Income Tax Relief: Exemption Limit Increased from ₹7 Lakh to ₹12 Lakh

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Income Tax Relief: Exemption Limit Increased from ₹7 Lakh to ₹12 Lakh

In a major relief for taxpayers, Union Finance Minister Nirmala Sitharaman has announced a significant increase in the income tax exemption limit from ₹7 lakh to ₹12 lakh. This move aims to reduce the tax burden on individuals earning up to ₹1 lakh per month, ensuring they are not subject to income tax.

Additionally, the government has lowered income tax slab rates and expanded tax brackets, providing benefits across different income groups. This structural reform is designed to make taxation more progressive while ensuring that more money remains in the hands of individuals to boost consumption, savings, and investments.

Key Tax Reforms Announced

• Increased Tax Exemption: The tax-free income limit has been raised from ₹7 lakh to ₹12 lakh, eliminating tax liability for individuals earning up to ₹1 lakh per month.
• Reduction in Tax Slab Rates: The government has adjusted tax rates to create a gradually progressive tax structure that provides relief to taxpayers across income levels.
• Additional Tax Rebate: Certain taxpayers will receive extra benefits beyond slab rate reductions, allowing them to save even more.
• More Money in Taxpayers’ Hands: The government expects that the increased disposable income will contribute to higher consumer spending and economic growth.

Finance Minister’s Explanation on Tax Relief

FM Nirmala Sitharaman explained the rationale behind the tax exemption hike and slab rate reductions, stating:

“The government feels that if someone earns ₹1 lakh per month, they should not have to pay tax. We are achieving this by:

• Reducing tax slab rates to create a more fair and gradual system.
• Expanding tax slabs to ensure benefits for taxpayers at all income levels.”

She further emphasized that beyond reducing tax slabs, the government introduced an extra tax rebate for certain taxpayers, aiming to put more money back into the economy through increased spending, savings, and investments.

How This Tax Relief Compares to 2014

The Finance Minister highlighted how the new tax system provides significant savings compared to the 2014 tax structure under the Congress government:

• For Individuals Earning ₹8 Lakh
• Tax in 2014: ₹1 lakh
• Tax Now: ₹0
• Savings: ₹1 lakh
• For Individuals Earning ₹12 Lakh
• Tax in 2014: ₹2 lakh
• Tax Now: ₹0
• Savings: ₹2 lakh
• For Individuals Earning ₹24 Lakh
• Tax in 2014: ₹5.6 lakh
• Tax Now: ₹3 lakh
• Savings: ₹2.6 lakh

She emphasized that while those earning up to ₹12 lakh pay zero tax, higher earners also benefit significantly from reduced rates, ensuring that everyone experiences financial relief.

Impact of These Tax Reforms

• Middle-Class Relief – Salaried employees and business professionals will enjoy greater financial stability with lower tax burdens.
• Increased Disposable Income – More money in taxpayers’ pockets will boost spending, savings, and investments.
• Economic Growth – The increased purchasing power is expected to drive higher demand in markets and industries, strengthening the economy.
• Simplified Tax System – The new structure is more transparent and equitable, making tax compliance easier.

Final Thoughts

The increase in the income tax exemption limit to ₹12 lakh is a landmark decision aimed at reducing financial stress on taxpayers and driving economic growth. With a combination of lower slab rates, broader tax brackets, and additional rebates, the government ensures that more people benefit from tax savings.

This reform is a game-changer for taxpayers, offering higher savings, better financial security, and a more progressive tax regime.