The budget is a stark admission that the taxpayers at the bottom of the pyramid are hurting.

At a time when household savings are badly crimped and the common man has gummed up his wallet, finance minister Nirmala Sitharaman has stepped in to provide some salve in the form of tax relief to help them wrestle the hydra of inflation.

The hope is that with some money in their pockets, people with modest incomes will spend at least a part of their tax savings, driving up demand in urban pockets where consumption has slackened.

“Slabs and rates are being changed across the board to benefit all taxpayers. The new structure will substantially reduce the taxes of the middle class and leave more money in the hands, boosting household consumption, savings and investment,” the finance minister said while presenting the budget.

As part of the changes, the exemption limit under the new regime has been increased from ₹3 lakh to ₹4 lakh and the tax slabs have been reoriented (See chart on left).

From the assessment year 2026-27, the tax rebate under Section 87A of the new tax regime has been increased to ₹60,000 from ₹25,000. This means that if a person has an income of up to ₹12 lakh, no tax will be payable by him under the new tax regime for the assessment year 2026-27. However, one has to pay tax if the income exceeds ₹12 lakh.

Those with an income of ₹13 lakh will have to fork out a tax of ₹75,000 plus cess. For the sake of simplicity, it would be better if the rebate applied to all taxpayers irrespective of the income limit of ₹12 lakh as prescribed.

It must be noted that the benefit of tax rebate under Section 87A will not be available in respect of tax on income from capital gains or other incomes, which are chargeable at special rates. So, if a taxpayer has any capital gains arising from the sale/ transfer of assets, it will be taxed separately as capital gains tax depending on the period of holding of the assets.

The budget has also simplified the TDS threshold limits. Notable among the changes is an increase in the threshold limit for TDS on interest earnings of senior citizens — from ₹50,000 to ₹100,000, dividend from ₹5,000 to ₹10,000, remittance under liberalised remittance scheme (LRS) from ₹700,000 to ₹1,000,000. There has been a longstanding demand to rationalise the TDS structure and therefore these changes are welcome.

To promote voluntary compliance, the time limit for furnishing updated income-tax returns has been extended under Section 139(8A) from 24 months to 48 months. The rate of additional income tax payable for updated returns filed after the expiryof 24 months and up to 36 months shall be 60 per cent of the aggregate tax and interest payable.

The additional income tax payable for updated returns filed after 36 months and up to 48 months shall be 70 per cent of the aggregate tax and interest payable.

Further, to help with smooth tax administration, amendments have been made under certain sections (271C, 271CA, 271D, 271DA, 271DB, 271E) such that the penalty can only be imposed by a joint commissioner and not theassessing officers.

The budget has also proposed to amend with effect from April 1, 2025, the time limit for taking approval for the retention of seized books of accounts or other documents to one month from the end of the quarter in which the assessment, reassessment or recomputation order has been made.