As many as 1 crore taxpayers will no longer have to pay income tax with the new proposal in the Union Budget 2025-26, which will put a substantial amount of money in the hands of these individuals said Union Finance Minister Nirmala Sitharaman on Saturday.
Finance and Revenue Secretary Tuhin Kanta Pandey expressed hope that all the money that these individuals gain from the tax rebate will come back to the economy in the form of consumption, savings or investment.
In a move that is seen to help boost consumption demand of middle-class taxpayers, the Union Budget 2025-26 has proposed a significant review of the income tax slabs under the new income tax regime with the 30% tax slab now on income above Rs 24 lakh per year. The FM also announced that there will be no income tax on income up to Rs 12 lakh per annum as against the previous Rs 7 lakh.
In all the Centre is seen to forego Rs 1 lakh crore of revenue in direct taxes due to various direct tax proposals including these. However, in FY26, income tax collections are seen to rise by 14.4% to Rs 14.38 lakh crore from the revised estimate of Rs 12.57 lakh crore in FY25.
Pandey, however, underlined that the growth is much more modest than previous fiscal. IN FY25, income tax collections are seen to increase by 20% while they grew by 24% in FY24. Buoyancy is also estimated at 1.42 in FY26 compared to 2 in FY25 and 2.65 in FY24. “There is moderate buoyancy projected considering the revenue sacrifice,” he said.
About 75% of taxpayers had already moved to the new tax regime and it is expected that almost everyone will shift to it now. The government has however ruled out phasing out off the old tax regime for now.
Addressing a press conference after the presentation of the Union Budget on Saturday, the finance minister also underlined that the New Income Tax Bill, which will be presented in the Parliament next week will be taken to the Standing Committee, which is likely to hold discussions with stakeholders. “I hope it will get passed without much difficulty,” she said, without giving a timeline for when it will be enacted.
She further explained that the new Act looks to simplify the current Income Tax Act, 1961 by doing away with complications in language, the circuitous way of explaining and addition of too many exemptions. However, after its enactment, any changes for income tax relief will still have to go to Parliament for approval.
The finance minister also underlined that there has been no reduction in public spending or capital expenditure by the Centre.
Capital expenditure in FY25 is estimated to be lower at Rs 10.18 lakh crore in the revised estimate from the budgeted Rs 11.1 lakh crore. In FY26, capital expenditure is estimated to grow at a modest 10.1% to Rs 11.21 lakh crore.
“Elections were happening. Both the Centre and states were catching up on spending in the third and fourth quarter….so it slowed,” the FM noted, adding that there continues to be a focus on capital expenditure but it will have to be based on actual development that has taken place on the ground.
Economic Affairs Secretary Ajay Seth also highlighted that the effective capex remains at 4.3% of the GDP, he underlined adding that there is no capacity issue. New sectors such as urban development are also coming up. He further pointed out that along with the grants in aid for capital creation estimated at Rs 4.2 lakh crore in FY26, the effective capex is at Rs 15 lakh crore.
Pandey highlighted that central public sector enterprises will also spend about Rs 4 lakh crore of capex from their own pockets.