In a major move to help the middle class and boost the economy, Finance Minister Nirmala Sitharaman announced on Saturday that people earning up to Rs 12 lakh per year will now pay zero tax under the new income tax system. Earlier, the tax-free limit was Rs 7 lakh. This decision comes at a time when the economy is facing challenges like slow growth and reduced consumer spending. However, there are no changes in the old tax system.
This move is expected to leave more money in the hands of people, which could encourage them to spend more and help the economy grow faster.
Tax Revenue Loss for the Government
The Finance Minister said the government will lose about Rs 1 lakh crore in direct taxes and Rs 2,600 crore in indirect taxes because of this decision. Some experts are worried that this loss might force the government to cut its spending on important projects, like infrastructure development, to manage the reduced tax income.
New Tax Rates Under the Updated System
Here are the new tax rates under the updated income tax system:
- Income up to Rs 4 lakh: No tax
- Income between Rs 4-8 lakh: 5% tax
- Income between Rs 8-12 lakh: 10% tax
- Income between Rs 12-16 lakh: 15% tax
- Income between Rs 16-20 lakh: 20% tax
- Income between Rs 20-24 lakh: 25% tax
- Income above Rs 24 lakh: 30% tax
Extra Benefits for Senior Citizens
The government has also doubled the tax deduction limit for senior citizens from Rs 50,000 to Rs 1 lakh. This will help older people save more money.
New Income-Tax Bill Coming Soon
The Finance Minister said the government will introduce a new income-tax bill next week. This bill will focus on bringing fairness and justice (nyay) to the tax system, inspired by the principles of the Bharatiya Nyay Sanhita.
Changes in TDS System
The Tax Deduction at Source (TDS) system will also be simplified to make it easier for taxpayers. The Finance Minister emphasized that these reforms are not just goals but tools to improve governance and help both the people and the economy.
Economic Growth Concerns
A day before this announcement, the Economic Survey, prepared by the Chief Economic Advisor, predicted that India’s economy will grow at 6.4% in the current financial year, the lowest in four years. For the financial year 2025-26, growth is expected to be between 6.3% and 6.8%.
What This Means for You
If you earn up to Rs 12 lakh a year, you won’t have to pay any income tax under the new system. This could mean more savings and more money to spend, which might help the economy recover. However, the government will have to manage a significant loss in tax revenue, which could affect its spending plans in the future.
