Introduction
In the Union Budget 2025, Finance Minister Nirmala Sitharaman introduced major changes to the tax structure. The new income tax slabs aim to provide relief to taxpayers while simplifying the tax system.
| 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 24,00,001 | 30 |
The new tax rate is 25% for incomes between ₹20 lakh and ₹24 lakh, and 30% for incomes beyond ₹24 lakh.
Higher Tax Rebate under Section 87A
To provide additional help, the government enhanced the tax rebate under Section 87A. Individuals with a net taxable income of up to ₹12 lakh are now exempt from paying tax. This adjustment is projected to increase discretionary income and help middle-class taxpayers.
The new tax regime becomes the default option.
From April 1, 2025, the new tax regime will be the default choice for taxpayers, unless they choose the old one. A basic exemption limit of ₹3 lakh applies to all taxpayers, irrespective of age. However, unlike the old regime, deductions are limited.
Deductions Available Under the New Tax Regime
While the new tax regime offers lower tax rates, deductions are restricted. Currently, the following deductions are available:
- Standard Deduction: Salaried individuals can claim a deduction of ₹75,000 from their gross salary.
- Employer Contribution to NPS (Tier-1): A deduction of up to 14% of the basic salary is allowed under Section 80CCD(2).
Marginal Tax Relief for Small Taxpayers
A marginal tax relief is available for individuals whose taxable income slightly exceeds ₹7 lakh. This prevents them from paying a disproportionately high tax amount due to crossing the exemption limit.
Lower Surcharge for High-Income Earners
To make the tax system more equitable, the government has reduced the surcharge on incomes above ₹2 crore to 25%. This will result in significant tax savings for high-income individuals.
How to Choose Between the Old and New Tax Regime
Taxpayers must decide which tax regime benefits them the most.
- Salaried individuals (without business income): They can switch between tax regimes every financial year while filing their income tax returns (ITR). If they want to continue with the old tax regime, they must select “No” for opting under Section 115BAC in the ITR form.
- Individuals with business income: They cannot switch tax regimes every year. Those opting for the old tax regime must fill Form 10-IEA. However, they have a one-time option to move to the new tax regime, after which switching back will not be allowed.
Conclusion
The Union Budget 2025 brings significant tax reforms, including revised tax slabs, higher rebates, and limited deductions under the new tax regime. Taxpayers must assess their financial situation and carefully choose between the old and new tax regimes for maximum benefits.
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