The Centre is set to implement new income tax slabs for the financial year 2025-26, announced in the Union Budget 2025 by Finance Minister Nirmala Sitharaman. This change will take effect from April 1, 2025, marking a shift in the taxation landscape.
One of the notable features of the new tax regime is the increase in the basic exemption limit from Rs 3 lakh to Rs 4 lakh, a significant relief for low-income earners. Individuals with a total income below this threshold will not be required to file income tax returns. This adjustment is part of a broader strategy to simplify tax compliance and provide more disposable income to taxpayers.
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In addition to the increased exemption limit, the government has enhanced the tax rebate under Section 87A. From the new financial year, individual taxpayers with a net taxable income not exceeding Rs 12 lakh will incur zero tax liability. This is achieved through a tax rebate of Rs 60,000, effectively nullifying the tax payable. Previously, until March 31, 2025, the rebate was Rs 25,000 for incomes up to Rs 7 lakh. This change will allow taxpayers with an annual income of Rs 12 lakh to save Rs 83,200 annually, including cess, under the new regime.
While these changes offer considerable savings, the new tax regime maintains its stance on deductions. There are no modifications in the available deductions, with salaried taxpayers continuing to receive a standard deduction of Rs 75,000 and a 14% employer contribution to the National Pension System (NPS) account. This move aligns with the government’s objective to streamline tax processes while encouraging long-term savings through NPS contributions. Despite the absence of additional deductions, the increased exemption and rebate under the new regime provide substantial financial relief.
In comparison, the old tax regime offers different benefits, primarily through various deductions and exemptions, which cater to taxpayers who prefer claiming deductions for investments, housing loans, and other expenses. However, the new regime is structured to appeal to those who favour simplicity and immediate tax savings without the need for extensive documentation. This distinction is crucial as taxpayers will be required to choose between these two regimes when the new financial year begins. Employers are expected to prompt employees to make this decision as part of the payroll process.
The income tax slabs remain unchanged in the old tax regime, while the government has implemented changes only in the new tax regime starting from FY 2020-21.
In contrast to the new tax regime, the old tax regime provides various deductions and exemptions including HRA, LTA, Section 80C deduction of Rs 1.5 lakh, additional NPS deduction of Rs 50,000, and Section 80D deduction of Rs 25,000/50,000 for medical insurance premiums.
| Income Range (Rs) | New Tax Regime Rate (%) | Old Tax Regime Rate (%) |
|---|---|---|
| 0 – 2,50,000 | 0 | 0 |
| 2,50,001 – 4,00,000 | 0 | 5 |
| 4,00,001 – 5,00,000 | 5 | 5 |
| 5,00,001 – 8,00,000 | 5 | 20 |
| 8,00,001 – 10,00,000 | 10 | 20 |
| 10,00,001 – 12,00,000 | 10 | 30 |
| 12,00,001 – 16,00,000 | 15 | 30 |
| 16,00,001 – 20,00,000 | 20 | 30 |
| 20,00,001 – 24,00,000 | 25 | 30 |
| Above 24,00,000 | 30* | 30 |
The introduction of the new tax slabs comes in a context where tax regimes worldwide are being scrutinised for complexity and transparency. The Centre’s efforts aim to balance simplicity with fiscal prudence, reflecting a global trend towards tax systems that are easier to navigate and more equitable. As taxpayers analyse their choices, the comparative benefits of the two regimes will play a crucial role in their decision-making process.