Budget 2025 Update: How the New Tax Regime Affects 97% of Individual PAN Card Holders

During the Union Budget 2025 presentation, sweeping changes to the nation’s tax structure were announced. The revised regime will affect nearly 97% of individual taxpayers holding a PAN card, aiming to increase disposable incomes, simplify filing processes, and offer relief to middle-income groups. However, some stakeholders have expressed concerns over potential long-term effects. Roughly ₹42 crore individuals—including salaried workers, professionals, and small business owners—will be impacted.

Analysts are monitoring the changes, noting that the practical implications may evolve as both taxpayers and authorities adjust to the new system, potentially requiring further modifications as its full economic impact unfolds gradually.

Key Changes Announced

The new tax structure effectively scraps nearly all major exemptions and deductions that taxpayers previously used to reduce their tax outgo. It also introduces revised income tax slabs to ensure enhanced savings for those in lower and middle-income brackets.

Some major changes are:

Existing Slab	Proposed Slab	Tax Rate
Up to Rs 3 lakh	Up to Rs 4 lakh	0%
Rs 3-7 lakh	Rs 4-8 lakh	5%
Rs 7-10 lakh	Rs 8-12 lakh	10%
Rs 10-12 lakh	Rs 12-16 lakh	15%
Rs 12-15 lakh	Rs 16-20 lakh	20%
Rs 15-20 lakh	Rs 20-24 lakh	25%
Above Rs 15 lakh	Above Rs 24 lakh	30%

 

According to experts, the move will increase transparency, reduce filing errors, and exempt a large chunk of taxpayers in lower brackets from taxes. However, higher-income groups may end up paying more.

Impact Analysis for Salaried Individuals

To illustrate the impact, let us consider an example of a salaried individual, Ramesh, who has an annual income of Rs 7.5 lakh.

Under the old regime, Ramesh would have paid around Rs 78,000 in taxes after claiming deductions of Rs 1.5 lakh under sections 80C and 80D. However, as per the new structure, his first Rs 3 lakh of income will be tax-free. The next Rs 2.5 lakh will attract 5% tax, and the subsequent Rs 2 lakh will attract 10% tax. Thus, Ramesh will pay only Rs 35,000 in taxes, saving around Rs 43,000 annually.

Tax experts estimate that most taxpayers in income brackets of ₹5 lakh to ₹10 lakh will see significant enhancement in take-home incomes. This means the new regime will provide relief to crores of salaried individuals and boost consumer spending across sectors. However, those with incomes above ₹10 lakh may need to analyse their finances carefully before switching.

Addressing Middle-Class Aspirations

Finance Ministry officials have clarified that the move aims to address long-standing middle-class aspirations of reducing tax burdens and improving disposable incomes. With the COVID pandemic straining household budgets over the past few years, the government hopes to reignite consumer demand by leaving more money in taxpayers' hands.

The new regime is also touted as promoting transparency and reducing dependence on myriad tax-saving investments. It supports the government's vision of simplifying compliance and improving ease of living.

However, the lack of flexibility has raised some concerns among financial planners. Investors used to carefully planning taxes around financial products may need to reassess their strategies in light of these changes.

The Main Benefits of the New Regime

The introduction of this new tax system provides several advantages, particularly for those who are not heavily reliant on tax-saving investments. Let’s explore some of these key benefits:

1. Ease of Filing: As mentioned earlier, one of the most significant advantages is that taxpayers no longer need to worry about tracking various exemptions and deductions. This simplification of tax filing typically reduces the chances of errors and avoids the need for complex paperwork.

2. Lower Tax Rates for Many: For those with an income up to ₹7.5 lakh, the tax liability is significantly reduced, which typically results in increased savings and higher disposable income.

3.More Disposable Income: With the reduction in taxes for the vast majority, many individuals can use their extra income to make investments, spend on necessities, or save for future needs. This extra money could go towards areas such as health, education, and family expenses.

4. Fewer Taxpayers in Higher Slabs: As the income thresholds for tax slabs have increased, many more people will find themselves in lower tax categories. This gives the majority of taxpayers greater financial flexibility.

Conclusion

As the fine print of the new tax structure is still being analysed, its ultimate impact will become clearer over the next few weeks. However, most experts agree that most taxpayers have reason to cheer, as the regime provides simplicity and sizeable savings.

Of course, high-income earners will need to prepare for the changes through smart financial planning. As India aims for a $5 trillion economy, boosting consumption levels to fuel growth seems to be the underlying theme behind the government's latest move.

While only time will tell whether this gambit pays off, the new tax regime marks a tectonic policy shift towards benefitting the average taxpayer. For crores of middle-income Indians, this year's budget truly brings tax relief along with more cash in hand to spend.