Income Tax Slabs And Rates For FY 2025-26(AY 2026-27): Old Vs New Tax Regime Comparison

"To tax or not to tax?" mused Rahul, a 35-year-old software engineer. Looking at his computer screen loaded with financial equations, he isn't alone in being trapped in this dilemma. The same dilemma runs through the minds of thousands of Indian taxpayers, given the ever-changing tax slabs that put everyone in doubt about their decision.

"It's not that simple anymore," replied his financial advisor with a knowing smile. "Budget 2025 has transformed the game entirely."

Welcome to the tax chess match of 2025-26! With the new regime increasing the tax-free limit to Rs 12 lakhs, taxpayers are rethinking their next move, while the old regime, rich in deductions, still holds its ground.

Which side will you play?

"But which path leads to more money in my pocket?" asks the confused taxpayer.

"That depends on how you play your cards," comes the cryptic answer from tax experts nationwide.

This guide breaks down the tax slabs, deductions, exemptions, and rebates for India's dual tax regime in FY 2025-26, offering a clear comparison to help taxpayers maximise savings and make informed financial decisions.

What Is The New Tax Regime?

In Budget 2020, a new tax regime was introduced, bringing revised tax slabs and concessional rates for taxpayers. Under Section 115BAC of the Income-tax Act, 1961, this regime now serves as the default option. It offers lower tax rates but limits the exemptions and standard deductions. The benefits available under the new tax regime are fewer compared to the old regime.

From FY 2023-24, the new income tax regime took over as the default choice.

Sticking with the old one? That means filing your Income Tax Return along with Form 10-IEA before the deadline. The best part is that you can switch between the two every year, making it simpler to compare and choose the one that gives you better tax savings.

In the Union Budget 2025, Finance Minister Nirmala Sitharaman announced changes to the new budget tax slabs as per the new regime. These revised slabs are all set to kick in from April 1, 2025, shaping the tax structure for the financial year 2025-26.

Exploring The Features Of New Tax Regime Slabs 2025-26 (AY 2026-27)

Big updates are coming to the new tax regime slabs for FY 2025-26 (AY 2026-27), and they’re worth paying attention to. The new regime is the default, but if you don’t have business income, you can still switch back to the old one whenever it works better for you.

Now, let’s dive into the key features of the New Tax Regime slabs for 2025-26:

• Higher Basic Exemption Limit: Right now, the basic exemption limit for all individual taxpayers, regardless of age, is set at Rs 3 lakhs. But starting April 1, 2025 (FY 2025-26), this limit will go up to Rs 4 lakhs, giving taxpayers an additional Rs 1 lakh of tax-free income.
• Higher Tax Rebate Under Section 87A: Right now, the tax rebate under Section 87A ensures that individuals with a taxable income of up to Rs 7 lakhs do not have to pay any tax. But from April 1, 2025, this benefit will extend to those earning up to Rs 12 lakhs, meaning they will pay no tax on income up to that amount.
• Surcharge Stays The Same: For those earning over Rs 2 crore, the highest surcharge rate is 25 percent. Budget 2025 has not made any changes to this, so it stays exactly the same.

Smart Ways To Save Tax Under The New Regime

Budget 2025 has brought some solid tax relief, especially for middle-income salaried individuals. Recently, there have been relaxations in slab rates, a few extra tax-saving benefits, and more deductions in the new tax regime for salary earners. With these changes, anyone earning up to Rs 12.75 lakhs will have Nil tax liability.

For the financial year 2025-26, the tax slabs as per the new regime have been updated under the latest Finance Act 2025. Here’s how the revised tax structure looks for the upcoming year:

Source: PIB: Summary of Union Budget 2025-26

What Is A Tax Rebate Under The New Regime?

A tax rebate is a form of relief designed to ease the tax burden on individuals, especially those with lower incomes. It ensures that if their earnings fall below a certain limit, they do not have to pay any income tax.

• Rebate Under Section 87A: Individual taxpayers can claim the rebate under Section 87A if their income stays within the specified limit.
• Increased Rebate: Under the new tax regime slabs, the rebate under Section 87A has been raised from Rs 25,000 to Rs 60,000. With this increase and the relaxation in slab rates, individuals earning up to Rs 12 lakhs will have no tax liability.
• Standard Deduction And Marginal Relief: The standard deduction of Rs 75,000 remains in place under the new tax regime. Marginal relief on rebates continues to apply, but rebates cannot be claimed on income taxed at special rates.

