Finance Minister Nirmala Sitharaman has announced the new income tax slabs for the financial year 2025-26 as part of the Union Budget 2025. Significant changes include a new 25% tax rate for incomes between Rs 20-24 lakh and an increased tax rebate under Section 87A. The revised tax structure aims to provide relief to middle-income taxpayers while ensuring a fair contribution from higher earners.
Table of Contents
New Income Tax Slabs for FY 2025-26
Under the new tax regime, the revised income tax slabs are as follows:
| Income Slabs (Rs) | Income Tax Rate (%) |
|---|---|
| Up to 4,00,000 | 0% |
| 4,00,001 – 8,00,000 | 5% |
| 8,00,001 – 12,00,000 | 10% |
| 12,00,001 – 16,00,000 | 15% |
| 16,00,001 – 20,00,000 | 20% |
| 20,00,001 – 24,00,000 | 25% |
| Above 24,00,000 | 30% |
A major highlight is the increased tax rebate under Section 87A. Individuals with a net taxable income of up to Rs 12 lakh will now be exempt from paying any income tax.
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Latest Features of the New Tax Regime
- Default Tax Regime: The new tax regime remains the default option for taxpayers. However, individuals can opt for the old regime if they wish to claim deductions and exemptions.
- Basic Exemption Limit: The basic exemption limit is Rs 3 lakh for all taxpayers, regardless of age.
- Limited Deductions: Unlike the old tax regime, the new regime offers fewer deductions but provides lower tax rates.
Comparison with Current Income Tax Slabs
For reference, here are the existing income tax slabs under the new tax regime before the proposed changes:
| Income Slabs (Rs) | Income Tax Rate (%) |
| Up to 3,00,000 | 0% |
| 3,00,001 – 7,00,000 | 5% |
| 7,00,001 – 10,00,000 | 10% |
| 10,00,001 – 12,00,000 | 15% |
| 12,00,001 – 15,00,000 | 20% |
| Above 15,00,000 | 30% |
Previously, the highest tax rate of 30% applied to incomes above Rs 15 lakh, whereas now, the 30% rate begins at Rs 24 lakh, benefiting mid-income taxpayers.
Deductions Available Under the New Tax Regime
The new tax regime, introduced in FY 2020-21, initially limited deductions. However, recent updates include:
- Standard Deduction: Salaried individuals can claim a standard deduction of Rs 75,000.
- Employer NPS Contribution: Up to 14% of the basic salary contributed by the employer to an NPS Tier-1 account is deductible under Section 80CCD(2).
- Lower Surcharge: The surcharge for incomes above Rs 2 crore has been reduced to 25%, down from 37%.
Choosing Between New and Old Tax Regimes
For Salaried Individuals:
Employees can choose their preferred tax regime at the time of filing their income tax return (ITR). If they opt for the old regime, they must select “No for opting under Section 115BAC (new tax regime)” in the ITR form.
For Business Owners and Professionals:
Taxpayers with business income must submit Form 10-IEA to continue with the old regime. However, once they switch to the new regime, they cannot revert to the old one in future years.
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Conclusion
The revised income tax slabs in Budget 2025 bring substantial changes, benefiting middle-income groups with lower tax rates and higher rebates. While the new tax regime remains the default option, individuals and business owners must carefully evaluate their tax-saving options before making a choice. The implementation of these changes from April 1, 2025, is subject to parliamentary approval.
