Income Tax Slabs for FY 2025-26: What’s New? A Complete Guide to Choosing the Right Tax Regime
1. Introduction
Overview of Union Budget 2025 and Its Impact on Income Tax
The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, introduced significant changes to the income tax structure, particularly under the new tax regime. The reforms aim to make tax filing simpler and more beneficial for taxpayers while encouraging a shift towards the new tax system.
Key Changes in the New Tax Regime
- The basic exemption limit has been increased from Rs 3 lakh to Rs 4 lakh.
- A revised income tax slab structure under the new tax regime.
- The tax rebate under Section 87A has been increased to Rs 60,000, allowing individuals with taxable income up to Rs 12 lakh to pay zero tax.
- Standard deduction remains at Rs 75,000 for salaried individuals.
- Employer’s contribution to NPS Tier-I accounts remains deductible up to 14% of basic salary.
- No changes in surcharge rates.
2. New Income Tax Slabs for FY 2025-26 (AY 2026-27)
Table of New Tax Slabs and Rates
|
Income Slab
(Rs) |
Tax Rate (%) |
|
0 - 4,00,000 |
Nil |
|
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% |
Comparison with Previous Year’s Slabs
The previous year's new tax regime had a lower exemption limit (Rs 3 lakh) and different slab brackets. The highest 30% tax rate now applies to incomes above Rs 24 lakh instead of Rs 15 lakh.
Example of Tax Savings Under the New Regime
A taxpayer earning Rs 12 lakh under the new tax regime can save up to Rs 1.14 lakh compared to the previous year.
3. Old vs. New Tax Regime: Which One to Choose?
Major Differences in Deductions and Exemptions
|
Feature |
Old Regime |
New Regime |
|
Basic Exemption Limit |
Rs 2.5L - Rs 5L (age-based) |
Rs 4L |
|
Section 80C Deduction |
Available (up to Rs 1.5L) |
Not Available |
|
Standard Deduction |
Rs 50,000 |
Rs 75,000 |
|
80D (Health Insurance) |
Available (up to Rs 50,000) |
Not Available |
|
80TTA (Savings Interest) |
Available (up to Rs 10,000) |
Not Available |
Comparative Table of Tax Liability Under Both Regimes
For a taxpayer earning Rs 12 lakh:
- Old Regime Tax: Rs 1,30,000 after deductions.
- New Regime Tax: Rs 1,05,000.
Pros and Cons of Each Regime
- Old Regime: More deductions but requires investment planning.
- New Regime: Simplified filing with lower tax rates but fewer benefits.
4. Rebate, Deductions, and Exemptions: What’s Allowed?
Section 87A Rebate Hike and Its Impact
The rebate under Section 87A has increased to Rs 60,000, meaning taxpayers earning up to Rs 12 lakh will pay zero tax.
Standard Deduction Increase
The standard deduction remains at Rs 75,000 for salaried individuals and pensioners.
Employer’s NPS Contribution Benefits
Employer contributions up to 14% of basic salary to NPS Tier-I accounts remain deductible under the new regime.
5. Who Benefits the Most from the New Tax Regime?
Salary Groups That Should Opt for the New Regime
Individuals earning between Rs 7 lakh to Rs 20 lakh with minimal investments will benefit more from the new tax regime.
Business Professionals and Their Taxation Choices
Self-employed individuals with high deductions might find the old regime beneficial.
Senior Citizens and Tax Exemptions
Senior citizens opting for the old regime benefit from an exemption limit of Rs 3 lakh (60+ years) and Rs 5 lakh (80+ years).
6. How to Calculate Your Tax Liability?
Step-by-Step Calculation Examples for Different Income Levels
For an individual earning Rs 20 lakh:
- Standard deduction of Rs 75,000 reduces taxable income to Rs 19.25 lakh.
- Taxable slabs applied as per the new rates.
- Total tax calculated at Rs 2,15,800 after cess.
How to Optimize Tax Savings
- Opt for NPS contributions under employer benefits.
- Consider switching to the old regime if deductions exceed Rs 3 lakh.
7. Final Thoughts: Should You Switch to the New Tax Regime?
Key Takeaways and Recommendations
- The new regime is ideal for those who do not invest in tax-saving instruments.
- The old regime remains beneficial for taxpayers with high deductions.
- Salaried individuals must assess their net tax outflow before choosing a regime.
Expert Advice on Tax Planning for FY 2025-26
- Calculate tax under both regimes before filing returns.
- Leverage employer benefits for maximum tax savings.
- Stay updated with new tax amendments to optimize financial planning.
The new tax regime offers simplified taxation but may not be suitable for everyone. Choose wisely based on your financial goals and investment habits.