The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, introduced several key changes to the income tax union budget 2025 structure that have caught the attention of salaried individuals across India. Typically, budget announcements bring mixed feelings, with some gaining benefits and others facing new challenges. However, this year's tax reforms have generally been seen as favourable for the middle class, particularly salaried employees.
One of the most discussed changes is the provision allowing salaried individuals to pay zero income tax on a salary up to 13.7 lakh, thanks to standard deductions and
NPS contributions. Let’s break down what this means, how it works, and who can benefit.
Key Changes in Income Tax Slabs 2025-26 for Salaried Person
The new budget has brought relief for individual taxpayers. Those with an annual income up to 12 lakh will typically not need to pay any income tax, a sizable increase from prior thresholds. However, salaried persons can enjoy an even higher tax-free earnings limit. Factoring in standard deductions and NPS payments, salaried individuals may have up to 13.7 lakh of income that is free from income tax.
This higher zero-tax limit for salaried persons comes as encouraging news. With thoughtful raises to tax-free incomes, the budget aims to put more money in the hands of middle-class taxpayers. The changes offer financial breathing room for many people and promote consumer spending.
How Salaried Individuals can Save Tax up to 13.7 Lakh
The recent budget has brought welcome news for salaried taxpayers, with new provisions allowing them to earn up to 13.7 lakh per annum without paying any income tax. This higher tax-free earning limit comes through two primary deductions:
Standard Deduction:
The standard deduction for salaried individuals now stands at 75,000. This amount is automatically reduced from the taxable salary, requiring no additional paperwork. It brings down the taxable component of one's earnings.
National Pension System (NPS) Contributions:
The National Pension System offers salaried taxpayers another avenue for legitimate tax savings. As per Section 80CCD(2) of the Income Tax Act, up to 14% of the basic salary can be invested in NPS and claimed as a deduction. This is higher than the 10% limit allowed under the old tax regime.
Example Calculation:
Consider a salaried individual with an annual salary of 13.7 lakh. Assuming 50% of this salary, or 6.85 lakh, is basic pay, a 14% contribution to NPS would equal 95,900. Along with the standard deduction of 75,000, this brings down the taxable income to 11.99 lakh. This falls under the new tax-free bracket up to 12 lakh annual income.
In this manner, salaried taxpayers can reduce their tax liability and take home a higher disposable income. The increased deductions make the new tax regime structure more beneficial for those in regular employment.
Detailed Income and Tax Slab 2025-26:
Advantages of NPS Beyond Tax Savings
The National Pension System (NPS) offers salaried individuals more than just tax savings. NPS allows flexibility in selecting asset allocation, switching between funds, and changing pension fund managers without any tax implications. Additionally, NPS levies one of the lowest fund management charges in the industry at 0.09% per annum. This is substantially lower than the 1-1.5% expense ratio of mutual funds.
Expert Opinions on NPS and Tax Benefits
Financial experts tend to view the restrictions in NPS as beneficial over the long run. The enforced illiquidity ensures money remains invested, potentially yielding higher NPS returns later.
The Union Budget 2025 has introduced major changes that generally favour salaried taxpayers. The key provision is zero income tax for earnings up to 13.7 lakh per annum. Salaried individuals can achieve this threshold through standard deductions and NPS investments. Although NPS comes with liquidity constraints, the tax advantages and possibility of long-term gains make it worthwhile for many. Individuals should evaluate their financial objectives and consult an advisor to optimise
NPS tax benefit.
The budget aims to simplify tax structures while promoting savings habits that ultimately support the financial well-being of India's salaried class. As always, tailored financial planning remains essential to leverage the changes.
Conclusion
The Union Budget 2025-26 offers salaried individuals a chance to pay zero income tax on salaries up to 13.7 lakh through standard deductions and NPS contributions. This change encourages savings, boosts disposable income, and promotes financial security, making it essential for taxpayers to plan wisely and leverage these benefits.
