By Sanya Singh

Abstract

The Union Budget 2025-26 introduced revisions to the personal income tax structure, raising the tax-free income threshold to ₹12 lakh, with an effective exemption of ₹12.75 lakh for salaried individuals. While positioned as a relief measure for the middle class, this adjustment fails to address deeper economic challenges. Wage growth remains stagnant despite rising living costs, making homeownership increasingly unattainable. The budget also lacks substantial investments in infrastructure, leaving public transport and roadways in poor condition. Additionally, the burden of indirect taxes, fuel levies, and inflation offsets any real savings from tax exemptions. Environmental concerns, particularly air pollution and its impact on public health, remain unaddressed, despite rising respiratory illnesses. Furthermore, increasing reliance on credit and personal loans exposes middle-class families to financial instability. Without meaningful structural reforms, the budget appears to be a temporary adjustment rather than a genuine solution to the economic pressures facing millions of Indian households.

Introduction

In the Union Budget for 2025-26, Finance Minister Nirmala Sitharaman introduced significant revisions to the personal income tax structure, aiming to provide relief to middle-class taxpayers. The new tax regime has increased the income threshold for tax exemption to ₹12 lakh annually, up from the previous ₹7 lakh. For salaried individuals, the inclusion of a standard deduction of ₹75,000 effectively raises this exemption limit to ₹12.75 lakh. 

The revised income tax slabs under the new regime are as follows:

Annual Income (₹)	Tax Rate (%)
0 – 4 lakh	Nil
4 – 8 lakh	5%
8 – 12 lakh	10%
12 – 16 lakh	15%
16 – 20 lakh	20%
20 – 24 lakh	25%
Above 24 lakh	30%

In her budget speech, Finance Minister Sitharaman emphasized the government’s commitment to supporting the middle class, stating: “I am now happy to announce that there will be no income tax payable up to income of ₹12 lakh… under the new regime. This limit will be ₹12.75 lakh for salaried taxpayers, due to standard deduction of ₹75,000.” 

These adjustments are designed to reduce the tax burden on middle-income earners, thereby increasing their disposable income and stimulating economic growth through enhanced consumption and investment.

Addressing Middle-Class Aspirations

The Indian middle class has been the pillar of India’s economy for a long time, contributing handsomely to tax collections while fuelling consumption. It is a group that has ambitious aspirations —remunerative job prospects, financial security, and a better standard of living. So, when the Union Budget is presented annually, the middle class expects positive policy steps that ease their lives. But while the government proclaims potential tax relief in the 2025-26 budget, the situation on the ground is otherwise.

Among the greatest challenges facing the middle class these days is low wage growth amid increasing costs. While prices of basic commodities, services, and even daily commutes have been increasing, household earnings have hardly budged. In the past five years, salary increases have been lackluster, not keeping pace with inflation. Take something as simple a commodity as a two-wheeler – what was priced at ₹50,000 a few years back is now worth ₹1,00,000. Salaries, however, have not doubled in the same time frame, compelling families to tighten their belts, reduce discretionary spending, or worse, take credit just to survive.

The Dream of Homeownership Slipping Away

Homeownership has traditionally been the ultimate aspiration for middle-class families—a sign of stability and upward mobility. But for many, this dream is now slipping away, further than ever before. City property prices have soared, and housing loans are more difficult to secure. Unfortunately, this budget fails to provide meaningful incentives for first-time homebuyers. While interest rates fall under the purview of the RBI’s monetary policy; fiscal policy still plays a significant role in shaping monetary conditions. With the government adopting a loose fiscal stance—characterized by higher direct payouts, often perceived as electoral freebies—monetary policy is likely to remain tight. As a result, there is no substantial push toward making housing more affordable.The truth is that renting is the only alternative for a huge chunk of the middle class, further constraining their financial expansion.

