NO income tax till ₹12 lakh: A look at the new tax slabs vs. current tax slabs

Union Finance Minister Nirmala Sitharaman delivered her eight consecutive Union Budget at 11 am on Saturday, February 1, 2025. The Budget aims to provide significant benefits to taxpayers, particularly the middle class, by reducing the tax burden and leaving more disposable income in their hands.

Major changes in the income tax slabs for FY 2025-26

The Union Budget 2025-26 introduced a revamped income tax structure designed to reduce taxes for the middle class. The new tax regime will provide substantial relief, making it more attractive for taxpayers.

Key announcements on income tax rates

No tax on income up to Rs. 12 lakh: The most significant update is that there will be no income tax payable on annual earnings of up to Rs. 12,00,000 under the new tax regime.
 

Revised income tax slabs under the new tax regime

Income tax slabs under the old tax regime

While the new tax regime is being widely promoted, taxpayers can still opt for the old tax regime, which offers different slab rates:

Income up to Rs. 2,50,000: No tax

Rs. 2,50,001 to Rs. 5,00,000: 5% tax

Rs. 5,00,001 to Rs. 10,00,000: 20% tax

Above Rs. 10,00,000: 30% tax

New tax regime vs. old tax regime

The new tax regime offers substantial benefits for middle-income earners by lowering the income threshold for tax payments. The introduction of higher exemptions in the new structure has been designed to stimulate household consumption, savings, and investments.

Old Tax Regime: Offers greater flexibility with exemptions and deductions (e.g., HRA, LTA, etc.), but the tax rates are comparatively higher.

New Tax Regime: Offers lower tax rates but with fewer exemptions and deductions, making it easier for taxpayers to file taxes and plan finances with less complexity.

Potential changes in deductions and rebate under both regimes

Taxpayers were also hopeful of increased standard deduction limits and rebate adjustments under both regimes:

Standard deduction limit: Currently, the old tax regime offers a standard deduction of Rs. 50,000, while the new tax regime offers Rs. 75,000. There are expectations of a possible hike in these limits to provide more relief to taxpayers.

Section 87A rebate: In the new tax regime, the Section 87A rebate provides up to Rs. 25,000 for individuals earning up to Rs. 7,00,000 annually. In contrast, the old tax regime offers a rebate of Rs. 12,500 for annual incomes up to Rs. 5,00,000. It’s expected that the government may increase the rebate to further aid middle-class taxpayers.

Union Budget 2025-26: A catalyst for the middle class

Finance Minister Nirmala Sitharaman emphasized that the new tax structure was introduced with the middle class in mind. The budget is designed to reduce the financial burden, thereby increasing disposable income and boosting overall economic activity, especially household consumption.