Significant Tax Relief Introduced in Finance Act 2025

The Finance Act 2025 introduces substantial tax relief for the middle class, raising income thresholds for tax rebates and simplifying the tax filing process. Minister Pankaj Chaudhary highlights the aim of creating a fair taxation system without additional burdens. The new law is expected to benefit small businesses and individual taxpayers by reducing legal complexities. With significant changes in tax slabs and rates, this reform is set to enhance household consumption and savings. Read on to learn more about the implications of these changes.

By Narendra Chaudhary Aug 4, 2025, 16:02 IST

Overview of the New Tax Regime

New Delhi, Aug 4: The recently passed Finance Act, 2025, has introduced considerable tax relief through revised slabs and rates, as reported to Parliament on Monday.

Minister of State for Finance, Pankaj Chaudhary, stated in a written response to the Lok Sabha that these new measures aim to establish a fair and just direct taxation system, ensuring that the working and middle-class citizens do not face additional tax burdens.

Chaudhary emphasized that the adjustments in slabs and rates are designed to benefit all taxpayers, significantly lowering the tax obligations for the middle class and allowing them to retain more income, which is expected to enhance household spending, savings, and investments.

The Finance Act, 2025, has raised the income threshold for tax rebates under section 87A of the Income Tax Act, 1961, for residents taxable under the new regime from Rs 7 lakh to Rs 12 lakh, while the maximum rebate has increased from Rs 25,000 to Rs 60,000.

Additionally, the minister noted that marginal relief will still apply for incomes slightly exceeding Rs 12,00,000.

However, the government has not implemented specific measures to assess the long-term effects of these tax reforms on domestic consumption and economic growth.

This new income tax legislation is expected to simplify the tax filing process for everyday citizens and small enterprises.

BJP MP Baijayant Jay Panda, who led the Parliamentary Select Committee reviewing the legislation, remarked that the new law, once enacted, will streamline India's complex tax structure, reduce legal ambiguities, and assist individual taxpayers and MSMEs in avoiding unnecessary legal disputes.

Panda pointed out that the existing Income Tax Act of 1961 has seen over 4,000 amendments and comprises more than 5 lakh words, making it overly complicated. The new bill aims to simplify this by nearly 50%, making it much more accessible for average taxpayers.

He noted that small business owners and MSMEs, who often lack the legal and financial knowledge to navigate intricate tax systems, will be the primary beneficiaries of this simplification.