Union Budget 2025: From 97.75% tax to Rs 12 lakh tax-free income; here's how income tax slabs have changed in India since Independence in 1947

Finance Minister John Mathai made the first tax slab change in independent India when he reduced tax on incomes up to Rs 10,000 by a quarter of an anna in two slabs. In the 1st tax slab, he reduced it from one anna to nine pies, and in the 2nd tax slab, he reduced it from two annas to one nine pies. It was the time when one anna was equal to Rs 1/16, while Rs 1 had 192 pies.

Finance minister Chavan made a significant change in the tax slab when he cut the maximum marginal rate from 97.75 per cent (the highest-ever) to 75 per cent. Taxpayers earning income up to Rs 6,000 a year were kept outside the ambit of income tax. However, a 70 per cent marginal rate of basic income tax was introduced on the slab over Rs 70,000/year. The highest tax slab in that budget was kept at 77 per cent.

The major change he made was that he decreased the number of income tax slabs from 8 to 4. Taxpayers with an annual income of less than Rs 18,000 were kept out the tax ambit. On Rs 18,001 to Rs 25,000, a 25 per cent income tax was fixed; for the Rs 25,001 to Rs 50,000 income group, tax was fixed at 30 per cent. On Rs 50,001 to Rs 1 lakh income, it was 40 per cent, while for income above Rs 1 lakh, it was 50 per cent, which earlier used to be 61.87 per cent.

As a Finance Minister, Manmohan Singh cut down the number of tax slabs to the lowest-ever at 3. For annual income from Rs 30,000 to Rs 50,000, the slab was 20 per cent, for Rs 50,000 and Rs 1 lakh income, the tax rate was 30 per cent, and 40 per cent was for those earning above Rs 1 lakh a year.

In the first tax slab of 20 per cent, the limit was increased to Rs 35,000-Rs. 60,000. The second slab of 30 per cent was kept at Rs 60,000-Rs 1.2 lakh, and the maximum tax rate of 40 per cent was announced for those with income levels above and over Rs 1.20 lakh.

P Chidambaram announced a 'Dream Budget', in which he reduced the tax limit from 15, 30, and 40 per cent to 10, 20, and 30 per cent, respectively. The first slab of 10 per cent was for the Rs 40,000-Rs 60,000 income group; 20 per cent tax was for the Rs 60,000-Rs 1.50 lakh income group; and the 30 per cent was for income above Rs 1.50 lakh. Apart from that, the standard deduction limit was also increased to Rs 20,000 for all salaried taxpayers.

He gave tax exemption up to the limit of Rs 1.60 lakh; taxpayers earning between Rs 1.60 lakh and Rs 5 lakh were to pay 10 per cent tax. On the other hand, in the range of Rs 5 lakh to Rs 8 lakh, the tax rate was 20 per cent. For people earning over Rs 8 lakh, the tax was 30 per cent.

In the budget, he increased the tax exemption limit to Rs 2 lakh. There was a 10 per cent tax levied for salaried people in the range of Rs 2 lakh and Rs 5 lakh. Those earning between Rs 5 lakh and Rs 10 lakh would pay a tax of 20 per cent and those earning above Rs 10 lakh would be paying 30 per cent tax.

He replaced the wealth tax with a surcharge of 2 per cent on the super-rich taxpayers with a taxable income above Rs 1 crore. As a result of this, taxpayers were not required to file a wealth tax return from the Assessment Year 2016–17 onward.

 

He brought income between Rs 2.50 lakh and Rs 5 lakh under the 5 per cent income tax bracket from earlier 10 per cent. The rebate under Section 87A of the Income Tax Act, 1961 (which had been given to people earning up to Rs 5 lakh) was reduced to Rs 2,500 from Rs 5,000 for people earning between Rs 2.50 lakh and Rs 3.50 lakh.

 

Goyal increased the threshold limit of income tax to Rs 5 lakh from the earlier limit of Rs 2.50 lakh.

She announced that taxpayers with income below Rs 5,00,000 would remain tax-free and enjoy a tax rebate of Rs 12,500. However, there was no change in tax slabs.

A new tax regime was introduced in the year. Taxpayers could now choose between the old and new tax regimes.

During her budget speech on July 23, 2024, finance minister Nirmala Sitharaman increased the standard deduction limit of income tax from Rs 50,000 to Rs 75,000. There were no changes for old tax regime taxpayers. She also introduced new tax slabs under the new tax regime. The main changes were-

There was no tax up to Rs 3 lakh annual income in the new tax regime. There would be 5% tax on income up to Rs 3 lakh-Rs 7 lakh in the new tax regime. There would be 10% tax on income up to Rs 7 lakh-Rs 10 lakh in the new tax regime. There would be 15% tax on income up to Rs 10 lakh-Rs 12 lakh in the new tax regime. There would be 20% tax on income up to Rs 12 lakh-Rs 15 lakh in the new tax regime. There would be 30% tax on income above Rs 15 lakh in the new tax regime.

In an important development, Nirmala Sitharaman raised the tax-free income limit to Rs 12 lakh. With a standard deduction of Rs 75,000, the limit effectively rises to Rs 12.75 lakh. The slabs in the new tax regime were revised because of this. There were no changes in the old tax regime. 

Nil tax in the new regime on income up to Rs 0-4 lakh 5% tax in the new regime on income up to Rs 4-8 lakh 10% tax in the new regime on income up to Rs 8-12 lakh 15% tax in the new regime on income up to Rs 12-16 lakh 20% tax in the new regime on income up to Rs 16-20 lakh 25% tax in the new regime on income up to Rs 20-24 lakh 30% tax in the new regime on income above Rs 24 lakh

For income 0-Rs 3 lakh There was no income tax. For income Rs 3 lakh-Rs 7 lakh The tax rate was 5 per cent For income Rs 7 lakh-Rs 10 lakh The tax rate was 10 per cent For income Rs 10 lakh-Rs 12 lakh The tax rate was 15 per cent For income Rs 12 lakh-Rs 15 lakh The tax rate was 20 per cent For income Rs 15 lakh+ The tax rate was 30 per cent