In the 2025 Union Budget, Finance Minister Nirmala Sitharaman made significant changes to the tax structure, bringing relief to salaried taxpayers eagerly anticipating these updates.
The updated tax slabs, rates, and rebate under the New Tax Regime were announced, providing a boost to taxpayers.
In Budget 2025, new income tax slabs were introduced as part of the new tax regime. FM Sitharaman revealed that individuals with a net taxable income of up to Rs 12 lakh will now be exempt from taxation, thanks to an increase in the tax rebate under Section 87A from Rs 25,000 to Rs 60,000.
Besides, salaried workers will be eligible for a standard deduction of Rs 75,000. This means that salary income up to Rs12.75 lakh can now be exempt from taxes.
The upcoming income tax regulations are set to take effect in the new financial year 2025-26, commencing on April 1, 2025, subject to approval by Parliament. Notably, there will be no adjustments to the standard deduction cap of Rs 75,000 under the revised tax system.
New Tax Regime in FY2025-26
New Income Tax Slabs: The threshold for lower tax rates has been increased to Rs 4 lakh (previously Rs 3 lakh), allowing individuals with incomes between Rs 3-4 lakh to benefit from zero tax.
Tax Slabs for FY2025-26
Income Tax Slabs (Rs) Income 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
From 24,00,001 and above 30
Tax-free income: According to the finance minister’s announcement, under the new regime, salary income up to Rs 12.75 lakh will now be tax-free. Previously, there was a tax rebate of Rs 25,000 for income between Rs 3 lakh to Rs 7 lakh in the new regime.
The finance minister has suggested increasing the rebate to Rs 60,000 for income up to Rs 12 lakh. Additionally, she has proposed that income below Rs 4 lakh will be exempt from taxes, while incomes above Rs 4 lakh will be subject to varying tax rates.
Rate Reduction: Individuals in the Rs 20-24 lakh income bracket will now be subject to a reduced tax rate of 25%, down from the previous 30% rate.
Unchanged High-Income Slabs: The tax rates for higher income earners above Rs 24 lakh remain steady at 30%.
The updated tax slabs offer relief for middle-income taxpayers, particularly those earning between Rs 4-24 lakh, while keeping the current structure for those with very high incomes
Under the updated tax structure and introduction of standard deductions, taxpayers with incomes below Rs 12 lakh (or Rs 12.75 lakh for salaried individuals) will now be exempt from paying any taxes.
Individuals earning between Rs 12 lakh and Rs 24 lakh (or Rs 24.75 lakh for salaried individuals) will experience a reduction of 25-31 per cent in their tax liabilities.
For those with incomes exceeding Rs 24 lakh, the potential tax savings could amount to Rs 1.1 lakh under the newly proposed regime.
“The revised new tax regime presents a significant tax relief for a large segment of taxpayers. With zero tax liability for those earning below Rs 12 lakh and substantial tax savings of up to Rs 1.1 lakh for high earners, the proposed changes encourage individuals to opt for the simplified structure. If you fall within the affected income range, consider assessing your tax planning strategy to maximise savings under the new structure,” Value Research stated in a note.