The tax slab updates announced in the Union Budget would have exceeded the expectations of even the most optimistic observers who’d been calling for tax relief for the middle class. Not since 2012 have we seen such substantial jumps in all tax slabs. BankBazaar’s own demand for long had been to update the long-frozen 30% slab to at least ₹18 lakh from its current ₹15 lakh. But the FM stunned all by hiking the 20% slab all the way to ₹20 lakh. She brought back the 25% slab on incomes up to ₹24 lakh. Furthermore, she hiked the 30% slab by a whopping 60% from its earlier limit. All combined, this will lead to tax savings at all income levels.

Tax free income

The most high-impact announcement in the slabs was tax-free income being raised to ₹12 lakh. For the salaried and pensioners, there’s the standard deduction of ₹75,000, which pushes up the tax-free limit to ₹12.75 lakh—or even higher in instances where deductions are claimed. This is a sizeable jump from the previous limit of ₹7.75 lakh and likely to free 85-90% of income taxpayers from the burden of income tax. This has been enabled through an enhanced 87A rebate of ₹60,000 through which all slab tax on incomes up to ₹12 lakh gets waived off.

Relief for top grossers

Over the last decade, the sore point among taxpayers, especially the high earners, was the absence of inflation indexing on the higher slabs. Even for the moderately high earners – those earning between ₹10 lakh and ₹20 lakh – there had been little relief from the new tax regime which had frozen the 30% slab at ₹15 lakh since its launch in 2020.

In the old regime, the 20% and 30% slabs remain frozen at 2012 levels. For the salaried taxpayer eligible for deductions and exemptions, there was little difference in tax liabilities in either regimes. So an update was due, and it has finally come.

How much do you save?

While the higher tax-free income helps, the other biggest gainers are everyone earning between ₹15 lakh and 25 lakh. Their tax bill has been slashed between 25-31% — a big help in these inflationary times. This translates to monthly savings of ₹7800 on a taxable income of ₹20 lakh, going up ₹10,400 on incomes above ₹50 lakh.

Shrinking tax base

As per the AY2023-24 statistics available, we had nearly eight crore income taxpayers. We’re trending towards 10 crore now. However, more and more of this base has been receiving the benefit of tax-free income through rebates. About 63% paid no income tax—and this number is likely to touch 90% with the last two slab updates. This essentially means that an ever-decreasing subset—about one crore people or 10% of the base—is responsible for all income tax payments in this country. While we welcome the tax breaks now, income expansion will remain important goals in the years to come.

What about the old regime? As per government statistics, 75% have moved out of it. We’ve hit an inflection point. Following the slab updates in 2024 and 2025, it’s expected that most taxpayers will now prefer the new regime, which is the default option anyhow. But as you welcome the higher disposable income and freedom from the paperwork that comes with tax submissions, remember to save and insure well—even if the incentive of the tax deduction is gone.