Tanishka Dubey and Varun Sahay
Chennai | 1st February 2025
The government announced tax relief for the middle to spur the demand in the economy. The government will now offer a full tax rebate for those earning up to Rs 12 lakh, said Finance Minister Nirmala Sitharaman, in her eighth Union Budget for FY26. A tax rebate, which offers refunds when tax liability is less than taxes paid, has been increased under Section 87A from Rs 25,000 to Rs 60,000. This makes income up to 12 lakhs tax-free. The move aims to boost household spending by increasing the disposable income of the middle class. This rebate will not apply to special grade income such as capital gains. “This move will put an additional Rs 8,000 to Rs 10,000 in the pockets of middle-class taxpayers every month,” said Vikas Sharma, Senior associate at AKM Global.
The decision to reduce the tax burden on the middle class comes at a time when the urban demand in the economy has been slowing. Top FMCG companies attributed worse-than-expected earnings in the second and third quarters of FY2025 to tepid urban demand
Other major tax reforms in this year’s budget include streamlining Tax Deducted at Source (TDS) and Tax Collected at Source (TCS). Notable changes include doubling the tax deduction limit on interest for senior citizens to Rs 1,00,000 and increasing the TDS threshold on rent to Rs 6 lakh from Rs 2.40 lakh earlier.
The TCS threshold for remittances under the RBI’s Liberalized Remittance Scheme(LRS) has also been raised to Rs 10 lakh. Additionally, TCS has been removed for education-related remittances funded through specified institutional loans and eliminated for goods sale transactions to reduce the compliance burden “This is a good thing for the economy, giving money in the hands of people, it will give them a chance to spend in investment or save or consume,” said Managing Director & Principal Advisor, Hexagon Wealth. The government expects to receive Rs 14.38 lakh crore as direct tax in FY26 up 14 percent from the revised estimates of FY25.