Starting April 1, 2025, India’s income tax system is undergoing one of its most significant transformations in recent years. With the rollout of the Union Budget 2025-26, the government has introduced a series of bold changes aimed at simplifying tax compliance, boosting household savings, and stimulating economic growth. From a higher basic exemption limit to revamped slabs under the new tax regime, these updates are designed to put more money back in the hands of taxpayers while streamlining the overall process.
Whether you’re a salaried employee, self-employed, or a small business owner, these new rules will likely affect your financial decisions, making it critical to stay informed and prepared. In her Budget 2025 speech, Finance Minister Nirmala Sitharaman announced that income up to Rs 12 lakh will now be exempt from tax under the revamped structure, a move aimed at enhancing disposable income and encouraging greater investments.
Tax Relief Measures Proposed for FY 2025-26
In the Union Budget for FY 2025-26, the government has proposed several taxpayer-friendly measures under the new tax regime. The Section 87A rebate has been significantly increased from ₹25,000 to ₹60,000, ensuring zero tax liability for incomes up to ₹12 lakh. The basic exemption limit has also been raised from ₹3 lakh to ₹4 lakh. The standard deduction of ₹75,000 remains unchanged for salaried individuals, while the employer’s NPS contribution deduction under Section 80CCD(2) is now 14% of basic salary (up from 10%).
Although no changes have been made to surcharge rates, the old tax regime has introduced a new benefit—parents contributing to the NPS Vatsalya scheme for their children can now claim an additional deduction under Section 80CCD(1b) beyond the ₹1.5 lakh limit under Section 80C.
| Provision | FY 2024-25 | FY 2025-26 (Proposed) |
|---|---|---|
| Section 87A Tax Rebate | ₹25,000 (up to ₹7 lakh income) | ₹60,000 (up to ₹12 lakh income) |
| Zero Tax Limit under New Regime | Up to ₹7 lakh | Up to ₹12 lakh |
| Basic Exemption Limit (New Regime) | ₹3 lakh | ₹4 lakh |
| Standard Deduction (Salaried Individuals) | ₹75,000 | ₹75,000 (No change) |
| Employer’s NPS Contribution Deduction | 10% of basic salary | 14% of basic salary |
| Surcharge Rates | No changes | No changes |
| New Deduction under Old Regime | Not available | NPS Vatsalya under Section 80CCD(1b) |
New Income Tax Slabs for FY 2025-26 (AY 2026-27) – New Tax Regime
For FY 2025-26, the new tax regime features progressive slab rates, starting with 0% tax on income up to ₹4 lakh. Income between ₹4 lakh to ₹8 lakh is taxed at 5%, followed by 10% on ₹8–12 lakh, 15% on ₹12–16 lakh, 20% on ₹16–20 lakh, 25% on ₹20–24 lakh, and the highest 30% rate applies on income above ₹24 lakh. These changes aim to offer more relief to middle-income earners while simplifying tax calculations.
| Income Range (₹) | Tax Rate (%) |
|---|---|
| 0 – 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 | 25% |
| 24,00,001 and above | 30% |
🟢 Note: Taxpayers with income up to ₹12 lakh will pay zero tax after rebate under Section 87A.
Current Slabs for FY 2024-25 – New Tax Regime (for comparison)
Under the new tax regime for FY 2024-25, income up to ₹3 lakh is exempt from tax. Income between ₹3,00,001 to ₹7 lakh is taxed at 5%, ₹7,00,001 to ₹10 lakh at 10%, ₹10,00,001 to ₹12 lakh at 15%, and ₹12,00,001 to ₹15 lakh at 20%. Any income above ₹15 lakh is taxed at the highest rate of 30%. These rates are applicable by default unless the old regime is specifically chosen.
| Income Range (₹) | Tax Rate (%) |
|---|---|
| 0 – 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% |
| 15,00,001 and above | 30% |
Income Tax Slabs – Old Tax Regime (Unchanged)
For Individuals Below 60 Years
For individuals below 60 years, income up to ₹2.5 lakh is tax-free. Income between ₹2.5–5 lakh is taxed at 5%, ₹5–10 lakh at 20%, and income above ₹10 lakh at 30%.
