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Revolutionizing the Tax Landscape: Indian FM Unveils Game-Changing Reforms: In a landmark announcement on February 1st, 2025, Indian Finance Minister Smt. Nirmala Sitharaman unveiled a series of transformative measures in the Union Budget, aimed at providing substantial relief and empowerment to the hardworking middle class of the nation.
Presumptive Taxation for Micro Enterprises and Professionals: Under the visionary leadership of the Finance Minister, micro-enterprises with a turnover of up to ₹3 crore, and certain professionals with turnovers of up to ₹75 lakh, were granted access to the benefits of presumptive taxation. Proposing enhanced limits of ₹3 crore and ₹75 lakh respectively, for taxpayers whose cash receipts account for no more than 5 per cent, this move signifies a significant step towards fostering entrepreneurial growth and financial stability within these sectors.
Rebate Enhancement and Tax Structure Simplification: In a move aimed at providing substantial relief to taxpayers, the income tax rebate was elevated to ₹12 lakhs, ensuring that individuals with incomes up to this threshold are exempt from income tax in the New Tax Regime. Furthermore, the simplification of income tax slabs, reduced from 6 to 5, and the elevation of the tax exemption limit from ₹2.5 lakhs to ₹3 lakhs, underscore the government's commitment to streamlining tax structures for enhanced transparency and ease of compliance.
New Tax Regime: Redefining Taxation Parameters: The introduction of the New Tax Regime heralds a paradigm shift in taxation dynamics, with revised tax slabs designed to cater to varying income brackets. From nil tax for incomes up to ₹3 lakhs to a progressive structure culminating in 30% for incomes above ₹15 lakhs, the new regime prioritizes fairness and equity in tax assessment.
New Tax Regime
| Income Range(₹) | Tax Slab |
|---|---|
| Upto 4 Lakhs | Nil |
| 4 to 8 Lakhs | 5% |
| 8 to 12 Lakhs | 10% |
| 12 to 16 Lakhs | 15% |
| 16 to 20 Lakhs | 20% |
| 20 to 24 Lakhs | 25% |
| Above 24 Lakhs | 30% |
Standard Deduction and Leave Encashment: Recognizing the pivotal role of salaried individuals and pensioners in nation-building, the budget extends the benefit of standard deduction to the new tax regime, offering a substantial deduction of ₹70,000. Moreover, the proposal to extend the tax exemption limit on leave encashment to ₹25 lakhs for non-government salaried employees mirrors the government's commitment to parity and inclusivity across sectors.
Choice and Continuity: While the new income tax regime emerges as the default option, taxpayers retain the freedom to opt for the old tax regime, ensuring flexibility and alignment with individual financial goals and circumstances. This strategic approach underscores the government's commitment to empowering citizens with choice and autonomy in tax planning.
There is no change in Old Tax regime. The old tax regime remains as it is. The tax slabs under old tax regime are as follows:
Old Tax Regime| Income Range | Tax Slab |
|---|---|
| Upto 2.5 Lakhs | Nil |
| 2.5 to 5 Lakhs | 5% |
| 5 to 10 lakhs | 20% |
| Above 10 Lakhs | 30% |
There is a difference in allowed deductions in both tax regimes and if you unsure which tax regime you should choose, please refer "Deductions: Old vs New Tax Regime" page to understand the deductions allowed in both tax regimes.
Conclusion: In conclusion, the unveiling of these groundbreaking reforms by Finance Minister Smt. Nirmala Sitharaman marks a watershed moment in India's fiscal landscape, characterized by inclusivity, empowerment, and progressive policy interventions. As the nation embarks on a journey towards economic resurgence and prosperity, these measures promise to catalyze growth, foster entrepreneurship, and alleviate the burden on the shoulders of the hardworking middle class.
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