Understanding The Revised Tax Slabs For FY 2025-26 And AY 2026-27 With Example

Let’s look at an example to understand this situation better:

Raj, an employee at a private firm, brings in a salary of Rs 13 lakhs (Gross salary Rs 13.7 lakhs). He claims multiple deductions, including Rs 1,00,000 for HRA, Rs 20,000 for LTA, Rs 9,600 for his two children's education allowance, and Rs 2,400 for professional tax.

Raj has also claimed deductions under Section 80C for Rs 1,50,000, along with Rs 25,000 for medical insurance premiums under Section 80D and Rs 50,000 for his NPS contribution. On top of that, his employer has contributed Rs 1,00,000 to his NPS, which is already included in his salary.

Let’s say Raj’s basic pay for the year is Rs 6,80,000. After crunching the numbers, the deduction under Section 80CCD(2) amounts to Rs 95,200, which is 14 percent of his basic pay, as per the new tax regime tax slabs. Under the old regime, this deduction comes to Rs 68,000, calculated at 10 percent of the same amount.

Given these numbers, which tax regime would be the smarter choice for Raj?

The table below explains it all:

Source: Clear Tax

New Tax Regime Slabs For FY 2025-26 (AY 2026-27): Budget 2025 Update

Budget 2025 brings tax slab changes, offering relief to salaried taxpayers. The table below highlights the impact of the revised rates and rebates.

Source: Press Information Bureau (PIB)

Standard Deduction Stays Intact

For salaried employees and pensioners, there’s good news. Salaried individuals and pensioners can claim a specific amount as a standard deduction by default without needing to invest or spend any money.

The new tax regime remains unchanged when it comes to deductions. In the financial year 2025-26, individuals can continue to claim a standard deduction of Rs 75,000 from their salary income, along with 14 percent of their basic salary contributed by their employer to the NPS Tier-I account.

New Tax Regime vs. Old Tax Regime: A Quick Comparison

1. Revised Income Tax Slab Rates
   The updated tax slabs under the new regime now include seven brackets. It starts with a 0 percent tax rate for income up to Rs 4 lakh and gradually increases, reaching 30 percent for those earning over Rs 24 lakh.
    
2. No Changes in Old Income Tax Slabs
   However, no changes have been made to the old tax regime, which still follows the same familiar slab structure:
3. 1. 0% for income up to Rs 2.5 lakh
   2. 5% for income from Rs 2.5 lakh to Rs 5 lakh
   3. 20% for income from Rs 5 lakh to Rs 10 lakh
   4. 30% for income above Rs 10 lakh

The new tax regime offers a significant relaxation in income limits and reduced tax rates, making taxation more streamlined. Take a look at the table below for a comparison of the old vs. new tax regime:

Source: ClearTax

Tax Benefits For Different Income Categories (Rs 0-24 Lakhs)

The latest tax reforms have brought significant relief to individuals across different income brackets, especially those earning up to Rs 12 lakhs annually. Let’s take a closer look at the key benefits and tax savings under the revised structure:

Source: Times of India (TOI)

Thus, if your income falls within this range, considering the new regime could be a smart financial move.

Deductions & Exemptions: What Stays and What Goes?

Taxes can be tricky, and the new regime has changed the game. Here’s a quick breakdown of allowed and removed deductions to help you plan wisely:

Source: Clear Tax

Budget 2025: Major Changes In TDS Rules You Need To Know!

If you earn interest from fixed deposits or deal with rent payments, the latest tax updates from Budget 2025 are worth paying attention to. Let’s learn all about it below:

1. Higher TDS Limit For Fixed Deposits
   The 2025 budget has brought some good news for those earning interest from fixed deposits. The limit for tax deduction at source (TDS) on interest income for general (non-senior) citizens is set to go up. Right now, banks deduct TDS if the interest crosses Rs 40,000 in a financial year. But starting April 1, 2025, this limit will increase to Rs 50,000.
    
2. TDS On Fixed Deposits: What Stays The Same?
   The government is making the Tax Deduction at Source (TDS) simpler by reducing the number of rates and thresholds. When it comes to fixed deposits, banks deduct TDS if the interest paid in a financial year crosses a certain limit. This threshold is not the same for everyone since senior citizens have a higher limit, while non-senior citizens have a lower one. At present, if a PAN is available, banks deduct TDS at 10 percent on interest paid on FD, which goes beyond the specified limit.

But if PAN is missing, the rate jumps to 20 percent, which is quite steep.

So, make sure your PAN details are updated with the bank to avoid higher deductions.

