Income Tax Slabs 2025-26: Major Tax Relief for Salaried Employees
The Union Budget 2025 has brought significant tax relief for salaried individuals, senior citizens, and investors. Finance Minister Nirmala Sitharaman announced that income up to ₹12.75 lakh will be tax-free for salaried employees under the new tax regime. The budget also revised tax rules for Unit Linked Insurance Plans (ULIPs) and Fixed Deposits (FDs), making them more transparent and attractive.
Income Tax 2025: No Tax on Income Up to ₹12.75 Lakh
In a landmark move, salaried employees earning up to ₹12.75 lakh annually will not have to pay income tax under the new regime. The tax exemption includes a ₹12 lakh basic exemption limit plus a ₹75,000 standard deduction.
Additionally, the government has rationalized tax deduction at source (TDS) rates to reduce complexities and improve compliance. These changes aim to simplify the tax structure and provide financial relief to millions of taxpayers.
New Tax Slabs for FY 2025-26
The new income tax slabs under the revised regime are:
- Income up to ₹4 lakh – No tax
- ₹4 lakh to ₹8 lakh – 5%
- ₹8 lakh to ₹12 lakh – 10%
- ₹12 lakh to ₹16 lakh – 15%
- ₹16 lakh to ₹20 lakh – 20%
- ₹20 lakh to ₹24 lakh – 25%
- Above ₹24 lakh – 30%
The revised slabs make the old tax regime less beneficial for most taxpayers. Over 70% of individuals have already switched to the new tax regime, according to the Income Tax Department.
ULIP Taxation: What Has Changed?
The budget has brought clarity on the taxation of ULIPs. If the annual premium of a ULIP exceeds ₹2.5 lakh, the income will now be taxed under capital gains or income from other sources, depending on the policy type. This eliminates past ambiguities in taxation and aligns ULIP tax treatment with other investment instruments.
Previously, Section 10(10D) provided an exemption for ULIP proceeds, but the revised rules now standardize tax treatment across all life insurance policies.
TDS Relief on Fixed Deposits for Senior Citizens
To support senior citizens, the government has doubled the TDS threshold on FD interest from ₹50,000 to ₹1 lakh. This move will prevent unnecessary tax deductions and reduce the need for filing returns to claim refunds.
For other individuals, the TDS threshold on interest income has been increased to ₹50,000 from ₹40,000. This step makes Fixed Deposits a more attractive investment option.
New TDS Rates and Thresholds
The Finance Minister also announced a revision in TDS and TCS thresholds across multiple categories. Some key changes include:
- Dividend income TDS threshold increased from ₹5,000 to ₹10,000
- Mutual fund unit income TDS threshold raised from ₹5,000 to ₹10,000
- Professional service fees TDS threshold increased from ₹30,000 to ₹50,000
- Rent TDS threshold changed to ₹50,000 per month
These changes aim to ease compliance and reduce unnecessary tax deductions at the source.
Extended Deadline for Filing Updated Tax Returns
The deadline for filing updated income tax returns (ITR-U) has been extended from 24 months to 48 months. This allows taxpayers more time to correct any errors or omissions in their tax filings, encouraging voluntary compliance.
Boost for Women Entrepreneurs and Startups
The budget introduced several measures to promote startups and women entrepreneurs, including:
- ₹10,000 crore additional funding for startups
- Loans up to ₹5 crore for women entrepreneurs
- New identity cards and PM Jan Aarogya Yojana (PM-JAY) benefits for gig workers
These initiatives aim to drive economic growth and financial independence for women and small business owners.
Conclusion
Budget 2025-26 has brought major tax relief for salaried employees and senior citizens, making tax compliance easier and more efficient. The revised income tax slabs, higher TDS thresholds, and ULIP tax clarity will impact millions of taxpayers. With these changes, the government aims to streamline the tax system and encourage economic growth.
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