Union Budget 2025-26: Personal income tax reforms focus on middle-class relief

In a significant move to ease the tax burden on the middle class, Union Finance Minister Nirmala Sitharaman announced major Personal Income Tax reforms in the 2025-26 Union Budget. The government has introduced a new tax structure that will benefit a large section of taxpayers, especially the middle class, who are pivotal to India’s economic growth. Recognizing their contribution to nation-building, the government has consistently worked towards reducing their tax burden. After raising the ‘Nil Tax’ slab to ₹5 lakh in 2019 and to ₹7 lakh in 2023, the Finance Minister has now raised the threshold for no income tax to ₹12 lakh, providing major relief for taxpayers with an average income of ₹1 lakh per month. For salaried individuals, the limit will be slightly higher at ₹12.75 lakh due to the inclusion of a ₹75,000 standard deduction.

The new tax structure also introduces progressive slabs that promise substantial tax reductions across income levels. Under the revised tax rate structure:

• ₹0 - ₹4 lakh: No tax
• ₹4 lakh - ₹8 lakh: 5%
• ₹8 lakh - ₹12 lakh: 10%
• ₹12 lakh - ₹16 lakh: 15%
• ₹16 lakh - ₹20 lakh: 20%
• ₹20 lakh - ₹24 lakh: 25%
• Above ₹24 lakh: 30%

Additionally, a tax rebate has been introduced for taxpayers with an income of up to ₹12 lakh, ensuring that they will not be required to pay any tax, despite the change in slab rates. For example, a taxpayer with an income of ₹12 lakh will receive a tax benefit of ₹80,000, while someone earning ₹18 lakh will benefit by ₹70,000. Even individuals with an income of ₹25 lakh will receive a tax benefit of ₹1.1 lakh, effectively reducing their tax payable by 25%. These reforms are expected to enhance household consumption, savings, and investments, driving economic growth while strengthening the middle class.

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