3. Higher TDS Thresholds For Rent, Senior Citizens, and Foreign Transfers
   Big changes are coming in tax deductions and collections. The tax deduction limit on interest for senior citizens has been increased from the existing Rs. 50,000 to Rs. 1 lakh, giving them a much-needed breather. The annual TDS limit on rent has also seen a major jump, rising from Rs 2.40 lakhs to Rs 6 lakhs. On the remittance front, the threshold for collecting tax at source (TCS) under RBI’s Liberalised Remittance Scheme has been pushed up from Rs 7 lakhs to Rs 10 lakhs, making overseas transfers a bit more flexible.
    
4. Streamlining TDS
   Higher TDS rates will apply only if PAN details are missing. Also, delays in TCS payments up to the filing due date will no longer be a criminal offence, offering some relief on compliance.

Marginal Relief: Meaning And Calculation

Nobody likes paying extra tax just because their income crossed a tax slab by a tiny margin. That’s where marginal relief exists to ensure that a small increase in income doesn’t lead to an unfairly large jump in tax. It’s a safeguard in the Income Tax Act that prevents taxpayers from paying significantly higher taxes just because their earnings slightly exceed a tax slab limit. Instead of a sudden spike in tax liability, this provision helps keep things balanced.

Marginal relief is a tax concession that kicks in when income just crosses a higher tax slab or surcharge limit. It’s there to make sure that the extra tax owed isn’t more than the amount by which income exceeds the threshold.

In FY 2025-26, marginal relief applies if income slightly crosses Rs 12 lakhs, offering benefits up to Rs 12.75 lakhs. So, this means:

• For individuals earning up to Rs 12 lakhs, standard tax rates apply, so there’s no requirement for marginal relief.
• For individuals earning just beyond Rs 12 lakhs, the tax payable rises significantly due to higher tax rates or surcharges, creating a steep financial impact.

So, how does the marginal relief help in this scenario?

Marginal relief makes sure that the extra tax you owe never ends up being more than the additional income you’ve earned. But once earnings go past Rs 12.75 lakhs, this benefit disappears, and regular tax rates kick in fully.

And how is the marginal relief calculated?

Individuals just over Rs 12 lakhs, the tax-free threshold, won't bear a disproportionately high tax burden due to marginal relief. For example, if a person has a taxable income of Rs 12,10,000, he would otherwise pay Rs 61,500 as tax. In contrast, a person earning just Rs 10,000 less would pay nothing.

Marginal relief ensures that a person who earns a little over Rs 12 lakh does not have less take-home income than a person earning exactly Rs 12 lakh. Rather than paying the whole tax, they pay only the additional tax equivalent to the difference in pay. Here, the tax payable would be Rs 10,000, keeping the person with a Rs 12 lakh take-home income. This relief goes on until the income is Rs 12.75 lakh in a year, beyond which marginal relief is not available.

Let’s look at the table below to understand the calculation of marginal relief in an in-depth way:

Source: Times of India (TOI)

Now, here’s how the tax on Rs 12,10,000 adds up!

1. Assessing Total Income: First, the total income is evaluated, and tax is applied based on the slab rates. Let’s break it down with an example. Suppose the income is Rs 12,10,000, which is slightly above the Rs 12,00,000 threshold.
2. Tax Liability: When the total income stands at Rs 12,00,000, the tax liability drops to zero due to the available rebate.
3. Calculating Tax Without Marginal Relief: The tax liability, without considering marginal relief, comes out to Rs 61,500. This needs to be compared with the amount by which the total income exceeds the rebate-eligible threshold. In this case, that extra amount is Rs 10,000, calculated as Rs 12,10,000 minus Rs 12,00,000.
4. Identifying Excess Income Over The Threshold: To figure out the marginal relief, the excess income beyond Rs 12,00,000 (which is Rs 10,000) needs to be subtracted from the total tax liability already calculated (Rs 61,500).
5. Applying Marginal Relief: In this case, the marginal relief kicks in, bringing a rebate of Rs 51,500. This is simply the total tax liability of Rs 61,500 minus the extra income of Rs 10,000, making sure the tax burden stays fair and reasonable.
6. Final Tax Payable After Marginal Relief: That brings the final tax payable to Rs 10,000, calculated by subtracting the marginal relief of Rs 51,500 from the initial tax liability of Rs 61,500.

Rebate Vs. Marginal Relief: What’s The Difference?

• Rebate is a direct tax deduction available to individuals earning up to Rs 12 lakhs under the new tax regime.
• Marginal relief makes sure that if someone’s income slightly crosses Rs 12 lakhs, they don’t end up paying more in taxes than the extra amount they earned beyond Rs 12,00,000.

The table below breaks down the tax payable with and without marginal relief across different income levels. It clearly shows how this relief helps ease the tax burden for those earning just over Rs 12 lakhs up to Rs 12.75 lakhs, beyond which no relief is provided:

Source: Times of India (TOI)

How Can Income Up To Rs 12 Lakhs Be Exempt From Tax? (With Example)

For the fiscal year 2025-26, Budget 2025 has introduced a major relief under the new tax regime slabs, allowing normal income up to Rs 12 lakhs to be effectively tax-free.

