Why did the government raise the income tax exemption limit from ₹7 lakh to ₹12 lakh? Finance Minister Nirmala Sitharaman provides an explanation.

 

Why did the government raise the income tax exemption limit from ₹7 lakh to ₹12 lakh? Finance Minister Nirmala Sitharaman provides an explanation.

Nirmala Sitharaman revealed an increase in the income tax rebate from ₹7 lakh to ₹12 lakh, designed to ease the tax burden on individuals earning ₹1 lakh per month.

Union Finance Minister Nirmala Sitharaman explained that the government raised the income tax exemption limit from ₹7 lakh to ₹12 lakh to lessen the tax burden on individuals earning ₹1 lakh per month. She further stated that the government is also reducing tax slab rates and broadening tax brackets to offer relief to taxpayers at all income levels.

When asked about the reasoning behind this increase and whether it was a response to slower-than-expected income growth, Sitharaman emphasized that the government believes those earning ₹1 lakh per month should not have to pay taxes. She clarified that this was being achieved through two measures: reducing slab rates to create a more evenly progressive tax structure and expanding tax brackets to provide relief to various income groups.

She explained that the government chose to offer additional benefits beyond just reducing slab rates by introducing an extra rebate for certain taxpayers. The aim, she said, is for the money saved by taxpayers to be reinvested into the economy through consumption, savings, or investment.

“We decided that some individuals should receive additional benefits beyond just slab rate reductions. While slab rate reductions apply to everyone, the extra rebate is for some. The expectation is that the money saved by taxpayers will flow back into the economy through consumption, savings, or investment,” the finance minister stated.

She further emphasized that, in contrast to the tax system during the Congress era, the government has opted to provide additional benefits beyond just reducing slab rates by introducing extra rebates for certain taxpayers.

"If you compare what we have done today with the tax system under the Congress government in 2014, the focus has always been on putting money back into the hands of the people. For instance, someone earning ₹8 lakh now has nearly ₹1 lakh more in their pocket compared to 2014. In 2014, their tax was ₹1 lakh; now, it's zero. Similarly, someone earning ₹12 lakh used to pay ₹2 lakh in 2014, but now they pay zero. This means an additional ₹2 lakh in their pocket," Nirmala Sitharaman explained.

The finance minister also pointed out that the government is lowering tax rates for all income levels. For example, someone earning ₹24 lakh, who paid ₹5.6 lakh in taxes in 2014, now pays ₹3 lakh, leaving ₹2.6 lakh more in their pocket.

She also highlighted that tax rates are being reduced for everyone. As an example, someone earning ₹24 lakh, who had to pay ₹5.6 lakh in taxes in 2014, now only pays ₹3 lakh, which means an additional ₹2.6 lakh in their pocket. "So, it’s not just those earning up to ₹12 lakh who benefit—since they are paying no tax at all due to the rebate—but even higher earners will see the benefit," Sitharaman added.