| Income Range (₹) | Tax Rate (%) |
|---|---|
| 0 – 2,50,000 | 0% |
| 2,50,001 – 5,00,000 | 5% |
| 5,00,001 – 10,00,000 | 20% |
| 10,00,001 and above | 30% |
For Senior Citizens (60 to 80 Years)
Senior citizens aged between 60 and 80 years enjoy a higher exemption limit of ₹3 lakh. Their income between ₹3–5 lakh is taxed at 5%, ₹5–10 lakh at 20%, and above ₹10 lakh at 30%.
| Income Range (₹) | Tax Rate (%) |
|---|---|
| 0 – 3,00,000 | 0% |
| 3,00,001 – 5,00,000 | 5% |
| 5,00,001 – 10,00,000 | 20% |
| 10,00,001 and above | 30% |
For Super Senior Citizens (80+ Years)
Super senior citizens aged 80 years and above get a full tax exemption up to ₹5 lakh. Income from ₹5–10 lakh is taxed at 20%, and above ₹10 lakh at 30%
| Income Range (₹) | Tax Rate (%) |
|---|---|
| 0 – 5,00,000 | 0% |
| 5,00,001 – 10,00,000 | 20% |
| 10,00,001 and above | 30% |
Standard Deduction & Other Deductions (New Regime)
Salaried individuals can claim a standard deduction of ₹75,000, while family pensioners are allowed a deduction of ₹25,000. Additionally, employees can claim a deduction up to 14% of basic salary for the employer’s contribution to NPS under Section 80CCD(2).
| Deduction Type | Amount (₹) |
|---|---|
| Standard Deduction (Salaried) | ₹75,000 |
| Standard Deduction (Pensioners) | ₹25,000 |
| Employer NPS Contribution (80CCD(2)) | 14% of basic salary |
Section 87A Rebate Comparison
From FY 2025-26 onwards, individuals under the new tax regime with taxable income up to ₹12 lakh can claim a rebate of ₹60,000. For FY 2024-25, this rebate is ₹25,000 for incomes up to ₹7 lakh. Under the old regime, a rebate of ₹12,500 is available if taxable income does not exceed ₹5 lakh.
| Tax Regime | Taxable Income Limit (₹) | Max Rebate (₹) |
|---|---|---|
| New (from FY 2025-26) | Up to ₹12,00,000 | ₹60,000 |
| New (FY 2024-25) | Up to ₹7,00,000 | ₹25,000 |
| Old | Up to ₹5,00,000 | ₹12,500 |
Sample Tax Calculation – New Tax Regime (FY 2024-25)
On a net taxable income of ₹17,25,000, the tax is calculated as per the slab rates under the new regime. The first ₹3 lakh is tax-free. The next ₹4 lakh (₹3,00,001 to ₹7,00,000) is taxed at 5%, resulting in ₹20,000. Income between ₹7,00,001 and ₹10,00,000 is taxed at 10%, adding ₹30,000. The next ₹2 lakh (₹10,00,001 to ₹12,00,000) is taxed at 15%, contributing ₹30,000. Income from ₹12,00,001 to ₹15,00,000 is taxed at 20%, resulting in ₹60,000, and the remaining ₹2.25 lakh (from ₹15,00,001 to ₹17,25,000) is taxed at 30%, which adds ₹67,500.
The total tax before cess comes to ₹2,07,500. Adding 4% health and education cess (₹8,300), the final tax payable amounts to ₹2,15,800.
Assumption:
Gross Income: ₹20,00,000
Standard Deduction: ₹75,000
Employer NPS: ₹2,00,000
Net Taxable Income: ₹17,25,000
| Taxable Slab | Rate (%) | Tax (₹) |
|---|---|---|
| 0 – 3,00,000 | 0% | 0 |
| 3,00,001 – 7,00,000 | 5% | ₹20,000 |
| 7,00,001 – 10,00,000 | 10% | ₹30,000 |
| 10,00,001 – 12,00,000 | 15% | ₹30,000 |
| 12,00,001 – 15,00,000 | 20% | ₹60,000 |
| 15,00,001 – 17,25,000 | 30% | ₹67,500 |
| Total Tax Before Cess | ₹2,07,500 | |
| Cess (4%) | ₹8,300 | |
| Final Tax Payable | ₹2,15,800 |
Sample Tax Calculation – Old Tax Regime
For a net taxable income of ₹14,65,000 under the old tax regime, the first ₹2.5 lakh is tax-free. The next ₹2.5 lakh (₹2,50,001 to ₹5,00,000) is taxed at 5%, resulting in ₹12,500. Income between ₹5,00,001 and ₹10,00,000 is taxed at 20%, contributing ₹1,00,000. The remaining ₹4.65 lakh (₹10,00,001 to ₹14,65,000) is taxed at 30%, adding ₹1,39,500.
