The Union Budget 2025 brought major relief for taxpayers, particularly the middle class. Finance Minister Nirmala Sitharaman announced that individuals earning up to ₹12 lakh annually will pay zero income tax under the new tax regime, alongside restructured slabs providing progressive benefits up to ₹25 lakh while maintaining a 30% rate above that.
New Income Tax Slabs (FY 2025-26 / AY 2026-27)
| Annual Income (₹) | Tax Rate (%) |
|---|---|
| Up to ₹12 lakh | 0% (No Tax) |
| ₹12,00,001 – ₹15,00,000 | 10% |
| ₹15,00,001 – ₹20,00,000 | 15% |
| ₹20,00,001 – ₹25,00,000 | 20% |
| Above ₹25 lakh | 30% |
Key Change: The tax-free limit rises from ₹7 lakh to ₹12 lakh under the new regime. A 4% health and education cess applies on total tax; surcharges remain for income above ₹50 lakh/year.
How Does This Benefit Taxpayers?
1. Higher Tax-Free Income Limit
Previously ₹7 lakh was exempt (with Section 87A rebate); now raised to ₹12 lakh.
2. Reduced Tax Liability for Middle-Income Groups
Example: a person earning ₹15 lakh now pays only 10% on ₹3 lakh (₹30,000), versus ₹60,000 under the previous slabs.
3. More Disposable Income
Lower tax burden leads to higher take-home pay and potentially higher spending/investment.
4. Simpler Tax Structure
Encourages a shift to the new regime by reducing reliance on deductions and exemptions.
Old vs. New Tax Regime Comparison
Old Tax Regime (Individuals below 60)
| Income Tax Slab (₹) | Tax Rate (%) |
|---|---|
| Up to ₹2,50,000 | 0% |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Deductions Available Under Old Regime
- Section 80C: ₹1.5 lakh (PPF, EPF, LIC, ELSS, etc.)
- Section 80D: ₹25,000 for health insurance (₹50,000 for senior citizens)
- Section 80TTA: ₹10,000 on savings account interest
- Section 80CCD(1B): ₹50,000 additional for NPS
- HRA & LTA exemptions
Who Should Choose the New Tax Regime?
The new regime is the default from 1 April 2023; taxpayers must actively opt for the old regime to claim deductions.
New regime is better if: income is up to ₹12 lakh (zero tax); few deductions claimed; simplified filing preferred.
Old regime may be better if: deductions exceed roughly ₹3 lakh annually (investments, home loan, HRA); high medical/insurance expenses.
Example: a ₹15 lakh earner with no deductions pays ₹30,000 under the new regime versus ₹60,000 under the old regime with ₹3 lakh in deductions — the old regime wins only once deductions exceed ~₹3 lakh.
Surcharge Rates for High-Income Earners
| Income Range (₹) | Surcharge (%) |
|---|---|
| Up to ₹50 lakh | Nil |
| ₹50 lakh – ₹1 crore | 10% |
| ₹1 crore – ₹2 crore | 15% |
| Above ₹2 crore | 25% |
For the highest income group (₹5 crore+), the surcharge is capped at 25%, down from 37% previously.
Government's Vision
Boosting middle-class savings; encouraging a shift to the new regime; simplifying tax filing; supporting economic growth via higher disposable income.
Conclusion
Below ₹12 lakh income: new regime is clearly best (zero tax). Above ₹12 lakh: compare both regimes carefully before deciding.
Disclaimer: This article is for informational purposes only and does not constitute tax or financial advice. Please consult a tax professional before making financial decisions.