The increase in the tax-free income threshold to ₹12 lakh under the new tax regime may do more than boost disposable income. If recent tax-filing trends are any indication, the move could potentially accelerate India's shift from traditional savings towards financial assets such as mutual funds and stocks.

Data from the Income Tax Department suggests that the earlier ₹7 lakh rebate introduced under the new tax regime had effects that went beyond reducing tax outgo. According to ClearTax CEO Archit Gupta, the change altered how many Indians save and invest.

“The ₹7 lakh tax rebate was never just about saving tax. Look at what it quietly did to how India earns and invests,” Gupta said.

A shift became visible

The impact of the policy change first emerged in Assessment Year (AY) 2024-25. Returns filed by taxpayers in the ₹5 lakh-₹10 lakh income bracket surged sharply, rising from 1.38 crore in AY 2023-24 to 3.37 crore in AY 2024-25. By AY 2025-26, the number increased further to 3.84 crore.

At the same time, taxpayers earning up to ₹5 lakh declined from 5.66 crore in AY 2023-24 to 3.81 crore in AY 2024-25 and further to 2.76 crore in AY 2025-26.

Gupta believes the additional money initially flowed into traditional tax-saving instruments such as the Employees' Provident Fund (EPF), Public Provident Fund (PPF) and National Pension System (NPS), rather than directly into equities.

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“The easy assumption is that all of it rushed into the stock market. Initially, a large portion of it went into tax-saving instruments like NPS, EPF and PPF,” he said.

Income sources

Tax-return patterns also indicate that Indians are increasingly reporting income beyond salaries.

ITR-1 filings, generally associated with straightforward salary income, fell 2.87% in AY 2025-26 to 3.52 crore returns.

Meanwhile, ITR-2 filings—which include capital gains and multiple income sources—rose nearly 35% in AY 2024-25 and edged higher again in AY 2025-26 to 1.23 crore returns. ITR-3 filings climbed 4.02% year-on-year to 1.62 crore.

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“We started seeing people draw a salary, park money in safe assets, and test the capital markets. Bit by bit, a simple paycheck was evolving into a portfolio,” Gupta said.

Could the ₹12 lakh threshold amplify the trend?

With incomes up to ₹12 lakh effectively becoming tax-free under the new regime, experts believe a larger pool of middle-income earners could have greater investible surplus.

That could benefit financial assets ranging from mutual funds and exchange-traded funds to direct equities and retirement products. India has already witnessed record SIP inflows and rising retail participation in the stock market over the past few years.

The larger implication may be behavioural rather than fiscal.

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If the ₹7 lakh rebate encouraged households to move from saving to investing, the ₹12 lakh threshold could potentially deepen that trend by creating a bigger base of investors and accelerating the shift from salary-dependent finances to diversified wealth creation.

“Worth watching where this ₹12 lakh rebate goes from here,” Gupta said.

The answer may become clearer over the next few assessment years, but the tax data so far suggests that tax policy is increasingly shaping how Indians allocate their money—and how they build wealth.

Published on: Jun 10, 2026 9:34 PM IST