This is a move aimed in a big way at a majority of the taxpayers in the country whose annual income is below the Rs 12.75 lakh limit featured in the Budget. As per the last available data from Assessment Year 2021-22, 6.33 crore taxpayers in India paid personal income tax. Of them, 5.51 crore taxpayers (nearly 87 per cent) had an annual income of less than Rs 10 lakh. If all of them move to the new tax regime, they will have to pay zero tax now.

There has been an increasing shift to the New Tax Regime (NTR) in recent years. The latest move on February 1, 2025 will prompt more people to move to NTR as it has become far more attractive. In Assessment Year (AY) 2024-25, of the total ITRs of 7.28 crore filed for AY 2024-25, 5.27 crore (72 per cent) were filed in NTR, compared to 2.01 crore ITRs filed in the Old Tax Regime (OTR).

Hailing the budget presented by his government, Prime Minister Narendra Modi said the middle class would gain in a big way from the government’s move to make income tax zero for those who earn till Rs 12 lakh a year. This budget is the opposite of filling the state’s exchequer – rather, this budget is to fill up people’s pockets.

The government has made no changes in the Old Tax Regime. In NTR, if you earn till Rs 12.75 lakh, you will have to pay zero income tax. But this is not a basic exemption for all. If you earn more than Rs 12.75 lakh, you will have to follow the new income tax slabs under new regime, which has also become more attractive than before. Effectively, those earning above Rs 12.75 lakh will also pay lesser income tax in new regime as the slabs have changed.