Salaried employee? Know the impact of Union Budget 2025-26 tax changes on salaried taxpayers

The government has increased the nil-tax threshold to ₹12 lakh for individuals and ₹12.75 lakh for salaried taxpayers, including the standard deduction of ₹75,000, a major jump from the previous ₹7 lakh exemption limit.

Revised slabs under the new tax regime

Taxpayers earning up to ₹12 lakh will not have to pay any tax due to a combination of slab rate changes and rebates.

An individual earning ₹12 lakh will save ₹80,000 in tax, while those with an income of ₹18 lakh and ₹25 lakh will benefit by ₹70,000 and ₹1,10,000, respectively.

The tax relief measures are expected to boost household consumption, savings, and investment.

As FM Sitharaman presented her eighth straight Budget on February 1, salaried class and finance sector experts watched her announcements with high hopes of some major announcements.

What was expected earlier?

Reports suggested that, in Budget 2025, FM Sitharaman was expected to announce an inflation-linked increase in standard deduction and revised tax slabs allowing higher exemption limits.

A higher tax exemption limit and an increased standard deduction under the new tax regime for the salaried class were widely recommended by experts in the run-up to the Union Budget 2025.

In Budget 2024, FM Sitharaman increased the standard deduction to ₹75,000 from ₹50,000 for salaried employees, while also revising tax slabs under the new tax regime.

According to the government, the revised tax structure under the new regime in Budget 2024 gave salaried employees income tax benefits of up to ₹17,500 per annum.

Experts suggested revamping the tax structure for the salaried class to mitigate the impact of inflation and the rising cost of living. The much-needed tax relief was also necessary for boosting consumer demand, especially by allowing more disposable income in the hands of the taxpayers.

Experts also hoped that Budget 2025 would fix the issue of double taxation on salary recovered during notice periods for employees switching jobs. They had recommended deductions on the portion of the salary not paid by the employer as the notice period penalty and reporting of the salary recoveries separately in Form 16 for computing the correct taxable income.