Introduction
The Indian Govt's Union Budget 2025 has introduced significant changes to the New Income tax structure, particularly benefiting salaried professionals. These reforms aim to simplify the tax system, increase disposable income, and stimulate economic growth. This article provides a comprehensive overview of the revised tax slabs, rates, and implications under the new income tax regime effective from April 1, 2025.
Key Highlights of the New Income Tax Regime
- Increased Basic Exemption Limit: The basic exemption limit has been raised from ₹3 lakh to ₹4 lakh, offering greater tax relief to individuals.
- Enhanced Standard Deduction: Salaried employees are now eligible for a standard deduction of ₹75,000, up from the previous ₹50,000. This change effectively increases the tax-free income threshold to ₹12.75 lakh.
- Expanded Section 87A Rebate: Taxpayers with net taxable income up to ₹12 lakh are entitled to a rebate of ₹60,000 under Section 87A, resulting in zero tax liability for individuals within this income bracket.
- Revised Tax Slabs: The tax slabs have been restructured to provide a more progressive tax system, with the highest tax rate of 30% now applicable only to incomes above ₹24 lakh.
Detailed Breakdown of Revised Tax Slabs and Rates
| Annual Income Range (₹) | Tax Rate (%) |
| Up to ₹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% |
| Above ₹24,00,000 | 30% |
Note: These rates are applicable under the new Income tax regime for the financial year 2025-26 (assessment year 2026-27).
Practical Examples
Example 1: Annual Income of ₹12.80 Lakh
Gross Income: ₹12,80,000
Standard Deduction: ₹80,000
Net Taxable Income: ₹12,00,000
Tax Calculation:
₹0 – ₹4,00,000: 0% = ₹0
₹4,00,001 – ₹8,00,000: 5% of ₹4,00,000 = ₹20,000
₹8,00,001 – ₹12,00,000: 10% of ₹4,00,000 = ₹40,000
Total Tax Before Rebate: ₹60,000
Section 87A Rebate: ₹60,000
Final Tax Liability: ₹0
Example 2: Annual Income of ₹18 Lakh
Gross Income: ₹18,00,000
Standard Deduction: ₹75,000
Net Taxable Income: ₹17,25,000
Tax Calculation:
₹0 – ₹4,00,000: 0% = ₹0
₹4,00,001 – ₹8,00,000: 5% of ₹4,00,000 = ₹20,000
₹8,00,001 – ₹12,00,000: 10% of ₹4,00,000 = ₹40,000
₹12,00,001 – ₹16,00,000: 15% of ₹4,00,000 = ₹60,000
₹16,00,001 – ₹17,25,000: 20% of ₹1,25,000 = ₹25,000
Total Tax: ₹20,000 + ₹40,000 + ₹60,000 + ₹25,000 = ₹1,45,000
Final Tax Liability: ₹1,65,000
Comparison with Old Tax Regime
Under the old tax regime, taxpayers could avail various exemptions and deductions, such as:
Strategic Considerations for Salaried Professionals
- Section 80C: Investments in PPF, NSC, life insurance premiums, etc., up to ₹1.5 lakh.
- Section 80D: Health insurance premiums.
- House Rent Allowance (HRA): Exemption based on rent paid and salary.
- Home Loan Interest: Deduction on interest paid under Section 24(b).
While these deductions could significantly reduce taxable income, the new regime offers lower tax rates with fewer exemptions, simplifying the tax filing process. Taxpayers must evaluate which regime benefits them more based on their individual financial situations.
- Salary Structure Optimization: Employees should consider restructuring their salary components to maximize benefits under the new regime. For instance, opting for allowances that are tax-exempt can reduce taxable income.
- Investment Decisions: With the new regime offering limited deductions, traditional tax-saving investments may not provide the same benefits. Individuals should assess the impact on their investment strategies.
Tax Planning: Professionals should use tax calculators and consult with financial advisors to determine the most advantageous tax regime based on their income and expenses.
Conclusion
The revised New income tax regime for 2025 introduces a more streamlined and taxpayer-friendly approach, particularly benefiting salaried individuals. By increasing the basic exemption limit and standard deduction, and restructuring tax slabs, the government aims to enhance disposable income and simplify tax compliance. Salaried professionals should carefully assess their financial situations to choose the tax regime that offers the most benefits.