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Understanding the New Tax Regime of 2025: Key Highlights and Slab Changes
India's annual Union Budget is one of the most highly anticipated events for the financial year, especially when it brings potential changes to income tax slabs. The 2025 budget, presented by Finance Minister Nirmala Sitharaman, unveiled significant shifts in tax regimes and fiscal policies that are bound to impact taxpayers across the country.
In this blog, we will delve into the details of the new tax regime for 2025, the income tax slabs for assessment year (AY) 2025-26, and other key budget highlights that affect individual taxpayers, businesses, and investors alike.
Income Tax Slabs for AY 2025-26: What’s New?
The Finance Ministry’s proposals under the new tax regime for AY 2025-26 have sparked significant interest, with many taxpayers eager to understand how their tax liabilities may change. The primary feature of the new tax regime is the shift towards lower income tax slabs with a higher exemption threshold. This is aimed at providing greater relief to middle-class taxpayers while also simplifying the tax filing process.
Here is a breakdown of the Income Tax Slabs for AY 2025-26 under the new regime:
- Up to ₹3 lakh: No tax
- ₹3,00,001 – ₹6 lakh: 5% tax
- ₹6,00,001 – ₹9 lakh: 10% tax
- ₹9,00,001 – ₹12 lakh: 15% tax
- ₹12,00,001 – ₹15 lakh: 20% tax
- Above ₹15 lakh: 30% tax
In addition to this, the budget proposes a higher exemption limit for individuals with an annual income of up to ₹12 lakh. With this change, people in this income range will not need to pay any tax, offering significant relief to salaried and small business taxpayers.
What’s New in the Tax Slabs for the Old Tax Regime?
While the old tax regime remains available for taxpayers who wish to continue availing deductions and exemptions, such as HRA, 80C deductions, etc., the income tax slabs under this regime for AY 2025-26 have been largely retained, though with a few tweaks. Here is the breakdown of the income tax slabs under the old regime:
- Up to ₹2.5 lakh: No tax
- ₹2,50,001 – ₹5 lakh: 5% tax
- ₹5,00,001 – ₹10 lakh: 20% tax
- Above ₹10 lakh: 30% tax
However, the old regime allows for deductions, exemptions, and rebates, which can reduce your taxable income significantly, depending on your investments, insurance, and other eligible expenses.
The Rise of No Tax for Income Up to ₹12 Lakh
A notable highlight of the budget 2025 was the announcement of the no-income-tax clause for individuals with annual income up to ₹12 lakh. This is a major boost for the salaried class and is expected to result in substantial savings for those in the middle-income brackets.
With the new regime’s slabs, individuals earning up to ₹12 lakh annually will not be taxed, while those with income exceeding ₹12 lakh will see a gradual increase in tax rates, capped at 30% for incomes exceeding ₹15 lakh.
Tax Rebate Under New Tax Regime: What Does It Mean?
The income tax rebate under Section 87A is another crucial feature of the new tax regime for AY 2025-26. According to the budget, taxpayers earning up to ₹7 lakh are eligible for a full tax rebate. This means that individuals with an income of ₹7 lakh or below will pay zero tax under the new regime.
This rebate is expected to benefit a large number of middle-class taxpayers by reducing their overall tax burden, especially when combined with the higher exemption threshold of ₹12 lakh under the new tax regime.
Changes in Tax Deductions and Exemptions
While the new tax regime is designed to simplify taxation by offering lower slabs and fewer exemptions, it continues to allow certain deductions. Here are a few notable points:
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Standard Deduction: In the new regime, the standard deduction has been retained for salaried individuals and pensioners. This is a deduction of ₹50,000, which is automatically deducted from your taxable income, lowering your tax liability.
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Section 80C Deductions: Under the old regime, taxpayers can still avail of deductions under Section 80C for investments like PPF, EPF, NSC, and life insurance premiums, which reduce taxable income.
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Capital Gains Tax: There have been no major changes to the capital gains tax provisions in the new budget. However, some adjustments have been proposed to simplify the tax on long-term capital gains (LTCG) and short-term capital gains (STCG).
Other Budget Highlights Impacting Taxpayers
The 2025 Union Budget also introduced several measures that affect individual taxpayers, businesses, and the economy as a whole. These include:
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Increase in Tax Deducted at Source (TDS) Thresholds: For certain categories, the TDS threshold limit has been raised, which means that individuals will not have to worry about TDS being deducted on smaller interest and income amounts.
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Easier Compliance for Small and Medium Enterprises (SMEs): SMEs will benefit from simplified tax compliance processes, which are designed to reduce their overall tax burden and make it easier to file taxes.
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Tax Filing Process Simplification: The government plans to make the income tax filing process smoother by enhancing the online tax filing system. With the introduction of new e-filing facilities, taxpayers will have a more streamlined experience when submitting their returns.
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Incentives for Digital Transactions: The government has also introduced incentives for businesses and individuals who engage in digital transactions, offering certain tax breaks for adopting digital modes of payment.
Income Tax Calculator: A Handy Tool for Taxpayers
With the announcement of the new tax regime slabs, many taxpayers are looking for ways to quickly estimate their tax liability. Fortunately, several online income tax calculators have been developed to assist individuals in calculating their tax under both the old and new tax regimes. These tools simplify the process of determining how much tax you will need to pay based on your income and the applicable slabs.
If you wish to calculate your exact tax, you can use these calculators, which require basic details such as your annual income, eligible deductions (if applicable), and other information. Many government and financial websites provide access to these calculators, helping taxpayers plan their finances accordingly.
Final Thoughts: Navigating the New Tax Regime
The income tax changes in Budget 2025 offer significant relief to taxpayers, particularly those in the middle-income brackets, by introducing lower tax slabs and higher exemption thresholds. The government's move to provide no tax up to ₹12 lakh will go a long way in easing the tax burden on salaried individuals and small business owners.
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tomorrow budget time 2025While the new tax regime simplifies taxation, offering fewer deductions and exemptions, it is likely to appeal to those who prefer a simpler, more straightforward tax filing process. Taxpayers should evaluate the new slabs, consider their unique financial circumstances, and use income tax calculators to determine which regime—old or new—will work best for them.
With a clear understanding of the changes, individuals can plan their finances accordingly and ensure they make the most of the tax benefits offered under the budget 2025.
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