Finance Minister Nirmala Sitharaman has introduced revised income tax slabs under the new tax regime in the Union Budget 2025. These changes will take effect from the financial year 2025-26, starting April 1, 2025, subject to parliamentary approval.
Revised Income Tax Slabs for FY 2025-26
The new tax regime introduces updated tax slabs as follows:
- 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 – 24%
- Above ₹24,00,000 – 30%
Increased Tax Rebate Under Section 87A
To provide relief to middle-income taxpayers, the government has increased the tax rebate under Section 87A. Now, individuals with net taxable income up to ₹12 lakh will not be required to pay any tax. This move aims to reduce the tax burden on lower and middle-income groups.
New Tax Regime as the Default Option
The new tax regime remains the default tax regime, offering a basic exemption limit of ₹3 lakh for all taxpayers, regardless of age. However, unlike the old tax regime, this regime provides limited deductions.
Current Income Tax Slabs Under the New Tax Regime
Before the revision, the new tax regime had five tax slabs:
- 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, individuals earning up to ₹7 lakh benefited from a tax rebate under Section 87A of ₹25,000, along with marginal relief for slightly higher incomes.
Deductions Available Under the New Tax Regime
The new tax regime was initially introduced in FY 2020-21 to provide lower tax rates, albeit without exemptions. Over time, the government has expanded deductions to make the regime more attractive.
Currently, salaried taxpayers can claim:
- Standard deduction of ₹75,000 from gross salary income.
- Employer’s contribution to NPS Tier-1 account under Section 80CCD(2) – up to 14% of basic salary as a deduction.
Additionally, a lower surcharge of 25% applies to incomes exceeding ₹2 crore.
Choosing Between the New and Old Tax Regime
From April 1, 2023, the new tax regime became the default option. Taxpayers who wish to continue under the old tax regime must opt for it specifically while filing their Income Tax Returns (ITR).
Salaried individuals (without business income) must choose between the old and new regimes each financial year. Those preferring the old tax regime should select “No” for opting under Section 115BAC (new tax regime) in the ITR form.
These changes aim to simplify taxation and provide more relief to taxpayers while encouraging compliance with the new tax structure.
