All income groups got a little something from the Budget

The highlight was that the aspirations and expectations of the middle-class, finally got an earnest ear. 

In her Budget speech, Finance Minister Nirmala Sitharaman repeatedly underscored the role of the middle class in nation-building, mentioning the term “middle-class” at least ten times, highlighting their energy and contribution to the economy.

The proposed amendments in the Finance Bill 2025, aim at substantially reducing the taxes of the middle class leaving more money in their hands, and boosting household consumption, savings, and investment.

The Bill proposes that persons opting for the new personal tax regime in financial year 2025-26, and having income upto ₹12 lakh, will not be required to pay any income tax, after availing the increased rebate amount of upto ₹60000, under section (u/s) 87A of the Income Tax Act.

The new regime has been sweetened by increasing the basic exemption limit from existing 3 lakh to 4 lakh and reducing further, the tax slab rates. This will accelerate the switch to the new regime further, and infact may make the old regime practically redundant.

For income levels upto ₹12 lakh, the new regime is a definite choice without any doubt. Even for higher income levels, the new regime seems to be a prudent choice both for salaried and non-salaried individuals.

Individuals earning salary of ₹24 lakh and above and still sticking to the old regime, will now find it difficult to have the break-even level of deductions of ₹8 lakh (other than standard deduction) needed to match the reduced tax liability in the new regime. 

For non-salaried individuals having business, rental, dividend, or interest income in the same level, the break-even level of deductions to continue with the old regime is ₹7.75 lakh.

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For individuals earning salary of ₹15 lakh, the break-even figure of eligible deductions other than standard deduction comes out at 5.45 lakh and for non-salaried individuals it comes at 5.38 lakh.

Now only salaried individuals paying higher rentals of ₹80,000 and above per month and claiming corresponding house rent allowance deductions may still find it plausible to continue with the old regime.

For non-salaried individuals, engaged in business and profession also, the amended new regime can become a game changer, for optimising their tax outflows. 

Individuals engaged in eligible business under the presumptive scheme of taxation u/s 44AD of the Income Tax Act can reduce their tax liability to zero, if their gross receipts from such business is upto ₹1.5 crores. As per section 44AD, they need to declare 8% of their business receipts as their taxable income. So, by declaring 8% of their business receipts of ₹1.5 crores, viz. ₹12 lakh as their income u/s 44AD and thereafter claiming rebate u/s 87A, they can reduce their tax liability to zero. 

Similarly, the individuals carrying on eligible profession u/s 44ADA by declaring prescribed 50% of their total professional receipts of upto ₹24 lakh, viz. ₹12 lakh as their income, can reduce their tax liability to zero after claiming rebate u/s 87A of the Income Tax Act.

Relief for renters & homeowners

Budget also announced the benefit of claiming of nil annual value for two self-occupied house properties, without any conditions, for computing income under the head- income from house property. Raising of the threshold limit for tax deducted at source (TDS) on rent, from existing ₹18,000 per month to ₹50,000 per month will save the middle class from the compliance burden of deducting TDS and filing TDS returns for lower rental payments.

Senior citizens are also saved from the burden of filing their income tax returns to claim refund for TDS deducted on their interest income on bank fixed deposits as the threshold limit for deduction of TDS on such interest income has also been increased from existing ₹50,000 to ₹1 lakh. 

However eligible deduction amount u/s 80TTB in respect of such interest income has been kept same at ₹50,000 only. Withdrawals from old National Savings Scheme have been made exempt from tax, and this will also help the senior citizens and middle class.

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The threshold limit of exemption for Tax Collected at Source (TCS) on foreign remittances under Reserve Bank of India’s Liberalised Remittance Scheme (LRS) has been increased from ₹7 lakh to ₹10 lakh and this will prevent the blocking up of funds of the middle class.

The clarity on taxability of Unit Linked Insurance Plan not eligible for exemption u/s 10(10D) as capital gains and not under the head income from other sources, will help the upper middle class in saving taxes on their ULIP investments.

Mayank Mohanka is founder, TaxAaram India, and partner at S.M. Mohanka & Associates.