But there is a catch!

This is not an outright exemption. Instead, it works as a rebate, meaning the tax is calculated first and then reduced to zero through a rebate mechanism.

Even though exemption, deduction, and rebate have distinct meanings in taxation, people often use them interchangeably, even when referring to specific provisions in the Income Tax law.

The difference between exemptions, deductions, and rebates under the Income Tax Act (ITA) lies in how they impact the final tax calculation, each playing a distinct role in determining the total tax liability. Here’s how:

• Exemptions: Income that qualifies for an exemption is completely excluded from the total taxable income, meaning no tax is levied on it whatsoever.
• Deductions: A deduction lowers the portion of income that is subject to tax, as it is subtracted before determining the final tax liability.
• Rebate: A rebate comes into play after the tax has been computed, cutting down the final tax bill, almost like getting a discount.

The lines between these terms aren’t always clear-cut, and even the Income Tax Act has areas where they overlap.

Budget 2025 announced that income up to Rs 12 lakh wouldn’t be taxed, which might sound like an exemption at first. But in reality, it’s a rebate under Section 87A of the Income Tax Act. This means the zero-tax benefit applies only if the total taxable income, after deductions in the new tax regime, stays within Rs 12 lakh.

What’s the Real Deal Behind Rs 12 Lakh Being Tax-Exempt?

If an individual or Hindu Undivided Family (HUF) has an income of up to Rs 12 lakh, they won’t have to pay any tax after factoring in the Income Tax Rebate under Section 87A. However, this doesn’t apply to income taxed at special rates, such as capital gains from listed shares.

What Does This Mean For You? Let’s Look At Some Examples

So, even though no tax is actually paid on income up to Rs 12 lakhs, that doesn’t mean the income is completely tax-free. The tax is still calculated as per the existing slabs, but the rebate ensures that the final amount payable comes down to zero.

Tax Hacks 101: Choosing the right regime without the brain fog! Let’s delve right in.

Which Tax Regime Works Best for You?

To get a clearer picture of whether the old tax regime or the new one works better, let’s break down their key differences:

Source: India Fillings

Benefits Of The Old Tax Regime

The Old Tax Regime: A Deduction Paradise

Here’s what makes the old tax regime attractive:

• Section 80C: Up to Rs 1.5 lakhs can be claimed for investments in options like PPF, ELSS, life insurance, and more.
• Section 80D: Premium paid-for health insurance policy for yourself and your family.
• HRA: Exemption on house rent allowance if you are living in a rented home.
• LTA: Exemption on leave travel allowance, provided it meets the required conditions.
• Interest On Home Loan: Tax deduction of up to Rs 2 lakhs on interest for a self-occupied home.
• Additional Perks: NPS contributions (80CCD), donations (80G), and more.

Who Gains The Most From The Old Tax Regime?

• Those With High Deductions: When deductions add up, say Rs 5 to 8 lakhs or more, through HRA, Sections 80C and 80D, and home loan interest, the old tax regime could turn out to be more beneficial. Even with higher tax rates, the lower taxable income might tip the scales in its favour.
• Mid-Range Income Earners (Rs 12L – Rs 24L): When exemptions like HRA and LTA, along with deductions under Sections 80C and 80D, and home loan interest, add up to a significant amount, sticking with the old tax regime might still make sense. For those earning between Rs 12 lakhs and Rs 20 lakhs, whether it works out better depends largely on how much they put into tax-saving investments.

Who Should Stick With the Old Regime?

• Mid-To-Higher Earners: For those in the mid-to-higher income brackets, the old tax regime might still be the better deal if they can make full use of multiple deductions, often adding up to Rs 5 lakhs or more.
• Salaried Individuals With Big HRA Or Home Loan Interest: People earning a salary, especially those living in metro cities with a high HRA component or paying significant interest on a home loan, might still find the old tax regime more beneficial.

Benefits Of The New Tax Regime

If you’re tired of juggling receipts and investment documents, the new tax regime might be your best bet. It comes with lower tax rates but minimal deductions. Other than the standard deduction for salaried individuals, most of the usual exemptions like HRA and LTA, along with popular deductions under sections like 80C and 80D, are off the table.

Who Should Opt For The New Regime?

