Mrin Agarwal Financial educator, founder director of Finsafe India Pvt Ltd and co-founder of Womantra
Credit: Special Arrangement
Budget 2025 has given a bonanza to the middle class in India by reducing tax outgo for taxpayers in the new tax regime. The budget has proposed to exempt individuals with income (excluding incomes taxable at special rates like capital gains) up to Rs 12 lakhs from paying income tax from FY 2025-26 onwards. This Rs 1 lakh crore largesse has been given in the hope of driving consumption and GDP growth, thereof.
Not only has the minimum threshold limit changed, the tax slabs have also changed. With these changes, taxpayers stand to save between Rs 42,000 and Rs 1,10,00 a year. While critics may brush off the tax proposals as not being big enough to help the middle class, the tax savings can actually be put to good use. An individual has three options – the easiest one being to spend the money. Alternately, this surplus can be invested or used to pay off loans.
For example, on a loan of Rs 50 lakh outstanding for the next 20 years, at an interest rate of 9% per annum, the EMI works out to roughly Rs 45,000 per month. Now if one extra EMI is paid every year, not only will the loan tenure reduce by 27 months, the interest to be paid will also drastically reduce from Rs 55 lakhs to Rs 46.5 lakhs. Thus, the individual stands to save Rs 8.5 lakhs by paying an extra EMI every year and also close the loan 2.3 years early.
Instead of paying the EMI, if the individual decides to invest the Rs 45,000 in an equity mutual fund for 20 years – assuming an annual return of 12%, the corpus at the end of 20 years would be Rs 37.50 lakh. Depending on the tax saved, one can also do a combination of investing and paying off debt. For example, a person with Rs 20 lakh gross income who would save Rs 80,000 per year on taxes and having the above outstanding loan could plan as follows : repay an extra EMI of Rs 45,000 and invest the balance Rs 35,000 in a SIP annually for 20 years. As above, the individual saves Rs 8.5 lakhs in interest and builds a corpus of Rs 29 lakhs thus having Rs 37 lakhs more over a 20-year period.
Clearly, utilising the extra savings can have good implications in the long term. This is not to say that one shouldn’t spend some of the savings. Of course, every individual will need to work on figuring out that balance.
Now for the new income tax bill which will be introduced next week!
Union Budget 2025 | Nirmala Sitharaman, as Finance Minister, presented her record 8th Union Budget this time. While inflation has burnt a hole in the pockets of 'aam janata', the Modi govt gave income tax relief for those making up to Rs 12 lakh per year in salaried income. Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.