India's Union Budget 2025-26: Tax Tweaks & Money Moves for Young Pros!

Feb 3

3 min read

The Union Budget 2025-26 has introduced big changes in the tax system. One of the key highlights is raising the income tax exemption limit to ₹12 lakh, which means many people will now pay less tax or no tax at all. Besides tax benefits, this budget also brings new investment opportunities and has received some criticism. Let’s break down the main points in simple words.

Income Tax Changes and What They Mean

New Tax Slabs

The government has changed the tax rates so that more people can save money. Before, people had to pay tax if they earned more than ₹3 lakh. Now, no tax is required for income up to ₹4 lakh. The new tax rates are:

0 - 4 lakh: 0% tax
4 - 8 lakh: 5% tax
8 - 12 lakh: 10% tax
12 - 16 lakh: 15% tax
16 - 20 lakh: 20% tax
20 - 24 lakh: 25% tax
Above 24 lakh: 30% tax

Example of Tax Calculation

Let’s take an example: Sagar earns ₹12 lakh per year. Here’s how his tax will be calculated:

0 - 4 lakh: No tax
4 - 8 lakh: 5% of ₹4 lakh = ₹20,000
8 - 12 lakh: 10% of ₹4 lakh = ₹40,000

Total Tax = ₹60,000

But here’s the good news! He gets a tax rebate of ₹60,000, so he pays ₹0 tax in the end. This is a big relief for middle-class taxpayers.

What is a Rebate?

A rebate is like a discount on your tax. If your income is within a limit, the government reduces or removes your tax.

👉 Example: If your total tax is ₹60,000, but you get a ₹60,000 rebate, you pay ₹0 tax. It’s like getting full tax relief!

What is a Cess?

Cess is an extra charge added to your tax for specific purposes like health or education. It’s calculated as a percentage of your total tax.

Example of Cess:

Old Regime: If Kavya’s total tax is ₹7 lakh, she only pays ₹7 lakh.
New Regime with 4% Cess: If her tax is ₹7 lakh, 4% cess (₹28,000) is added, so her total tax becomes ₹7.28 lakh.

Key Difference:

Old Regime: Tax is the final amount.
New Regime with Cess: Tax includes the extra cess, making it higher.

So, the introduction of cess increases the final tax payment for taxpayers, especially for those in higher income brackets, as they pay both the regular tax and the additional cess.

Impact on Different Income Groups

The government's revised tax structure offers significant relief to lower- and middle-income groups while progressively increasing the tax burden on higher earners. Designed to support the middle class, promote savings, and reduce income inequality, the new framework incorporates rebates and cess to balance the benefits. This approach ensures that tax relief is directed where it is most needed while securing a greater contribution from higher-income individuals.

Investment and Economic Growth

The budget also includes plans to grow the economy. The government is spending more on infrastructure, digital technology, and green energy. To help businesses grow, tax benefits for startups and small businesses (MSMEs) have been increased. Sectors like manufacturing and real estate will also see more investment opportunities.

Criticism and Challenges

While many people are happy about tax relief, some experts say the budget does not fully solve big problems like:

Rising prices (inflation)
Lack of new jobs
Limited focus on rural development

Experts suggest that instead of just giving tax cuts, the government should also focus on long-term economic growth.

Conclusion

The Union Budget 2025-26 brings big tax benefits for the middle class and aims to boost investments. However, some concerns remain about whether it will solve deeper economic challenges. Only time will tell how well these changes will work in the long run.