How NIL Tax upto Rs.12 Lacs will boost Economy?

The Government of India had increased ‘Nil tax’ slab from Rs 2.5 lakh in 2014 to Rs 7 lakh in 2023. However, the Government continued to have 2-tax regime (Old and New Tax Regime) and taxpayers could choose the regime as per his/her income and deductions. Around 78% of the returns filled under the Individual Income Tax (IT) are under the new tax regime.

The Government recently proposed a big income tax relief in the Union Budget 2025-26 in the new tax regime. The proposals were

• No income tax burden for income levels up to Rs 12 lakh (i.e. average income of Rs 1 lakh per month other than special rate income such as capital gains) under the new regime
• This limit will be Rs 12.75 lakh for salaried taxpayers, due to standard deduction of Rs 75,000.
• Slabs and rates are being changed across the board to benefit all taxpayers

The new tax slabs now start at a higher income level (Rs.4 Lacs), allowing more people to benefit from the reduced rates. The increase in the income threshold means that middle-income earners will see a direct reduction in their tax liabilities.

ax slabs	Tax rate	Approximate Tax Payers (in Lakh)	Total tax savings (in Crore)	Total tax saving per tax payer (in Rs)	Total boost to consumption (in Rs Crore) using marginal propensity to consume / mpc of 0.7
<= 4L	Nil	–	–	–	–
4L–8L	5%	372.8	11,222	–	37,405
8L–12L	10%	112.0	43,080	38,455	1,43,600
12L–16L	15%	42.2	11,589	27,449	38,631
16–20L	20%	19.4	13,009	67,000	43,363
20L–24L	25%	9.5	9,415	98,650	31,384
>=24L	30%	9.8	10,788	1,10,000	35,960
Total		565.8	99,103		3,30,344

This new tax structure is expected to benefit approximately total 5.65 crore taxpayers (above Rs 4 lakh tax slab) with total tax savings amounting to Rs 1 lakh crore, with maximum benefits accrued to people in 8L–12L income bucket. This could significantly stimulate economic activity and will ultimately contribute to more vibrant economy, encouraging sustainable growth and improving overall economic well-being.

The Rs 3.3 lakh crores is expected to flow into key sectors such as consumer goods, healthcare, education, and housing. This incremental spending over and above the base line spending is likely to drive demand in these sectors.

Break-up of Consumption Boost

Food Item

Food Item	Rs Crore
Cereal	12342
Pulses And Pulse Products	4026
Sugar & Salt	1881
Milk And Milk Products	23727
Vegetables	13596
Fruits (Fresh + Dry)	12771
Egg, Fish & Meat	11748
Edible Oil	6006
Spices	7590
Beverages, Processed Food, Etc.	37257
Food Total	130944

Non-Food Item

Non-Food Item	Rs Crore
Pan, tobacco & intoxicants	7821
Fuel and light	18447
Toilet articles & other household consumables	16995
Education	19701
Medical (non-hospitalization)	12837
Conveyance	27918
Consumer services	18876
Entertainment	5841
Rent	21714
Clothing & bedding	15840
Footwear	2838
Durable goods	22671
Non-food Total	199056

The Union Budget 2025-26 has also announced the extension of the time limit to file the updated return (ITR-U) from its current timeline of 24 months to 48 months.