Why did government increase income tax exemption from ₹7 lakh to ₹12 lakh? FM Nirmala Sitharaman explains

Why did government increase income tax exemption from ₹7 lakh to ₹12 lakh? FM Nirmala Sitharaman explains

Why did government increase income tax exemption from ₹7 lakh to ₹12 lakh? FM Nirmala Sitharaman explains ByHT News Desk Feb 03, 2025 01:55 AM IST Share Via Copy Link Nirmala Sitharaman announced an increase in income tax rebate from ₹7 lakh to ₹12 lakh, aimed at reducing tax burdens for ₹1 lakh monthly earners. 

Union finance minister Nirmala Sitharaman has said the government increased the income tax exemption from ₹7 lakh to ₹12 lakh to reduce the tax burden on people earning ₹1 lakh per month.

Union Finance Minister Nirmala Sitharaman during an interview with PTI, in New Delhi, Sunday, Feb. 2, 2025. (PTI)

Nirmala Sitharaman added that the government was also lowering tax slab rates and widening tax brackets to give relief to taxpayers across all income levels.

During a media interaction, the finance minister was asked to explain the reason behind increasing the income tax exemption from ₹7 lakh to ₹12 lakh, and whether this move was prompted by slower-than-expected growth in incomes and salaries.

“The government feels that if someone earns Rs1 lakh per month on average, she should not have to pay tax. We are achieving this in two ways: first, by reducing slab rates to create a more uniform, gradually progressive structure; and second, by expanding the tax slabs to provide relief across income groups,” Nirmala Sitharaman was quoted as saying by The Financial Express reported.

She said the government decided to provide extra benefits beyond slab rate reductions by introducing an additional rebate for some taxpayers, adding that the goal is for the money saved by taxpayers to flow back into the economy through consumption, savings or investment.

“We decided that some people should receive extra benefits beyond mere slab rate reductions. Hence, an extra rebate was introduced. Slab rate reductions apply to everyone, and the extra rebate for some. The expectation is that the money saved by taxpayers will flow back into the economy through consumption, savings, or investment,” the finance minister said.

She added that, unlike the Congress-era tax system, the government decided to offer extra benefits beyond slab rate reductions by introducing an additional rebate for some taxpayers.

“If you compare what we have done today with what prevailed in 2014 under the Congress government, the narrative has always been about putting money back into the hands of the people. Compared to the 2014 tax rates under the Congress, someone earning ₹8 lakh now has nearly ₹1 lakh more in their pocket. In 2014, the tax on them was ₹1 lakh; now, it is zero. Moreover, someone earning ₹12 lakh had to pay ₹2 lakh in 2014; now, it is zero. That means ₹2 lakh more in their pockets,” said Nirmala Sitharaman.

Finance minister said that the government is reducing rates for everyone, meaning someone earning ₹24 lakh, who paid ₹5.6 lakh in taxes in 2014, now pays ₹3 lakh, leaving ₹2.6 lakh more in their pocket.

“Moreover, rates for everyone are being brought down. As a result, someone earning ₹24 lakh, who had to pay ₹5.6 lakh in 2014; now they only have to pay ₹3 lakh. That means ₹2.6 lakh more in their pocket. So, it’s not just those earning up to ₹12 lakh who benefit—because they are not paying any tax at all due to the rebate—but even those earning more will benefit,” Sitharaman added.