• Salaried Individuals Up To Rs 12.75 Lakhs: Salaried individuals earning up to Rs 12.75 lakhs who aim to bring their tax liability down to zero.
• People Who Don’t Invest In Tax-Saving Instruments: Individuals who either choose not to or are unable to invest significant amounts in options like PPF and ELSS or buy insurance just for tax-saving purposes.
• High-Income Earners With Limited Deductions: High earners whose overall deductions, apart from the standard deduction, are relatively low. Many tax experts consider anything below Rs 8 lakhs in the old regime to be relatively on the lower side.

Who Wins Big With The New Tax Regime?

Here’s who benefits the most from the new tax regime:

• Salaried Individuals Up To Rs 12.75 Lakhs: Incomes up to Rs 12.75 lakhs do not attract any tax liability. This makes it a great option for those who either do not claim significant deductions or are unable to take full advantage of them under the old tax system.
• High-Income Earners With Limited Deductions: For incomes exceeding Rs 24 lakh, the new tax regime can still be a smarter choice if there are no substantial exemptions in play, such as high HRA claims, large home loan interest deductions, or significant 80C investments.
• Preference For Simplicity: No piles of paperwork, no running around to gather rent receipts or investment proofs. The process is simple, with clear tax slabs and lower rates, making it a hassle-free option for those who do not have too many financial commitments.

Old Vs. New Tax Regime: Real-Life Tax Scenarios

Choosing the right tax regime is like picking an investment plan. Both have perks, but the best fit depends on your finances. Let’s break it down with real-world scenarios:

For Salaried Individuals With An Income Of Rs 13 Lakhs

• New Regime: With the standard deduction of Rs 75,000, an income of Rs 12.75 lakh remains tax-free, meaning you either pay nothing or a very minimal amount in taxes.
• Old Regime: The old tax regime might still be the better choice, but only if deductions stack up significantly. If someone is claiming around Rs 2 to Rs 3 lakhs or more in 80C investments, HRA, and other exemptions, then the savings could potentially outweigh the benefits of the new system.

For Salaried Individuals With An Income Of Rs 20 Lakhs

• New Regime: For those earning between Rs 16 and 20 lakhs, the tax rate stands at 20 percent. The only deduction available is the standard one, which amounts to Rs 75,000.
• Old Regime: With sizable deductions like HRA, 80C, 80D, and home loan benefits, taxable income can dip enough to push it into a lower tax bracket, making a noticeable difference in the final tax outgo.

For Salaried Individuals With An Income Between Rs 12 And 13 Lakhs

• New Regime: In the new tax setup, anyone earning up to Rs 12 lakhs usually pays nothing in taxes, and for salaried individuals, this limit stretches to Rs 12.75 lakhs, thanks to the standard deduction.
• Old Regime: Bringing taxable income down to zero under the old tax system isn't easy. It takes hefty exemptions like HRA and big deductions under 80C and 80D, which aren’t always practical for everyone.

Key Takeaway!

For many in this income range, the new tax system keeps things hassle-free and, in a lot of cases, results in little to no tax liability.

For Salaried Individuals With An Income Between Rs 15 And 20 Lakhs

• New Regime: When deductions are on the lower side, maybe under Rs 5 lakhs, the new regime usually works out to be the easier and often the cheaper option.
• Old Regime: Putting a significant chunk of money into tax-saving options like HRA, 80C, 80D, and home loan interest could make the old regime just as good, if not better, than the new one. Some mid-income earners manage to slash their taxable income quite a bit by maxing out 80C at Rs 1.5 lakhs, claiming a hefty HRA exemption, and deducting home loan interest.

For Salaried Individuals With An Income Between Rs 24 And 25 Lakhs

• New regime: A lot of tax professionals point out that when total deductions apart from the standard deduction stay below Rs 8 lakhs, the new regime usually results in a lower tax bill. It often simplifies things while keeping the overall tax outgo in check.
• Old regime: Stacking up big deductions like HRA, 80C, and home loan interest beyond Rs 8 lakhs can make the old regime worthwhile. But it is not a free pass. It usually means committing to hefty rent payments, loan EMIs, and well-planned investments, which might not be feasible for everyone.

Example Comparison: Old Vs New Tax Regime For Income Above Rs 24 Lakh

Picking a tax regime is more than just chasing lower rates. It all comes down to how deductions and exemptions impact what you actually pay. Let’s dive into some real-life scenarios:

High-Income Earners: Above Rs 24 Lakh

If you earn Rs 35 lakhs a year (Rs 35,00,000), your deductions and exemptions will depend on factors like HRA, LTA, Section 80C, Section 80D, and home loan interest.

Now, when it comes to the standard deduction, the old regime allows Rs 50,000, while the new regime offers Rs 75,000.

So, what do we understand from this scenario?

