The question is whether this will boost sagging consumption, and increase savings. Inflated prices, higher borrowing costs and stagnating income levels have already dealt a severe blow to India’s middle class, impacting consumption. The country's home and vehicle sales have steadily slowed down.

Clearly, tax benefits are expected to act as a catalyst for growth. About 7.5 crore income tax returns were filed in 2024.

Tax Bonanza For Salaried Class

The Finance Minister has announced key changes in the tax slabs under the New Tax Regime, which was introduced by the Narendra Modi government in 2020-21. The move will leave more money in the hands of Aam Aadmi, who has been hit hard by rising inflation.

Tax rebate up to Rs 60,000 will be applicable if the total income does not exceed Rs 12 lakh annually. Additionally, there will be a benefit of Rs 20,000 due to the proposed new slabs for income tax. In total, an individual with Rs 12 lakhs per annum salary will have to pay no tax.

The reduction in tax will boost household consumption, savings and investments, Sitharaman said. A sagging consumption has become a cause for concern for the government. However, the tax benefit will not be applicable for non-salary incomes such as capital gains.

If the current standard deduction of Rs 75,000 is added, an individual with total salary income of up to Rs 12.75 lakh will not be paying any tax.

A person having income of Rs 18 lakh will get a benefit of Rs 70,000 in tax (30 per cent of tax payable as per current rates). A person with an income of Rs 25 lakh gets a benefit of Rs 1,10,000 (25 per cent of the tax payable as per existing rates).

“Democracy, Demography and Demand are the key support pillars in our journey towards Viksit Bharat. The middle class provides strength for India’s growth,” the FM said in her speech.

In 2014, the nil slab was raised to those with income of Rs 2.5 lakh and thereafter it was raised to Rs 5 lakh in 2019. In 2023, it was raised to Rs 7 lakh.

“It is a big budget, and a much needed one. The tax benefit will leave more money in the hands of the people who come under the low income and middle income tax brackets—this will not only provide relief to the common man but also boost consumption and growth,” Soumya Kanti Ghosh, chief economic adviser, State Bank of India Group told The Secretariat.

The government will forego a total revenue of about Rs 1 lakh crore in direct taxes as a result of these announcements.

Apart from this, the tax burden for those owing more than one property has also been reduced. People with two self occupied houses can now claim tax benefits. Until now, the tax benefit was applicable only for one property. The move, analysts said, could boost home sales.

Sitharaman also announced that a new Income Tax Bill will be introduced next week, to carry forward the spirit of justice and trust. 

Indirect Tax Structure Rationalised

The Finance Minister also introduced several key changes in the indirect tax structure. One of the demands from various stakeholders was to simplify the structure of the tax deducted at source (TDS) and tax collected at source (TCS). While TDS is deducted from payments if the amount exceeds a particular threshold, TCS is collected by sellers during transactions.

For better compliance, the FM hhas announced a rationalisation of TDS rates while reducing the threshold. The TDS limit for rent has been raised to Rs 6 lakh. Similarly, for Liberalised Remittance Scheme (LRS) transactions, the TCS exemption limit has been raised to Rs 10 lakh from the existing Rs 7 lakh. This means you will not be eligible for a TCS on your foreign travels if your spending does not exceed Rs 10 lakh.