Income Tax changes in Budget 2025: Latest Income Tax slabs; new regime vs old regime EXPLAINED

Finance Minister Nirmala Sitharaman, during her Union Budget 2025 speech, announced that no income tax will be payable on income up to Rs 12 lakh, providing significant relief to taxpayers especially the middle class. This limit will be Rs 12.75 lakh for salaried tax payers counting Rs 75,000 of standard deduction.

She also stated that the new income tax regime will be simpler, with a special focus on benefiting the middle class.

New tax regime

0-4 lakh: NIL

4-8 lakh: 5%

8-12 lakh: 10%

12-16 lakh: 15%

16-20 lakh: 20%

Rs 20-24 lakh - 25%

Above 24 lakh: 30%

Also read: Union Budget 2025: Big relief for middle class as no income tax payable upto income of Rs 12 lakh, says FM

FM said, "Prime Minister Modi led NDA Govt has always believed in the admirable energy and ability of the middle class in nation building. In recognition of their contribution, Govt periodically has reduced their tax burden. Right after 2014, the ‘Nil tax’ slab was raised to Rs 2.5 lakh, which was further raised to Rs 5 lakh in 2019 and to Rs 7 lakh in 2023. In this Budget Govt has announced that there will be No Income Tax payable upto income of Rs 12 lakh (i.e. average income of Rs 1 lakh per month other than special rate income such as capital gains) under the new regime".

For the salaried class, no Income Tax is applicable till annual income of Rs 12.75 lakh, due to standard deduction benefit available to salaried class of Rs 75,000.

Slab rate changes and rebate

The total tax benefit of slab rate changes and rebate at different income levels can be illustrated with examples.

A tax payer in the new regime with an income of Rs 12 lakh will get a benefit of Rs 80,000 in tax (100% of tax payable as per existing rates will be exempt). The effective income tax rate will be 0%.

A person having income of Rs 16 lakh will get a benefit of Rs 50,000 in tax. The effective income tax rate payable will be just 7.5%

A person having income of Rs 18 lakh will get a benefit of Rs 70,000 in tax. The effective income tax rate payable will be just 8.8%

A person having income of Rs 20 lakh will get a benefit of Rs 90,000 in tax. The effective income tax rate payable will be just 10%.

A person with an income of Rs 25 lakh gets a benefit of Rs 1,10,000. The effective tax rate will be just 13.2%

A person with an income of Rs 50 lakh also gets a benefit of Rs 1,10,000. The effective tax rate will be just 21.6%

As a result of these proposals, revenue of about Rs 1 lakh crore in direct taxes will be forgone.

Illustration

Deductions available Under the Old Tax Regime

Taxpayers opting for the old tax regime can continue to avail deductions under

- Section 80C: Up to Rs 1.5 lakh for investments in PPF, ELSS, LIC, etc

- Section 80D: Up to Rs 25,000 for health insurance (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 on NPS contributions

- Exemptions on House Rent Allowance (HRA) and Leave Travel Allowance (LTA)

- Under the old tax regime, individuals with taxable income up to Rs 5 lakh qualify for a tax rebate under Section 87A, ensuring zero tax liability.

Budget 2024: Previous Changes

In Budget 2024, the standard deduction under the old tax regime was increased from the earlier Rs 50,000 to provide relief for income tax payers. Notably, the provision of rebate on tax was increased to Rs 75,000. The limit for family pensioners was also raised from Rs 15,000 to Rs 25,000.

The deduction limit on an employer's contribution to the National Pension System, also known as the NPS, was also increased in July 2024. The limit was earlier set at 10% and this was raised to 14%.

One other significant change in Budget 2024 was around the capital gains tax. The tax rate for short-term capital gains or STCG was increased from the earlier 15%. The short term taxation rate was raised to 20%.

The tax rate for long-term capital gains or LTCG was set at 10% earlier, but this was increased to 12.5% by Budget 2024. The LTCG exemption limit on equity investments had also been increased from Rs 1 lakh to Rs 1.25 lakh.