Government Considers Income Tax Exemption for Individuals Earning Up to ₹15 Lakhs

 

Government Considers Income Tax Exemption for Individuals Earning Up to ₹15 Lakhs

Income Tax Budget on ITR Filing: Will Finance Minister Nirmala Sitharaman Announce Relief for Taxpayers Earning Up to ₹15 Lakh?

Each year, India’s salaried individuals look forward to income tax relief, and this year is no different. The middle class, in particular, is placing high hopes on FM Nirmala Sitharaman as she prepares to present the Budget 2025 on February 1. As per a Reuters report, the government is seriously evaluating tax relief measures for the middle class.

...particularly for those earning up to ₹15 lakh annually. The Budget 2025, scheduled for presentation on February 1, might feature an announcement regarding these tax breaks. This measure aims to enhance consumer spending and drive economic growth. However, Livemint has not independently verified this information.

Income Tax Budget: Who Stands to Gain?

If implemented, this move could significantly benefit millions of taxpayers, particularly urban residents grappling with high living expenses. According to the Reuters report, individuals opting for the 2020 tax regime, which forgoes exemptions such as those for housing rent, would be eligible for these potential benefits.

Two Tax Options for Indian Taxpayers

Indian taxpayers currently have two choices: the Old Tax Regime and the New Tax Regime. The Old Tax Regime offers exemptions for expenses like rent and insurance, among others. In contrast, the New Tax Regime features lower tax rates but eliminates most exemptions. Taxpayers must decide which option aligns better with their financial needs.

New Income Tax Regime

Under the new tax regime introduced in 2020, individuals earning up to ₹3 lakh annually are fully exempt from income tax. For income between ₹3 lakh and ₹7 lakh, a 5% tax rate applies. Income between ₹7 lakh and ₹10 lakh is taxed at 10%, while income from ₹10 lakh to ₹12 lakh is taxed at 15%. Further, income between ₹12 lakh and ₹15 lakh is taxed at 20%, and any income exceeding ₹15 lakh is taxed at 30%.

Old Income Tax Regime

Under the Old Tax Regime, the following tax structure is applicable:

1. Income up to ₹2.5 lakh is exempt from taxation.
2. Income between ₹2.5 lakh and ₹5 lakh is taxed at 5%.
3. Income ranging from ₹5 lakh to ₹10 lakh is taxed at 20%.
4. Income exceeding ₹10 lakh is taxed at 30%.

This regime allows taxpayers to claim various exemptions and deductions, such as those for house rent and insurance premiums, offering greater flexibility tailored to individual financial situations.

According to a government source quoted in a Reuters report, reducing the tax rate would likely encourage more individuals to choose the new, simpler tax regime. The report further noted that a substantial portion of India's current income tax revenue is derived from individuals earning at least ₹10 lakh. Under the old tax regime, these earners are taxed at 20%, while the new tax regime applies a lower tax rate of 10%.

Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited, proposes that reducing personal income tax for individuals earning up to ₹1.5 million annually could boost consumption among the urban middle class, which has been negatively impacted by inflation and increasing living costs.

Income Tax Slabs and Rates Under the New Regime

Income Slabs	Tax Rate
Up to ₹3 lakh	Nil
₹3 lakh - ₹7 lakh	5%
₹7 lakh - ₹10 lakh	10%
₹10 lakh - ₹12 lakh	15%
₹12 lakh - ₹15 lakh	20%
Above ₹15 lakh	30%

Old Income Tax Regime Slabs and Rates

Income Slabs	Tax Rate
Up to ₹2.5 lakh	Nil
₹2.5 lakh - ₹5 lakh	5%
₹5 lakh - ₹10 lakh	20%
Above ₹10 lakh	30%