In the Union Budget 2025-2026, Finance Minister Nirmala Sitharaman announced significant changes to the income tax slabs under the new tax regime. These changes, effective from April 1, 2025, for the upcoming financial year, will impact how taxpayers calculate their tax liabilities. Let's explore the key changes and how they will affect taxpayers.
The most prominent change in the 2025 budget is restructuring income tax slabs under the new tax regime. The revised slabs are designed to provide more relief to taxpayers, particularly those in the lower and middle-income categories.
| Income Range (Rs) | Tax Rate (%) |
|---|---|
| From 0 to 4,00,000 | 0% |
| From 4,00,001 to 8,00,000 | 5% |
| From 8,00,001 to 12,00,000 | 10% |
| From 12,00,001 to 16,00,000 | 15% |
| From 16,00,001 to 20,00,000 | 20% |
| From 20,00,001 to 24,00,000 | 25% |
| Above 24,00,000 | 30% |
Another key change announced is an increase in the tax rebate under Section 87A. The tax rebate for individuals has been hiked to Rs 60,000 from the previous limit of Rs 25,000. This means that individuals with taxable income up to Rs 12 lakh will now pay zero tax, a sharp contrast to the earlier cap of Rs 7 lakh. This hike will benefit middle-income taxpayers, effectively reducing their tax liabilities significantly.
The basic exemption limit for taxpayers has also been raised. The new tax regime will now offer a basic exemption limit of Rs 4 lakh (up from the current Rs 3 lakh). This means individuals with income up to Rs 4 lakh will not be required to pay any income tax, providing relief to taxpayers in this bracket.
While the income tax slabs have been revised, there has been no change in the deductions available under the new tax regime. Taxpayers will continue to be eligible for the standard deduction of Rs 75,000 on salary income, and 14% of basic salary will remain the contribution rate to the NPS Tier-I account by the employer. However, the new tax regime does not allow for common deductions that are available under the old tax regime.
The surcharge rates under the new tax regime remain unchanged. The highest surcharge rate of 25% will continue to apply for those with income above Rs 2 crore. No other major changes have been proposed regarding surcharges, capital gains tax, or other levies under the new tax regime.
While the focus has been on the new tax regime, the old tax regime has also seen some notable changes, especially concerning parents investing in the NPS Vatsalya Scheme for their children. They will now be eligible for a deduction under Section 80CCD(1b), which allows an additional Rs 50,000 deduction for contributions to the NPS. This is an enhancement over the existing Rs 1.5 lakh limit available under Section 80C.
One of the most significant differences between the two tax regimes is the availability of deductions and exemptions. In the old tax regime, taxpayers can claim various deductions under Sections 80C, 80D, and others, based on their investments, insurance premiums, and more. The new tax regime, however, does not allow these deductions but provides a lower and simpler tax structure.
It is essential to note that taxpayers can switch between the old and new tax regimes. However, an individual must make a conscious decision to opt for one regime when filing their income tax returns. Those who earn from multiple sources may want to carefully evaluate the tax benefits of both regimes before deciding on the most tax-efficient option.
The Union Budget 2025-2026 brings substantial tax relief to middle-class and lower-income taxpayers. The new tax slabs and the increase in tax rebates will make a significant difference in the financial lives of millions of taxpayers. However, individuals should evaluate both tax regimes and consider their eligibility for exemptions, deductions, and rebates before making a final decision on the tax regime to adopt.
