New Delhi: During her Union Budget 2025 speech on Saturday, Finance Minister Nirmala Sitharaman implemented important tax-breaking measures that ensure people making up to Rs 12 lakh remain tax-free. The new income tax system created confusion about which tax amounts are tax-exempted. The significant budget change included updated tax bracket rules. The nil tax bracket now reaches Rs 4 lakh at the income threshold from its previous level of Rs 3 lakh. People earning less than Rs 4 lakh annually will not have to pay income tax. The announcement about income tax policy created confusion among taxpayers regarding the amount of tax-free income between Rs 4 lakh and Rs 12 lakh.
Understanding the Confusion
The dual income requirements disclosed by the government have created this state of confusion. Taxpayers who earn incomes below Rs 12 lakh have no tax obligation under current regulations. However, the new tax slab shows that anybody below Rs 4 lakh will not pay any taxes. A person earning Rs 50 lakh during a year will determine their tax amount by using the new tax rate schedule. The new tax system taxes 0% of income from Rs 4 lakh up to Rs 8 lakh at 5%, and 10% applies to revenue between Rs 8-12 lakh with higher rates for subsequent income brackets.
Expert Insights
According to Ritika Nayyar from Singhania & Co., there is no tax calculation when the value reaches Rs 4 lakh, but the described tax-free amount of Rs 12 lakh comes from Section 87A tax rebates. Nayyar added that tax liability becomes zero due to rebates, although tax calculation follows the slab rates. Partner Manish Dubey from CorpAcumen Advisors provided additional explanations. According to Mr. Dubey, a person whose total taxable income remains below Rs 12 lakh can subtract their total tax obligation from it to generate a zero tax result.
Taxpayers from lower income brackets will feel substantial relief because of the announcements made in the Union Budget 2025. Financial authorities must provide more transparent communication about the new income tax slabs because taxpayers currently experience confusion about them. After the recent changes implemented by the government, taxpayers will need to understand rebate operations and threshold criteria to compute their actual tax obligations. Tax administration reforms made by the government will achieve two goals—improved taxpayer compliance and enhanced satisfaction.