Exemption From Income Tax on Annual Income Up To Rs. 12 Lakh

The Ministry of Finance has recently released an official notice in response to a question raised in the Rajya Sabha (the upper house of India’s Parliament) about proposed income tax reforms, specifically concerning tax exemptions and reductions for salaried individuals and their potential impact on middle-class households, as well as lower-income groups and rural areas. Below are written the questions offered in Rajya Sabha:

(a) The manner in which the reduction in tax rates and standard deduction for salaried individuals will specifically benefit the middle class in terms of overall financial relief;

(b) The measures being taken to track the long-term impact of such tax changes on household consumption; and

(c) Whether any additional reforms have been proposed to target lower-income groups or people in rural areas, who may not fully benefit from the proposed changes, particularly in terms of tax rebates?

Let’s break down the response provided by the Minister of State in the Ministry of Finance, Shri Pankaj Chaudhary.

Question (a): The response indicates that the Finance Bill, 2025, has suggested changes to the tax rate structure under the new tax regime as outlined below:

The government is introducing changes to the tax slabs and rates for everyone to benefit all taxpayers. The new structure will lower taxes for the middle class, giving them more money, which will help increase spending, savings, and investment.

Additionally, the Finance Bill, 2025, proposes increasing the rebate for individuals in the new tax system. This rebate will be equal to the tax payable for income up to Rs. 12,00,000. If someone’s income is slightly above Rs. 12,00,000, they can still get some relief (called marginal relief). Also, salaried taxpayers will get a standard deduction of Rs. 75,000, which reduces their taxable income.

These changes aim to create a fair and equal tax system that doesn’t put an extra tax burden on the working and middle classes.

Question (b): The response indicates that no specific or separate measures have been proposed to track the long-term impact of these tax reforms on domestic consumption.

Question (c): The response indicates that there is no specific proposal targeting lower-income or rural populations in the context of these tax changes. The government believes that the revised tax structure in the Finance Bill 2025 will positively affect all earning sections of the population and also benefit all taxpayers.