Indian middle-class citizens received substantial tax relief in the newly introduced Union Budget 2025-26. Taxpayers are expected to experience reduced financial liabilities because their annual income below Rs 12 lakh is now exempt from taxation. The tax system now maintains reasonable taxation rates compared to G-20 country standards.
The current budget reform has introduced an improved income tax framework, strengthening the new tax system. Many taxpayers can expect tax relief because the new system grants full tax exemption to individuals earning less than Rs 12 lakh. According to the revised tax structure, the 5% tax rate applies to incomes between Rs 4 lakh and Rs 8 lakh, while Rs 8 lakh to Rs 12 lakh generates a 10% tax liability and progressive increases thereafter.
Taxpayers also have the choice to use the old tax system, which applies 5% taxation for incomes above Rs 2.5 lakh before it increases progressively to reach 30% at Rs 10 lakh and above. Annual income exceeding Rs 50 lakh triggers surcharge taxation, which affects wealthy groups of taxpayers in India.
The personal tax rates implemented in India stay below those of major G-20 economies. According to the new system, taxpayers face a maximum marginal tax rate of 39%, but the old taxes reach 42.74%. In contrast, nations such as Canada, Japan, and Germany, along with their surcharge levy, maintain substantially higher personal tax rates at 54.8%, 55.95%, and 45%, respectively.
Tax policies in South Korea reach 49.5%, Australia maintains 47%, and Italy imposes 47.23% tax burdens on its residents. The taxation system in Russia and Saudi Arabia provides 22% and 0% rates, respectively. India now holds a favorable position against other countries because its updated tax structure supports its taxpayers through lower rates that follow global tax trends.
The restructured tax system intends to generate greater taxpayer acceptance to embrace this updated system. Individuals who receive simple salaries would likely benefit since the basic tax bands provide lower tax responsibilities. This modification gives middle-class taxpayers higher disposable income for savings and investments.
Taxpayers with incomes exceeding Rs 50 lakh remain liable to surcharge and cess for the government to continue receiving contributions from high-earners. The budget provides relief to lower and middle-income earning groups but seeks to preserve revenue collection from wealthy taxpayers.