Budget 2025: Income Up to Rs 12 Lakh Tax-Free Under New Regime, But Certain Incomes Excluded

In a significant move aimed at providing relief to the middle class and stimulating economic growth, Finance Minister Nirmala Sitharaman announced in the 2025 Union Budget that individuals earning up to Rs 12 lakh annually will be exempt from income tax under the new tax regime. However, it’s crucial to note that this exemption applies exclusively to income earned from salaries and excludes certain other income sources.

Details of the Tax Exemption

The new tax regime has been structured to offer a simplified tax structure with reduced rates and fewer exemptions. Under this regime, individuals with an annual income of up to Rs 12 lakh from salaries will not be liable to pay income tax. This initiative is expected to increase disposable income for a significant portion of the middle class, thereby boosting consumption and contributing to economic growth.

Exclusions from the Tax Benefit

While the exemption up to Rs 12 lakh is a welcome relief, it’s important to understand that not all income sources are eligible for this benefit. The following income types are excluded from the tax-free provision:

• Capital Gains: Profits earned from the sale of assets such as stocks, bonds, or real estate are not covered under this exemption.
• Rental Income: Income generated from renting out properties is also excluded from the tax-free bracket.
• Interest Income: Earnings from interest on savings accounts, fixed deposits, or other investments do not qualify for this exemption.

Taxpayers receiving income from these sources will need to account for them separately and pay taxes as per the applicable rates.

Rationale Behind the Exclusions

The government’s decision to exclude these income types aims to maintain a balance between providing tax relief and ensuring revenue generation. Capital gains, rental income, and interest income often represent additional or passive income streams, which are typically subject to different tax considerations. By excluding these from the exemption, the government seeks to prevent potential revenue loss while still offering substantial relief to salaried individuals.

Impact on Taxpayers

For salaried individuals earning up to Rs 12 lakh annually, this move translates to significant tax savings. However, those with diversified income portfolios, including capital gains, rental, or interest income, may not experience the same level of benefit. It’s advisable for such taxpayers to consult with financial advisors to understand their tax liabilities under the new regime.

Conclusion

The 2025 Union Budget’s provision to make income up to Rs 12 lakh tax-free under the new tax regime marks a significant step towards tax simplification and providing relief to the middle class. However, taxpayers must be aware of the specific exclusions to accurately assess their tax obligations and plan their finances accordingly.