As total deductions and exemptions shift between Rs 5.75 lakhs and Rs 9.5 lakhs, the final tax bill adjusts accordingly. The moment deductions cross Rs 8 lakhs, the old regime often starts making more financial sense, potentially leading to greater tax savings.

• Old Regime: With HRA, LTA, 80C, and home loan interest factored in, the taxable income could drop significantly, making a noticeable difference in the final tax calculation.
• New Regime: The standard deduction is higher at Rs 75,000, but the trade-off is that most other deductions and exemptions are either reduced or completely unavailable.

Key Takeaway!

Looking at the numbers, when deductions and exemptions stay under Rs 8 lakhs, the new regime usually results in a lower tax bill. But once they push past Rs 8 lakhs, the old regime can start making a stronger case with better savings.

Mid-Income Earners: Rs 14–22 Lakhs

The second example breaks down cases for gross salaries of Rs 14 lakhs, Rs 18 lakhs, and Rs 22 lakhs. Under the old regime, deductions like HRA, LTA, 80C, and 80D help lower taxable income. On the other hand, the new regime sticks to just the standard deduction. What these calculations show is pretty straightforward:

1. Rs 14 Lakh Salary: Stacking up major exemptions like an HRA of Rs 2.3 lakhs or an LTA of Rs 25,000 can tilt the scales. The old regime’s final tax could end up a little higher or even lower, depending on how much gets deducted in total.
2. Rs 18/22 Lakh Salary: Piling on more exemptions and deductions can shrink taxable income enough to balance out those steeper slab rates under the old regime. On the other hand, if deductions are on the lower side, the new regime often keeps things both easier and lighter on the wallet.

Thus, in this scenario,

Take a taxpayer earning Rs 14 lakh. Under the old regime, deductions and exemptions totalling Rs 4.55 lakhs bring the taxable income down to Rs 8.95 lakhs. Switch to the new regime, and the taxable income jumps to Rs 13.25 lakhs since most deductions are off the table. The catch? The new regime offsets this with lower tax rates.

The exact benefit or loss under the old regime shifts with each scenario, depending on how deductions stack up. Personal deductions play a big role in shaping the final outcome.

Key Considerations: Choosing Between The Old And New Tax Regimes

What tips the scales between the old and new tax regimes?

Let’s dive into the key factors that can make or break your choice:

1. Impact Of Deductions: The key difference between the new and old tax regimes lies in how they treat exemptions and deductions. The more you can claim in tax, the stronger the case for the old regime.
2. Ease of Compliance: The old regime comes with a heavier paperwork load, whereas the new regime keeps things almost entirely hassle-free.
3. Flexibility Vs. Long-Term Commitments: A lot of deductions under the old regime, such as 80C, tie up your money in long-term investments like PPF, ELSS, etc. If you value liquidity or want to keep your finances simple, the new regime might be a better fit.
4. Reviewing Your Choice Each Year: Each financial year, there's an option to switch between the two regimes, though business income comes with certain restrictions. A side-by-side comparison is always a good idea since both your finances and tax rules can evolve over time.

Does The New Tax Slab Apply To Everyone?

For FY 2025-26, the revised tax slab applies to everyone choosing the new tax regime. It's important to remember that this regime is now the default, so those wanting to claim deductions and exemptions under the old regime must opt in specifically.

In the end, the impact of the new tax slab comes down to personal finances and priorities. Some may find the lower rates and simplicity appealing, while others might benefit more from the deductions available in the old regime.

Income Tax Slab Changes 2024-25 FY (AY 2025-26) Post-Budget 2024

Choosing between the old and new tax regimes is key to smart tax planning. With the 2024 Budget keeping both structures intact, here’s a clear breakdown to help you decide what works best:

Budget 2025-26 Highlights: Key Updates And Major Changes

The Union Budget 2025-26 has brought game-changing tax relief for millions of Indians, especially the middle class. If you've been hoping for more money in your pocket at the end of the month, this one’s for you!

No Tax On Income Up To Rs 12 Lakhs?

Yes, you read that right!

The government has significantly raised the tax-free income threshold under the new tax regime. Here’s how it works:

Under the new tax regime, no personal income tax is payable on income up to Rs 12 lakhs, assuming a monthly income of Rs 1 lakh, excluding special rate income like capital gains. For salaried individuals, this threshold increases to Rs 12.75 lakhs, thanks to the Rs 75,000 standard deduction.

This revised tax system is set to ease the burden on the middle class, allowing them to keep more of their hard-earned money. With extra cash in hand, households may spend more, save smarter, or even channel funds into investments, giving a boost to overall financial well-being.