This brings the total tax before cess to ₹2,52,000. After adding 4% cess (₹10,080), the final tax payable amounts to ₹2,62,080.
Assumption:
Gross Income: ₹17,00,000
Deductions: 80C (₹1.5L), 80CCD(1b) (₹50k), 80D (₹25k), 80TTA (₹10k)
Net Taxable Income: ₹14,65,000
| Taxable Slab | Rate (%) | Tax (₹) |
|---|---|---|
| 0 – 2,50,000 | 0% | 0 |
| 2,50,001 – 5,00,000 | 5% | ₹12,500 |
| 5,00,001 – 10,00,000 | 20% | ₹1,00,000 |
| 10,00,001 – 14,65,000 | 30% | ₹1,39,500 |
| Total Tax Before Cess | ₹2,52,000 | |
| Cess (4%) | ₹10,080 | |
| Final Tax Payable | ₹2,62,080 |
Surcharge on High-Income Earners
Under Both Tax Regimes
Surcharge on income tax is applied based on the total taxable income. For income up to ₹50 lakh, there is no surcharge. If the income is between ₹50 lakh and ₹1 crore, a 10% surcharge applies. For incomes ranging from ₹1 crore to ₹2 crore, the surcharge rate is 15%. When income falls between ₹2 crore and ₹5 crore, a 25% surcharge is levied. For incomes above ₹5 crore, the surcharge is 25% under the new regime and 37% under the old regime.
| Income Range (₹) | Surcharge Rate |
|---|---|
| Up to ₹50 lakh | Nil |
| ₹50 lakh – ₹1 crore | 10% |
| ₹1 crore – ₹2 crore | 15% |
| ₹2 crore – ₹5 crore | 25% |
| ₹5 crore and above | 25% (New), 37% (Old)* |
* Cap of 15% on surcharge for capital gains and dividend income.
Frequently Asked Questions
What are the key income tax changes proposed in Budget FY 2025-26?
In Budget FY 2025-26, several taxpayer-friendly changes have been proposed under the new tax regime. The Section 87A rebate has been increased from ₹25,000 to ₹60,000, offering zero tax liability for incomes up to ₹12 lakh. The basic exemption limit has been raised from ₹3 lakh to ₹4 lakh, and the standard deduction of ₹75,000 for salaried individuals remains unchanged. Additionally, the deduction for employer’s NPS contribution under Section 80CCD(2) has been increased to 14% of basic salary. While no changes were made to surcharge rates, the old tax regime now allows an extra deduction under Section 80CCD(1b) for parents investing in NPS Vatsalya for their children, beyond the ₹1.5 lakh limit of Section 80C.
What are the new income tax slab rates under the new regime for FY 2025-26?
For FY 2025-26, the new tax regime introduces progressive slab rates:
- 0% tax on income up to ₹4 lakh
- 5% on ₹4–8 lakh
- 10% on ₹8–12 lakh
- 15% on ₹12–16 lakh
- 20% on ₹16–20 lakh
- 25% on ₹20–24 lakh
- 30% on income above ₹24 lakh
What are the income tax slab rates under the new tax regime for FY 2024-25?
Under the new tax regime for FY 2024-25, the slab rates are as follows:
- 0% on income up to ₹3 lakh
- 5% on ₹3,00,001 to ₹7 lakh
- 10% on ₹7,00,001 to ₹10 lakh
- 15% on ₹10,00,001 to ₹12 lakh
- 20% on ₹12,00,001 to ₹15 lakh
- 30% on income above ₹15 lakh
These rates apply by default, unless a taxpayer opts for the old tax regime while filing returns.
What are the major income tax changes effective from April 1, 2025?
Starting April 1, 2025, the Indian government is implementing major income tax reforms under the Union Budget 2025-26. Key highlights include a higher basic exemption limit and revamped tax slabs under the new regime. Notably, income up to ₹12 lakh will now be tax-free, as announced by Finance Minister Nirmala Sitharaman, aiming to boost disposable income, simplify compliance, and promote savings and investment.
