Budget 2025: New Income Tax Slabs – Know Old Vs. New Tax Regime
Finance Minister Nirmala Sitharaman has rolled out significant income tax relaxations in the Budget 2025, marking a pivotal shift in India’s taxation policy under the Modi 3.0 government. The highlight of this budget is the exemption of tax on incomes up to Rs 12 lakh under the new tax regime, excluding capital gains.
New Tax Slabs for FY 2025-26
Here’s a breakdown of the new tax slabs:
- Income up to Rs 4,00,000: No tax
- Income from Rs 4,00,001 to Rs 8,00,000: 5% tax
- Income from Rs 8,00,001 to Rs 12,00,000: 10% tax
- Income from Rs 12,00,001 to Rs 16,00,000: 15% tax
- Income from Rs 16,00,001 to Rs 20,00,000: 20% tax
- Income from Rs 20,00,001 to Rs 24,00,000: 25% tax
- Income above Rs 24,00,000: 30% tax
Boosting Consumption and Savings
This tax relaxation is designed to put more money into consumers’ pockets, thereby stimulating economic growth through increased spending. Effectively, individuals earning up to Rs 13 lakh can now save on taxes, thanks to a Rs 75,000 standard deduction and a marginal relief of around Rs 30,000.
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Tax Exemption Evolution
The journey of income tax exemption limits in India has seen a marked increase:
- 2005: Rs 1 lakh
- 2012: Rs 2 lakhs
- 2014: Rs 2.5 lakhs
- 2019: Rs 5 lakhs
- 2023: Rs 7 lakhs
- 2025: Rs 12 lakhs
Old vs. New Tax Regime: What’s the Difference?
Old Tax Regime:
- Slabs remain unchanged for FY 2024-25, with benefits like higher exemption limits for senior citizens (Rs 3 lakh for 60-80 years, Rs 5 lakh for above 80 years).
- Deductions include:
- Section 80C: Up to Rs 1,50,000 for investments.
- Section 80D: Health insurance.
- Section 24(b): Home loan interest up to Rs 2 lakh.
- Other exemptions like HRA and LTA.
New Tax Regime:
- Introduced in Budget 2020, made default in 2024, offering lower tax rates but with fewer deductions.
- Standard Deduction: Rs 75,000 for salaried employees, Rs 25,000 for family pensioners, simplifying tax calculations.
Choosing Your Tax Path
The choice between the old and new regimes hinges on your financial situation:
- New Regime is ideal for those who prefer simplicity with fewer investments in tax-saving schemes.
- Old Regime is better if you leverage various deductions and exemptions to reduce your taxable income.
With the review of the Income Tax Act announced in the last budget, led by Chief Commissioner V K Gupta, we anticipate further simplifications and benefits for taxpayers.