A Simpler, Clearer Income Tax Law On The Way

Another big announcement: The government is introducing a new Income Tax Bill with clearer and more direct language. This makes it easier for both taxpayers and the tax department to understand. Clear rules mean fewer disputes and a smoother process for everyone, ensuring better tax certainty with less litigation.

A Bold Step, But At A Cost!

While this is fantastic news for taxpayers, the government will forgo around Rs 1 lakh crore in direct tax revenue due to these changes.

Income Tax Rule Changes In 2025 That Will Impact ITR Filing

As we step into the new financial year, income tax rules are evolving, and these changes could impact how you file your Income Tax Return (ITR) in 2025. Whether you’re a salaried individual, a business owner, or a retiree, here’s what you need to know about the latest updates.

1. Determining Whether You Need To File An ITR?
   When someone’s income is below the basic exemption limit, there’s no need to file an Income Tax Return. But if your income is below the exemption limit, but you’re eligible for an income tax refund; filing an ITR is necessary to claim it.
    
2. Major Section Numbering Changes
   Section numbers are set to change under the new Income Tax Bill. Right now, filing an Income Tax Return falls under Section 139, while the new tax regime is covered under Section 115BAC. With the revised framework, these references might shift, bringing updates to how different provisions are structured.
   Under the new Income Tax Bill, the section for filing ITR will be renumbered as 263, while the new tax regime will now fall under Section 202. These changes will redefine how tax provisions are structured going forward.
    
3. No Changes To Tax Deadlines & Slabs
   Good news! The 2025 budget confirmed that there are no changes to tax slabs, Income Tax Return filing deadlines, or capital gains taxation. Keeping these unchanged aims to provide taxpayers with stability and predictability in their tax planning.
    
4. Higher TDS/TCS For Non-Filers: Now Gone!
   Budget 2025 has done away with Section 206CCA and Section 206AB of the Income Tax Act. These sections enforced higher Tax Deducted At Source (TDS) and Tax Collected At Source (TCS) rates on individuals who had not filed their tax returns for the previous year.  It applies to the financial year preceding the one in which tax is to be deducted or collected, provided the income tax filing deadline (excluding belated returns) has already passed. With this change taking effect from April 1, 2025, many people, especially senior citizens, could avoid paying extra TDS or TCS simply because they missed filing their returns for a particular year.

How Does The New Tax Regime Affect Your Investments?

The new tax regime is definitely making waves now, especially with the higher basic exemption limit and a full tax rebate for income up to Rs 12 lakhs. It’s starting to look like a really attractive option for most taxpayers.  

But there’s a flip side to it. For those switching to the new regime, there’s a catch. Say goodbye to the deductions you were used to under various sections. It’s a trade-off: A higher exemption, but at the cost of some of those familiar tax-saving options.

• Section 80C: With the new tax regime, investments in options like PPF (Public Provident Fund), ELSS (Equity Linked Savings Scheme), NSC (National Savings Certificate), Sukanya Samriddhi Yojana, and even life insurance premiums won’t provide the usual tax benefits anymore.
• Section 80D: The deductions for health insurance premiums, like Rs 25,000 for general taxpayers and Rs 50,000 for senior citizens, will no longer be applicable under the new tax regime.
• Section 80CCC: Contributions made to pension funds will no longer be eligible for tax deductions under the new tax regime.
• Home Loan Interest & HRA Exemptions: Under the new tax regime, you won’t be able to claim exemptions for interest on home loans or HRA anymore.

For more insights on tax implications, you can also explore Section 80DDB of the Income Tax Act, Section 115BAA of Income Tax, and Section 80EE.

Additionally, to understand tax slabs and benefits better, you can also look into Section 80GG of the Income Tax Act, Section 80EEA, and Section 10 of the Income Tax Act.

The Old Tax Regime Slabs: Still Rewarding Traditional Investments

The old tax regime is still the same, with no changes from the government. It continues to reward taxpayers who invest in small saving schemes like PPF, NSC, ELSS, SCSS, and Sukanya Samriddhi Yojana.

All these schemes fall under Section 80C, allowing taxpayers to claim a total deduction of up to Rs 1.5 lakhs. This benefit remains available under the old tax regime for those who continue to invest in these options.

Since the new tax regime came into play in 2020, the government hasn’t really offered any major tax relief to those sticking with the old system. Meanwhile, taxpayers who shifted to the new regime have been getting steady incentives, whether through relaxed tax slabs or an increased standard deduction.

What’s New for Non-Resident Indians (NRIs) In Budget 2025?

The Union Budget 2025 has tightened tax rules for Non-Resident Indians, and this isn’t just about high earners. Even students and young professionals living abroad are now on the radar. These changes could make a big difference for those managing finances across borders. 

