The Union Budget 2025-26 (Finance Bill, 2025) has been presented by FM Nirmala Sitharaman on 1st February 2025. One of the key features announced was a tax relief mechanism for middle-income earners. The relief centers on a threshold of ₹12 lakh, which the government described not as an outright exemption or deduction but as a rebate with additional technical nuances like marginal relief. During discussions at Rajya Sabha there was a conflict between Finance Minister Nirmala Sitharaman and Aam Aadmi Party (AAP) MP Raghav Chadha regarding the Finance Bill 2025 proposals about tax free income upto Rs 12 lacs. Below is a detailed explanation on the same:
The Dispute
Sitharaman’s Stance
i) Explanation of Marginal Relief: Finance Minister Sitharaman explained that the tax relief provided under the Finance Bill 2025 uses the concept of marginal relief. This means that a taxpayer earning just above the threshold of ₹12 lakh (i.e. up to ₹12.75 lakh) would receive a reduction in tax liability that smooths out the jump in tax burden. For instance, if a person whose income slightly exceeds ₹12 lakh is supposed to pay a significantly higher tax without any relief, the marginal relief mechanism would adjust the tax payable to ensure it isn’t disproportionately high.
ii) Technical Clarification: According to her, the government’s approach ensures that taxpayers do not suddenly move to pay full slab rates on every rupee earned above ₹12 lakh. She clarified with examples showing that, although the taxable income exceeds ₹12 lakh, the effective tax liability is reduced through the rebate mechanism. In her view, this design prevents an abrupt and unfair jump in tax liability for middle-income earners.
Chadha’s Counterargument
i) Critique of the “Tax Relief” Label: Raghav Chadha, contesting the Finance Minister’s explanation, argued that the so-called tax relief of ₹12 lakh was misleading. He maintained that the relief is not an exemption or deduction but merely a rebate. In essence, his proposition was that if a taxpayer earns even a rupee more than the ₹12 lakh threshold, then the entire income becomes taxable according to the applicable slab, rather than just the excess.
ii) Simple Interpretation of the Tax System: Chadha provided examples to illustrate his point. For instance, he argued that if an individual earns ₹12.76 lakh, then, by his understanding, tax should be calculated on the full ₹12.76 lakh. He questioned whether the marginal relief should allow for only the additional income above ₹12 lakh to be taxed or whether the entire income is considered, insisting on the latter. This interpretation, he claimed, is more transparent and less confusing for the middle class.
iii) Accusations of Misleading the Public: Beyond the technical debate, Chadha accused Sitharaman of using what he saw as “technical jargon” and complicated calculations to confuse taxpayers. He contended that such explanations distract from straightforward fiscal policies that could have directly benefited the middle class.
Personal Dimension of the Dispute
i) Exchange of Personal Remarks: The debate took on a personal tone as Sitharaman remarked on the technical inaccuracies of Chadha’s explanation during the parliamentary session. She even questioned his understanding by remarking on his credentials as a chartered accountant. In response, Chadha not only defended his technical points but also criticized the Finance Minister for what he characterized as personal attacks, insisting that his explanation was clear and in the interest of public clarity.
ii) Political Overtones: This exchange is reflective of the broader political contestation between the ruling party and opposition voices. Chadha’s criticism was not merely about tax calculations, it also served as a political statement against what he perceives as obfuscation and an attempt to mislead the public through technicalities.
Key Points of Contention
i) Nature of the Tax Relief: Sitharaman maintains that the marginal relief mechanism, as a rebate, works to reduce the effective tax burden on incomes slightly above ₹12 lakh, preventing a steep tax increase.
Chadha insists that the relief should be understood simply: once a person’s income exceeds ₹12 lakh, the tax is calculated on the total income, leaving no room for any special treatment of the incremental amount.
ii) Communication to Taxpayers: For Sitharaman, the technical details (such as marginal relief) ensure that the beneficiaries receive a fair adjustment and that the system is designed to offer relief effectively.
For Chadha, these technicalities are used to confuse citizens, and he argues for a more straightforward system where the full impact of the income crossing the threshold is recognized.
Conclusion
The conflict between Nirmala Sitharaman and Raghav Chadha over the Finance Bill 2025 centers on differing interpretations of how tax relief should be applied and communicated:
Sitharaman defends the existing structure, emphasizing marginal relief that adjusts tax liabilities for incomes just over the threshold.
Chadha counters by arguing that the relief is mischaracterized, believing that once income exceeds ₹12 lakh, tax applies to the entire amount, an approach he feels is more transparent for the middle class.
This technical dispute also carries political nuances, with Chadha critiquing the Finance Minister’s use of complex explanations and personal remarks aimed at undermining his position. The debate highlights the critical importance of clear communication in tax policy, especially when it affects large segments of the population.