Finance Minister Nirmala Sitharaman unveiled the Union Budget 2025 with a focus on economic growth, tax rationalization, and manufacturing sector incentives. One of the key announcements was the marginal tax relief for taxpayers earning over ₹12 lakh per annum. While the relief aims to ease the tax burden, experts believe its impact is limited. Here’s an in-depth look at what this means for taxpayers and how it fits into the broader economic landscape.
In This Article:
Understanding the Marginal Tax Relief
The government has introduced a tax concession for individuals whose annual income slightly exceeds ₹12 lakh. This move is intended to bridge the gap between tax slabs and prevent a sharp increase in tax liability due to a marginal income rise. Under the new provision, individuals falling just above this income threshold will see some relaxation in their taxable amount, ensuring that they do not face disproportionate deductions.
Who Benefits from the Tax Relief?
This relief specifically targets middle to upper-middle-class taxpayers who fall in the transition zone between tax slabs. For instance, individuals earning just above ₹12 lakh often experience a steep jump in their tax burden. The new provision aims to smooth out this transition, reducing tax-related stress for salaried professionals, self-employed individuals, and small business owners.
How Much Relief Can Taxpayers Expect?
While the exact percentage of relief depends on an individual’s total taxable income, experts suggest that the benefit will be marginal. The relief is likely to be structured in a way that minimizes abrupt jumps in tax liabilities but does not significantly alter overall tax collections.
For example, if an individual’s taxable income stands at ₹12.1 lakh, the new policy ensures that they do not end up paying substantially higher taxes compared to someone earning ₹11.9 lakh. The incremental benefit is expected to be in the range of a few thousand rupees annually.
Government’s Justification and Economic Rationale
Finance Minister Nirmala Sitharaman emphasized that this tax relief aligns with the government’s broader goal of maintaining a progressive tax regime. The policy intends to:
- Encourage higher earnings by eliminating tax slab shock
- Boost disposable income for middle-class professionals
- Ensure fairness in tax computation by preventing disproportionate tax jumps
Additionally, with a projected 13.14% growth in personal income tax collection, the government remains confident that the marginal relief will not disrupt fiscal discipline.
Customs Duty Rationalization and Its Impact
Apart from the income tax relief, the budget also introduced customs duty rationalization. This move is expected to:
- Support domestic manufacturing
- Increase value addition in India
- Promote exports and facilitate trade
- Provide price relief to consumers
By reducing import dependence and encouraging local production, these measures align with the government’s ‘Make in India’ initiative.
Industry and Economic Reactions
Tax analysts and financial experts have offered mixed reactions to the tax relief. Some believe it is a step in the right direction to create a more equitable tax system. However, others argue that the benefit is too minor to make a real impact on middle-class finances.
Economists also highlight that while tax relief provides short-term benefits, long-term economic stability requires broader reforms, including increased investment in infrastructure, healthcare, and education.
What Should Taxpayers Do?
If you fall within the affected income bracket, here are a few key takeaways:
- Check the revised tax computation to understand your savings
- Consult a tax advisor to optimize deductions and exemptions
- Plan financial investments to make the most of available tax benefits
- Monitor further government clarifications on tax relief implementation
The marginal tax relief in Budget 2025 is a welcome move for taxpayers earning slightly above ₹12 lakh per annum. While the financial benefits may not be substantial, they contribute to a fairer and more progressive tax structure. Coupled with customs duty rationalization and incentives for manufacturing, the budget aims to create a balanced economic environment that supports both taxpayers and businesses.
By – Jyothi
