Budget 2025: 6.5 crore exempted from tax, updated tax return filing period extended

Updated: Feb 4th, 2025

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Budget 2025: 6.5 crore exempted from tax, updated tax return filing period extended

Union Finance Minister Nirmala Sitharaman presented the Union Budget for 2025-26 in Parliament on February 1, introducing a new tax relief provision exempting individuals earning up to ₹12 lakh annually from paying income tax.

Out of India’s total 7.54 crore taxpayers, approximately 6.50 crore will now have zero tax liability. However, these individuals will still be required to file their tax returns. Over the past four to five years, the government has worked to double the tax base, but with this new provision, around 87% of taxpayers will no longer have any tax obligations.

The Income Tax Department currently generates an annual revenue of approximately ₹22 lakh crore, with only 6.22% coming from taxpayers earning up to ₹12 lakh annually. Their contribution, estimated at ₹1.25 lakh crore, will result in a government revenue loss of nearly ₹1 lakh crore due to the new provision.

However, this tax exemption is expected to stimulate the economy as ₹1 lakh crore will remain in taxpayers’ hands, likely to be spent on goods and entertainment.

Extended timeline for revised returns

To offer flexibility to taxpayers, the Finance Minister also announced an extension for filing revised income tax returns. The deadline has been increased from two years to four years. Additionally, changes to interest rates and penalties for corrections were introduced.

Chartered Accountant Jatin Shah explained that earlier, taxpayers making corrections within one year of filing were required to pay an additional 25% on the total tax and interest. For corrections between one to two years, the additional payment was 50%.

Now, taxpayers correcting their returns between two to three years will have to pay an additional 60% on the total tax and interest. For corrections between three to four years, they must pay an extra 70% of the total tax and interest.

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