Significant Increase in Tax Exemption Limit: Modi Government Moves Away from UPA's Approach
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Synopsis
The Modi government has significantly increased the income tax exemption limit, moving from the UPA's incremental approach to offering substantial tax relief for the salaried middle class. The new limit of Rs 12 lakh represents a major leap, aimed at enhancing financial well-being and meeting the aspirations of India's workforce.
Key Takeaways
- Income tax exemption limit raised to Rs 12 lakh.
- Biggest increase since 2005.
- The Modi government prioritizes the salaried middle class.
- New tax regime simplifies tax rates.
- Encouragement of tax compliance among salaried individuals.
New Delhi, Feb 1 (NationPress) The Narendra Modi government 3.0 has sustained its commitment to providing income tax relief for the salaried class, a policy shift initiated by the NDA government in 2014, moving away from the UPA’s method of implementing gradual tax savings for the middle class.
The Union Budget 2025-26, presented by Union Minister for Finance and Corporate Affairs Nirmala Sitharaman, announced that individuals earning up to Rs 12 lakh will not be subject to income tax – which translates to an average monthly income of Rs 1 lakh, excluding special income rates like capital gains.
This increase in the income tax exemption limit, under the new tax regime, marks a significant rise from an annual salary limit of Rs 7 lakh to Rs 12 lakh, representing the largest adjustment since the UPA era in 2005.
During the UPA government, the income tax exemption limit began at Rs 1 lakh in 2005, and it took seven years under Manmohan Singh to raise this limit to Rs 2 lakh by 2012.
In response to long-standing demands from salaried middle-class taxpayers, PM Modi increased the exemption limit by 25 percent to Rs 2.5 lakh in 2014.
With the onset of Modi 2.0 in 2019, another substantial benefit was introduced, raising the exemption limit from Rs 2.5 lakh to Rs 5 lakh.
The Modi government has aimed to align with the aspirations of the younger workforce in India, leading to the introduction of a simplified new tax regime in the fiscal year 2020-21, which offers reduced tax rates without the need for common deductions and exemptions.
This new tax framework was conceptualized under the understanding that the millennial generation tends to prioritize spending over saving.
In 2023, FM Sitharaman further raised the rebate threshold by Rs 2 lakh, effectively elevating the income tax exemption limit under the new regime to Rs 7 lakh.
Encouraged by the rise in tax compliance among the salaried class, FM Sitharaman has provided a generous benefit for new tax regime beneficiaries, increasing the effective exemption limit to Rs 12 lakh.
Union Home Minister Amit Shah praised the substantial rise in the tax exemption limit announced in the Union Budget 2025-26, stating in a post on X, “The middle class is always in PM Modi’s heart. Zero Income Tax till Rs 12 Lakh Income. This proposed tax exemption will greatly enhance the financial stability of the middle class. Congratulations to all beneficiaries on this occasion.”
