Economy to get fillip with tax cut

In the new tax regime, the big takeaway is a major reworking of the tax slabs, with focus on the middle-income group from FY26.
Representative image
Representative image
Updated on: 
2 min read

For a middle-class that is struggling with tight cash flows and higher taxes, the finance minister has come with a bunch of measures that put more money into their pockets. The introduction of enhanced slabs, lower tax rates, higher threshold for TDS (tax deduction at source) and TCS (tax collected at source) transaction and measures to cut complexity around KYC compliance are set to bring considerable cheer to a large section of the salaried and even retired population.

Higher surplus for the salaried

In the new tax regime, the big takeaway is a major reworking of the tax slabs, with focus on the middle-income group from FY26. A salaried person will have to pay taxes only if she earns over Rs 12.75 lakh, a steep rise from Rs 7.75 lakh levels currently. This is a rebate increase and not the starting slab. For incomes over Rs 12.75 lakh, your taxes will start from Rs 4 lakh onwards.

At the lower levels, the taxable income starts from Rs 4 lakh and goes in slabs of Rs 4 lakh. The tax rates start at 5% for incomes of Rs 4-8 lakh and rise progressively in blocks of 5% to 30% for a person earning Rs 24 lakh, up from Rs 15 lakh. If your income is Rs 12 lakh, you save Rs 80,000 in tax. The savings are higher at Rs 1.1 lakh if you earn Rs 24 lakh as taxable amount annually. Therefore, the middle class has substantial savings that they can direct for their consumption as well as investments in a suitable proportion.

Ease of deductions and compliances

The Budget has brought relief to depositors who face TDS on interest income. For senior citizens who depend heavily in interest income for their living, TDS thresholds have been doubled. For those aged 60 and above, TDS will now be applied only if their interest income is over Rs 1 lakh, up from Rs 50,000 currently. Other citizens get a Rs 10,000 increase in TDS thresholds to Rs 50,000.

Those aspiring to send their children abroad for higher studies, TCS limit has been raised from Rs 7 lakh to Rs 10 lakh when the funding is done via education loans. They get an additional Rs 3 lakh after which TCS at 0.5% would be applicable.

A centralised KYC registry would be rolled out in 2025 by the Centre, and the process for periodically updating personal data would be streamlined. So, random calls from your bank or any other entity to update your personal details with threats to freeze the account could be a thing of the past.

Given that unit linked insurance plans were favoured at one time, their taxation at the marginal slab was a matter of concern for investors. Now, all gains on ULIPs where premiums are over Rs 2.5 lakh annually, the tax rate would be 12.5% provided you hold the investments for more than one year.

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