Poor Infrastructure, Despite Heavy Taxes

It is not only high prices that are making life more difficult – the absence of good infrastructure is another serious issue. Middle-class citizens pay a large chunk of taxes to the government, but fundamental public services remain in shambles. Roads are ridden with potholes, resulting in regular accidents, with India having more than 1.5 lakh road deaths every year. Public transport is no exception—metros are packed to the brim, trains are delayed, and booking a confirmed ticket is a frustrating experience. And still, no significant infrastructure developments in the budget are proposed to overcome these challenges.

Are Middle-Class Concerns Really Addressed?

While the government is patting itself on the back over the new tax-free threshold, the reality is that the middle class is taxed at several levels. In addition to income tax, they pay GST on nearly everything they purchase, fuel levies that contribute to  high petrol and diesel prices, and a variety of levies on basic services. So even if part of their earnings is tax-free now, they still have to pay hefty amounts in indirect taxes—resulting in  little economic respite.

And what of the larger picture? Consumption, a major economic driver, is at a record low. Folks are not spending because they just don’t have enough disposable income. Increasing prices, poor employment conditions, and slow wage growth have the effect that fewer households can afford expensive items. This ought to have taken top priority in the budget, but rather than increasing middle-class purchasing power, the government has depended on small-bore tax cuts that amount to little more than a blip when seen against rising costs.

Environmental and Financial Pressures Mounting

Air pollution is another emergency that is being ignored by the budget, especially considering the severely disproportionate impact it has on public health. While air purifiers and good healthcare are an option for wealthier citizens, the middle class is left to cope with dirty air and overwhelmed public hospitals. There are no significant environmental initiatives in the budget that indicate change is coming, leaving millions vulnerable to extreme health consequences.​Recent data underscores the escalating prevalence of respiratory diseases in India, rendering millions susceptible to severe health outcomes. Notably, in 2021, Rajasthan reported over 3.6 million cases of acute respiratory infections, the highest among Indian states. Chronic respiratory diseases (CRDs) also present a significant health burden. A recent study highlighted that the average prevalence of CRDs among Indian women aged 15–49 is 1.80%, with certain districts reporting rates as high as 10.62%. Additionally, chronic obstructive pulmonary disease (COPD) affects approximately 7% of Indians over 30, with active and passive smoking, biomass fuel exposure, and environmental pollutants identified as major risk factors. Asthma remains a critical concern, with India accounting for 13.09% of the global asthma burden, affecting nearly 30 million individuals. The convergence of these factors highlights the urgent need for comprehensive strategies to mitigate respiratory health risks and protect vulnerable populations.

At the same time, increasing reliance on loans and credit is a cause for concern. Increasingly, middle-class households are resorting to credit cards and personal loans to cover day-to-day expenses. As per a recent survey by a fintech platform, Saral Credit, about 67 per cent of Indian families have availed of personal loans. Approximately 53 per cent of Indian youth have taken personal loans before reaching the age of 30 years. In addition, during the decade 2014-24, its share in the gross bank credit has increased from 16.9 per cent to 32.4 per cent. Rather than actual economic relief, they are being sucked into debt traps that are hard to get out of. The budget has no provisions to control predatory lending or enhance financial literacy, exposing individuals to high-interest loans that only increase their burden.

The Verdict: A Stopgap Measure, Not a Genuine Solution

Superficially, the announced tax exemptions in the budget sound like a step in the right direction. But scratch beneath the surface, and they don’t deal with the underlying issues that are making life tougher for the middle class. Wages aren’t keeping pace with inflation, home ownership is getting harder, public infrastructure is in disrepair, and indirect taxation nibbles away at earnings.

Without real reforms in these fields, the middle class will remain stuck, driving the economy but gaining little in terms of financial security or standard of living. This budget, instead of being a turning point in middle-class empowerment, is more of a patch job—one that doesn’t really solve the deeper problems of millions of hardworking Indians.

About the author: Sanya is a third-year law student at Jindal Global Law School with a strong interest in law, technology, and economics. She explores AI regulation, international trade, and financial law, with experience in legal research, arbitration, and insolvency. Passionate about policy and governance, she critically analyzes the impact of emerging technologies on law and society.

Image Source: Major income tax reforms in pipeline, Budget 2025 to ease filing process, say sources – India Today