The upcoming Union Budget 2025-26, set to be announced by Finance Minister Nirmala Sitharaman on February 1, may introduce significant changes to the new tax regime, providing much-anticipated relief to salaried taxpayers.
Government sources suggest two major reforms: making annual income up to ₹10 lahks tax-free and introducing a new 25% tax slab for yearly income between ₹15 lakh and ₹20 lahks. Currently, under the new tax regime, taxpayers earning up to ₹7.75 lakh per annum have no effective tax liability, owing to a ₹75,000 standard deduction. Income exceeding ₹15 lakh is taxed at the highest rate of 30%.
“We are evaluating both options. If the budget permits, both measures could be implemented. The government is prepared to absorb a revenue loss of ₹50,000 crore to ₹1 lakh crore to provide these benefits,” a source revealed.
The proposed reforms align with recommendations by the Global Trade Research Initiative (GTRI), which has called for inflation-adjusted tax reforms. GTRI suggests raising the income tax exemption threshold to ₹5.7 lakh and increasing deductions such as the ₹10,000 limit for savings interest to ₹19,450 and the ₹1.5 lakh cap for insurance premiums and PF contributions to ₹2.6 lakh by 2025.
With taxpayers eagerly awaiting the announcement, the proposed changes could significantly reduce the financial burden for middle-class families and boost disposable incomes, spurring economic growth.
