From Rs 2 lakh to 12 lakh: Transformation of India’s personal income tax structure under Modi govt since 2014 - The Propzy
Over the past decade, India's personal income tax structure has undergone a transformative evolution, with successive budgets focusing on easing the tax burden on middle-class taxpayers. Since Prime Minister Narendra Modi's government first assumed office in 2014, tax relief measures have steadily expanded, bringing substantial benefits through higher exemption limits, revised tax slabs, and increased rebates.
A Decade of Tax Reforms: From 2014 to 2025
In 2014, before the Modi government presented its first budget, taxpayers faced a 10% tax rate on incomes above ₹2 lakh, a 20% rate above ₹5 lakh, and the highest 30% bracket at ₹10 lakh. At the time, tax relief was minimal, with a ₹2,000 rebate available for incomes up to ₹5 lakh.
Fast forward to the 2025-26 budget, and India's tax landscape has dramatically changed. The introduction of the new tax regime in 2020—further refined in 2023—has widened the scope of tax relief, offering zero tax liability for incomes up to ₹12 lakh, thanks to expanded rebates. The traditional three-slab tax system has given way to a more progressive six-slab structure, with rates ranging from 5% to 30%.
The Rising Tax-Free Threshold: From ₹2 Lakh to ₹12 Lakh
One of the most significant reforms over the last decade has been the steady increase in the tax-free income threshold. In 2014, income up to ₹2 lakh was tax-free. By 2019, this limit effectively rose to ₹5 lakh through Section 87A rebates. However, in the latest 2025-26 budget, the exemption limit has more than doubled to ₹12 lakh in the new tax regime, allowing a larger section of middle-class taxpayers to pay zero income tax.
Tax Liability Over Time: How Much Has It Dropped?
A comparison of tax liability across different income levels illustrates the extent of tax relief over the years:
- ₹6 lakh income:** Tax liability in 2014 was ₹50,000; in 2025, it is zero under the new regime.
- ₹12 lakh income:** Tax owed in 2014 was ₹1.9 lakh; in 2025, it is zero due to expanded rebates.
- ₹18 lakh income:** Tax liability has fallen from ₹3.7 lakh in 2014 to ₹1.45 lakh in 2025.
- ₹30 lakh income:** Tax owed in 2014 was ₹7.3 lakh; in 2025, it has reduced to ₹4.8 lakh.
More Tax Slabs, Lower Rates
The transition from a three-slab system (10%-20%-30%) to a six-slab structure (5%-10%-15%-20%-25%-30%) has particularly benefited those earning between ₹8 lakh and ₹24 lakh, who previously faced a flat 30% tax above ₹10 lakh. While the new tax regime simplifies taxation, the old regime remains available for those who prefer traditional deductions under sections like **80C (investments), HRA (house rent allowance), and home loan interest deductions.**
Balancing Tax Relief with Fiscal Responsibility
Despite increasing tax relief, the government has maintained fiscal discipline by expanding the tax base and improving compliance through digital transactions, faceless assessments, and mandatory PAN-Aadhaar linking. The introduction of the new tax regime aims to simplify taxation while reducing reliance on exemptions, though the old regime continues to serve those who benefit from deductions.
Looking Ahead: The Future of Taxation in India
The steady rise in tax-free thresholds, coupled with streamlined tax slabs and lower rates, represents one of the most significant shifts in India’s tax policy since liberalization. However, as the government charts its fiscal roadmap, balancing tax relief with revenue collection is the challenge. Whether exemption limits continue to rise and tax rates remain low will depend on economic growth, fiscal sustainability, and evolving policy priorities in the years ahead.
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