Tax reforms increase disposable income for middle-class taxpayers

Finance Minister Nirmala Sitharaman has presented a new budget for the financial year 2025-26, which starts on April 1, 2025. This budget offers several tax benefits aimed at the middle class. The changes are expected to increase disposable income for many taxpayers across India. One major change is the increase in the tax-free income limit. Under the new regime, individuals won't pay tax on incomes up to Rs 12 lakh. Also, the top tax rate of 30% will now apply only to incomes above Rs 24 lakh, up from the previous Rs 12 lakh. These changes are forecasted to cost the government around Rs 1 lakh crore in revenue for 2025-26. Employees with taxable incomes less than Rs 12.75 lakh will also benefit. They will not need to pay advance tax, resulting in higher monthly take-home pay. The new budget also includes adjustments to tax deductions at source (TDS) for various transactions, such as rents and deposits, which may help more ordinary citizens. Additionally, the Reserve Bank of India (RBI) cut the repo rate by 0.25% in February, leading to lower interest rates on loans. This will also contribute to increased disposable income for borrowers. Going forward, analysts expect more cuts to the repo rate, suggesting changes could occur in April and August 2025. Forecasts indicate inflation might decrease to 3.9% in the final quarter of FY25 and average around 4.7% for the year. In the upcoming financial year 2026, inflation is also expected to remain controlled, ranging between 4.0% and 4.2%.