Some major changes are on the way, including stricter monitoring of foreign income through improved data-sharing agreements. There’s also talk of a more rigid residency definition for tax purposes and possible tweaks to Double Tax Avoidance Agreements.

This brings stricter reporting rules, a higher chance of double taxation, and increased tax liabilities for NRIs returning home. Students and professionals now need to be extra careful about managing their tax status and properly declaring foreign assets to steer clear of penalties.

What’s Going On With ULIPs?

The Union Budget 2025 has cleared the air on ULIP taxation for policies with annual premiums above Rs 2.5 lakhs. Starting April 1, 2026, these ULIPs will be treated as long-term capital gains and taxed at 12.5% if held for more than a year.

This move puts ULIPs in the same tax bracket as equity mutual funds. Earlier, gains from these policies were tax-exempt under Section 10(10D), but that’s no longer the case. If a ULIP doesn’t qualify for exemptions, any profits made on redemption will now be taxed as capital gains. For those holding high-premium ULIPs, it might be a good time to reassess investment plans and get some expert advice.

Changes To Tax Collected At Source (TCS) And More

The latest budget left Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) taxes untouched, but there’s a notable change in Tax Collected At Source (TCS). The threshold for remittances under the RBI’s Liberalised Remittance Scheme (LRS) has been bumped up from Rs 7 lakhs to Rs 10 lakhs. Market experts are suggesting that instead of reacting to the budget, investors should keep their eyes on long-term financial goals.

The Income Tax Bill 2025 brings in a revamped tax structure with updated slabs and fewer compliance hassles. But there is a catch. Penalties for violations are now much tougher. It is a mix of relief and stricter rules, making it all the more important to stay on top of tax obligations.

How To Transition Between Tax Regimes?

From FY 2023-24 onwards, the new income tax slab became the default option. Those who prefer the old regime must submit Form 10-IEA while filing their tax returns.

Now, before you decide, there’s something important to keep in mind: how often you can switch between tax regimes depends on the type of income you earn. So,

• If You Have Business Or Professional Income, You can switch only once in a lifetime.
• If You Have A Salary Or Other Non-Business Income: You can switch between the old and new tax regimes every year while filing your return.

Not Sure Which Regime To Choose? Use An Online Tax Calculator!

Figuring out your tax liability does not have to be a headache. No need to hire a tax consultant when an online income tax calculator can do the job for free. Simply enter your income along with investment or deduction details, and the tool will accurately calculate your tax liability. It not only clarifies your tax obligations but also makes it easier to compare both regimes.

Step By Step Guide To Using An Income Tax Calculator

Step 1: Select the financial year for which you need to calculate your taxes.

Step 2: Carefully select your age bracket since the tax burden under the old regime differs based on the age group.

Step 3: Select 'Continue. ’

Step 4: Fill in your total salary before accounting for exemptions like HRA and so on. If you are eligible for an LTA deduction, subtract that amount first and enter the adjusted salary. There is also a separate field for exempt allowances, so provide the details if they apply to you.

Step 5: Besides your taxable salary, do not forget to include other income information. This encompasses interest earned, rental income, and any interest paid on a home loan, be it for a self-occupied property or a rented one.

Step 6: In reporting income from digital assets, report the net value after subtracting the cost of acquisition from the total sale price.

Step 7: Click 'Continue' once more.

Step 8: If any of the tax-saving options like 80C, 80D, 80G, 80E, or 80TTA are available to you, be sure to report the details of your investments accordingly.

Step 9: Click the 'Calculate' button to view your tax liability. The calculator will present you with an immediate comparison between the two tax regimes, and you can then determine which will be affordable for you.

Key Inputs To Calculate Income Tax

When calculating using the calculator, ensure that all sources of income are incorporated, e.g.,

• Income from Salary
• Income from Capital Gains
• Income from Business or Profession
• Income from House Property
• Income from any Other Sources

One Thing To Note: This tax calculator won’t figure out your TDS, but it will give you the total tax liability for the assessment year. If you need to check TDS, a separate TDS calculator will do the job.

Wrapping It Up

As the tax landscape evolves with Budget 2025's sweeping changes, taxpayers stand at a financial crossroads. The new regime offers liberation from paperwork with zero tax up to Rs 12 lakhs for others and Rs 12.75 lakhs for salaried individuals, while the old regime remains a haven for investment-savvy planners. A smart taxpayer plans ahead, weighing simplicity against strategy and short-term gains against long-term benefits. So, make your next financial move wisely!

Disclaimer: The content on this page is generic and shared only for informative and explanatory purposes. It is sourced from multiple online resources and may be subject to change. Kindly seek advice from an expert before making any decisions related to the discussed subject matter.

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