The ₹7 lakh tax rebate introduced under the new tax regime during Union Budget 2023 was designed to ease tax burden on middle-income earners, but its impact extended far beyond tax savings according to ClearTax CEO Archit Gupta. As reported by Mint, Gupta noted that filings in the ₹5 lakh-₹10 lakh income bracket more than doubled after the rebate was introduced in AY 2024-25. The data from income tax filings supported a significant shift in how Indians earn, save and invest, with ITR-2 filings rising by nearly 35% in the same year as more people upgraded to the capital gains-focused tax form.
Contrary to initial assumptions, the tax savings didn't rush immediately into stock markets as expected. According to Gupta's analysis reported by Mint, a large portion of the money first went into traditional tax-saving instruments such as NPS, EPF and PPF. This conservative approach explains why salaried ITR-1 filings remained stable at first, even as taxpayers gradually began exploring other investment options. The CEO noted that people started drawing salaries, parking money in safe assets, and testing capital markets before making larger commitments to market investments.
As investments in tax-saving instruments matured, a larger share began moving into capital markets according to Gupta's analysis. As reported by Mint, filings for AY 2025-26 show this direction more clearly, with the money from maturing tax-saving instruments finding its way into capital markets. This shift was reflected by ITR-1 filings declining by almost 3% while ITR-2 and ITR-3 filings continued to rise, indicating taxpayers moved beyond a salary-only income profile to build additional sources of income through investments and other assets.
The tax-free threshold has been raised to ₹12 lakh under the new tax regime, with salaried taxpayers benefiting from a ₹12.75 lakh tax-free limit due to the ₹75,000 standard deduction. According to Gupta's analysis reported by Mint, it will be interesting to see whether similar patterns emerge in the years ahead as the higher threshold provides additional incentive for taxpayers to diversify their income sources through investments and other assets.
