Understanding India’s Progressive Tax System
To sum up, the Indian Government is running a progressive taxing system, giving a proper tax on taxation of individuals’ income. The idea behind this operation is such that, if your income is high, the tax must also be high so that higher income earners end up contributing a bigger chunk into the nation’s coffers. This is based primarily on vertical-equality principles, according to which those with a greater ability to pay should contribute more to public finances. Progressivity in the tax system is about more than just revenues; it is about wealth redistribution and equal footing regarding financing smooth resources for public goods.
Union Budget 2025 – Radical Transformation in Indian Income Tax
With the Indian Union Budget announced by Finance Minister Nirmala Sitharaman, this could mark a real transformation in tax structures for people as it strives to make taxpayers less burdened, thereby restructuring the income tax framework in all eligible income sectors. As thus said regarding the lessened compliance burden on taxpayers, the budget tends to gain for introduction and maintenance of transparency in the tax process for clarity. Introducing and easing in tax laws and thus allowing greater participation in the formal economy is the goal by which the government aims at improvement in the tax collection efficiency.
This new regime will enforce from April 1, 2025, for the financial year 2025-2026 and would increase incomes, boost spending of consumers, and subsequently lead to growth of the economy. This, in turn, should crank up demand for goods and services, translate into increased production, job creation, and finally, economic growth. The budget hopes to create this virtuous circle of economic growth: an incentive for consumption and investment.
Tax Overhaul – Salient Points of the New Regime
In this scheme, slabs with income tax are included; however, they are aimed to have a progressive benefitting system under the scheme:
Up to ₹4 lakh is no tax liability.
From ₹4 lakh to ₹8 lakh is to be taxed by 5%.
From ₹8 lakh to ₹12 lakh is to be taxed by 10%.
From ₹12 lakh to ₹16 lakh is to be taxed by 15%.
From ₹16 lakh and ₹20 lakh is to be taxed by 20%.
From ₹20 lakh to ₹24 lakh is to be taxed by 25%.
Above ₹24 lakh is to be taxed by 30%
This is enormous savings for a taxpayer; the annual saving would be close to ₹1.14 lakh. The new tax regime shall operate on default, and it is only when certain deductions and exemptions, available only under the old regime, are required that taxpayers will have to opt for it. The increase of rebate under Section 87A to ₹60,000 is also a reminder of tax reforms following the Budget 2025. Thus, an individual whose net taxable income goes up to ₹12 lakh won’t pay any income tax. This increase makes Mr. X a happy man indeed; the previous rebate was just at ₹25,000 for income up to ₹7 lakh; hence, this would bring the most relief to the middle-income cohort.
The new taxation regime has elevated the basic exemption limit from ₹3 lakh to ₹4 lakh. This clarion call would have provided relief to the lower income strata, aligned with inflation trends. High exemption levels will lead to low filing ranges, hence there would be less compliance burden. Other deductions under the new regime of tax remain compliant. It will bring stability and predictability for high-income earners as they will have no other extra taxes to take other than the slab rates.
New vs Old – Choice of Tax Regimes
The new low ranged tax regime does not allow for certain deductions available in the old, like section 80C which is ₹1.5 lakh under the specified investment category, health insurance payment of ₹50,000/₹25,000, and further ₹10,000 for savings account interest in section 80TTA. A taxpayer needs to analyze which will benefit him/her in the new scenario. The basic limit of exemption in the old tax regime is defined based on the age of the taxpayer. For taxpayers below the age of 60, their limit stands at ₹2.5 lakh, i.e., still same for the senior citizen (60-79 years old) who gets ₹3 lakh, while super senior citizens get ₹5 lakh being over the age of 80. Therefore, the slab structure remains prevailing based on age in the case of the old regime.
In the old method of income tax calculation, the taxpayer is supposed to make a choice for claiming benefits of the old regime at the time of filing income tax returns. If he has not exercised the option for the new method, then he can always automatically choose the old one. When in a year taxable incomes do not arise from business, the timely shifts between the two regimes are permitted to the taxpayers. Other taxpayers have the right to switch only once from the old tax regime to the new one. Thereafter, once a taxpayer exercises the option for the new regime, he is never afforded the option of going back into the old regime.
Conclusion – Simplifying and Relieving
This new regime is aimed at making compliance easier and thereby reducing the tax liability to become more attractive to the else majority of taxpayers. Through increasing rebate and lowering tax rates, the intention of the government is to incentivize the taxpayers to switch to the new tax regime. The performance of the new tax regime in the long run shall largely depend on its capability to deliver clear benefits to the taxpayer and enabling long-term growth in the economy.
An in-depth understanding of the tax laws is required before deciding. It should also be made after weighing the pros and cons, depending on individual circumstances. Some taxpayers may steer toward taking professional advice from tax consultants and financial advisors, helping them arrive at the right decision.
Union Budget 2025 has undoubtedly been another major step toward development and a more taxpayer-friendly structure, reflecting the government’s determination to engender economy, give relief to people, and bring well-being into living. The budget is a reflection of the government’s commitment to building a more prosperous and less inequitable platform for all citizens of India. Simplifying tax structures and lowering death tax has been one measure that the government is trying to project towards the country, which in turn will enable the country to see a prosperous future for its citizens.
Author: Nutan Mishra, HR Manager
Co-Author: Pritish Kumar Panda, Intern
