals paying taxes under the new regime. As a result, the latest increase in the exemption limit to Rs 12 lakh reflects the government’s continued commitment to supporting the middle class and young professionals.
Union Home Minister Amit Shah praised the measure, stating 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.”
