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The Union Budget 2025 has introduced significant changes to the income tax structure, offering relief to middle-income earners and simplifying tax calculations for individuals. Finance Minister Nirmala Sitharaman’s announcement of no tax for individuals earning up to Rs 12 lakh is among the most notable changes. Here’s a look at the revised income tax slabs and the key takeaways from the new tax regime for the assessment year (AY) 2025-26.
Income Tax Slabs and Rates Under the New Regime (AY 2025-26)
The new income tax regime promises a more progressive taxation system with the following structure:
- Income Range (Rs 8 lakh – Rs 12 lakh): Tax rate of 10%
- Income Range (Rs 12 lakh – Rs 16 lakh): Tax rate of 15%
- Income Range (Rs 16 lakh – Rs 20 lakh): Tax rate of 20%
- Income Range (Rs 20 lakh – Rs 24 lakh): Tax rate of 25%
- Income Above Rs 24 lakh: Tax rate of 30%
Key Features of the New Tax Regime for AY 2025-26
- No Tax Up to Rs 12 Lakh: Individuals earning up to Rs 12 lakh will not pay any income tax, providing substantial relief to the middle class.
- Simplified Slabs with Lower Rates: The new tax regime introduces simpler slabs and lower tax rates for the middle-income group, making it more taxpayer-friendly.
- Tax Benefit for Middle-Income Earners: Taxpayers earning up to Rs 25 lakh will enjoy tax benefits of up to Rs 1.1 lakh.
- Higher-Income Taxpayers: Individuals earning more than Rs 24 lakh will be taxed at a maximum rate of 30%.
New Tax Regime Highlights for AY 2024-25
The new tax regime, which became the default from April 1, 2023, continues in AY 2024-25. Taxpayers without business income have the option to choose between the new and old tax regimes each financial year.
- Tax Slabs (Up to Rs 7 lakh): No tax, thanks to a rebate of up to Rs 25,000.
- Income Range (Rs 7 lakh – Rs 10 lakh): Tax rate of 10%
- Income Range (Rs 10 lakh – Rs 12 lakh): Tax rate of 15%
- Income Range (Rs 12 lakh – Rs 15 lakh): Tax rate of 20%
- Income Above Rs 15 lakh: Tax rate of 30%
Old Tax Regime Slabs for AY 2024-25
The old tax regime remains unchanged, offering different exemptions and deductions based on taxpayer age. Here’s how the slabs break down:
- For Individuals Below 60 Years:
- Income up to Rs 2.5 lakh: No tax
- Rs 2.5 lakh to Rs 5 lakh: 5%
- Rs 5 lakh to Rs 10 lakh: 20%
- Above Rs 10 lakh: 30%
- For Senior Citizens (60-80 Years):
- Income up to Rs 3 lakh: No tax
- Rs 3 lakh to Rs 5 lakh: 5%
- Rs 5 lakh to Rs 10 lakh: 20%
- Above Rs 10 lakh: 30%
- For Super Senior Citizens (80+ Years):
- Income up to Rs 5 lakh: No tax
- Rs 5 lakh to Rs 10 lakh: 20%
- Above Rs 10 lakh: 30%
Deductions Under the Old Tax Regime
The old tax regime continues to offer a range of deductions, including:
- Section 80C: Deduction of up to Rs 1.5 lakh for investments in PPF, LIC, ELSS, etc.
- Section 80D: Up to Rs 25,000 for health insurance premiums (Rs 50,000 for senior citizens).
- Section 80TTA: Up to Rs 10,000 deduction on interest from savings accounts.
- Section 80CCD(1B): Additional Rs 50,000 deduction for NPS contributions.
Under this regime, individuals with taxable income up to Rs 5 lakh are eligible for a rebate under Section 87A, ensuring no tax liability.
Surcharge Rates: Old vs New Tax Regime
The surcharge rates differ between the two regimes:
- New Tax Regime:
- Income up to Rs 50 lakh: No surcharge
- Rs 50 lakh – Rs 1 crore: 10%
- Rs 1 crore – Rs 2 crore: 15%
- Above Rs 2 crore: 25%
- Old Tax Regime:
- Income up to Rs 50 lakh: No surcharge
- Rs 50 lakh – Rs 1 crore: 10%
- Rs 1 crore – Rs 2 crore: 15%
- Rs 2 crore – Rs 5 crore: 25%
- Above Rs 5 crore: 37%
Choosing Between the Old and New Tax Regimes
One of the major decisions for taxpayers is choosing between the old and new tax regimes. While the new tax regime offers lower tax rates and simpler calculations, it removes most exemptions and deductions available under the old regime. The old regime, on the other hand, allows taxpayers to claim various deductions and exemptions but has higher tax rates.
Taxpayers must evaluate their income structure, eligible deductions, and overall tax liability before making an informed choice between the two regimes.
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