Government Increases Income Tax Exemption to ₹12 Lakh: FM Nirmala Sitharaman Explains

New Delhi : Union Finance Minister Nirmala Sitharaman has announced an increase in the income tax exemption limit from ₹7 lakh to ₹12 lakh, aiming to reduce the tax burden for individuals earning up to ₹1 lakh per month. The move is part of a broader effort to simplify tax structures and provide relief across income levels.

During a media interaction, Sitharaman explained that the government is restructuring tax slabs while introducing additional rebates to ensure that a significant portion of taxpayers retain more disposable income.

Rationale Behind the Tax Changes

“The government feels that if someone earns ₹1 lakh per month on average, they should not have to pay tax. We are achieving this in two ways: first, by reducing slab rates to create a more uniform, gradually progressive structure; and second, by expanding the tax slabs to provide relief across income groups,” Sitharaman stated in an interview with The Financial Express.

She emphasized that beyond the reduction in slab rates, the government is also introducing extra rebates, ensuring that saved money flows back into the economy through increased consumption, savings, or investments.

“We decided that some people should receive extra benefits beyond mere slab rate reductions. Hence, an extra rebate was introduced. Slab rate reductions apply to everyone, and the extra rebate for some. The expectation is that the money saved by taxpayers will flow back into the economy through consumption, savings, or investment,” she added.

Comparing 2025 to 2014 Tax Rates

Sitharaman highlighted the improvements compared to the 2014 tax structure under the previous Congress-led government. She noted that individuals earning ₹8 lakh annually now retain nearly ₹1 lakh more in their pockets compared to 2014.

• In 2014, someone earning ₹8 lakh paid ₹1 lakh in taxes; now, they pay nothing.

• A taxpayer earning ₹12 lakh used to pay ₹2 lakh in 2014; now, they are exempt due to the new rebate.

• Those earning ₹24 lakh, who previously paid ₹5.6 lakh in taxes, now pay ₹3 lakh, leaving them with ₹2.6 lakh more in disposable income.

Economic Implications

The government’s tax reforms are designed not only to reduce the financial strain on taxpayers but also to stimulate economic growth by increasing disposable income. The finance minister reiterated that the tax policy aligns with the government’s broader goal of fostering consumption, investment, and economic stability.

As India moves towards a more simplified and progressive tax regime, the increase in the exemption limit is expected to bring relief to millions of middle-class taxpayers while promoting a more robust economic framework.