Income Tax Slabs 2025: Major Relief for Taxpayers – No Tax Up to ₹12 Lakh!

by CA Nimesh Hariya | Feb 1, 2025 | Income Tax Update

The Union Budget 2025 has brought a major relief for taxpayers, particularly the middle-class segment. In a historic move, Finance Minister Nirmala Sitharaman announced that individuals earning up to ₹12 lakh annually will now pay zero income tax under the new tax regime. This announcement significantly increases the exemption threshold, providing more disposable income to taxpayers and simplifying the tax structure.

Additionally, the new tax slabs have been restructured to provide progressive tax benefits for incomes up to ₹25 lakh, while maintaining a 30% tax rate for higher income groups. Let’s take a detailed look at the revised income tax slabs for FY 2025-26 (AY 2026-27) and analyze their impact.

New Income Tax Slabs Under the Revised Tax Regime (FY 2025-26)

Key Change: The tax-free limit has been raised from ₹7 lakh to ₹12 lakh under the new regime, benefiting millions of salaried employees, professionals, and self-employed individuals.

In addition to the new slabs, a 4% health and education cess will be applicable on the total tax amount. Further, surcharges remain in place for high-income earners exceeding ₹50 lakh per year.

How Does This Benefit Taxpayers?

✅ 1. Higher Tax-Free Income Limit

Previously, individuals earning up to ₹7 lakh were exempt under the new tax regime (with rebate under Section 87A). This limit has now been raised to ₹12 lakh, ensuring more savings for salaried individuals and middle-class taxpayers.

✅ 2. Reduced Tax Liability for Middle-Income Groups

• If you earn between ₹12 lakh and ₹25 lakh annually, you will pay significantly less tax than before.
• Example: A person earning ₹15 lakh will now pay only 10% tax on ₹3 lakh (i.e., ₹30,000), compared to the previous tax liability of ₹60,000 under the old slabs.

✅ 3. More Disposable Income

With the tax burden reduced, individuals will have higher take-home salaries, leading to increased consumer spending, savings, and investment.

✅ 4. Simpler Tax Structure

The government aims to encourage taxpayers to switch to the new tax regime, as it eliminates the need for complex deductions and exemptions while offering lower tax rates.

Comparison: Old vs. New Tax Regime (FY 2025-26)

While the new tax regime offers lower tax rates and a higher exemption limit, the old tax regime still allows various deductions and exemptions. Let’s compare both options:

Old Tax Regime (For Individuals Below 60 Years)

Deductions Available Under Old Regime

• Section 80C: ₹1.5 lakh deduction (PPF, EPF, LIC, ELSS, etc.)
• Section 80D: ₹25,000 deduction for health insurance (₹50,000 for senior citizens)
• Section 80TTA: ₹10,000 deduction on savings account interest
• Section 80CCD(1B): ₹50,000 additional deduction for NPS contributions
• House Rent Allowance (HRA) & Leave Travel Allowance (LTA) exemptions

Important: The government has not changed the tax slabs under the old regime, so individuals must choose between the old and new regimes based on their financial situation.

Who Should Choose the New Tax Regime?

With the new tax regime becoming the default choice from April 1, 2023, taxpayers must actively opt for the old regime if they want to claim deductions. But should you make the switch?

✔ New Tax Regime is Better If:

• You earn up to ₹12 lakh, as you pay zero tax.
• You do not claim many deductions under the old regime.
• You prefer simplified tax filing without exemptions.

❌ Stick to the Old Regime If:

• You claim deductions above ₹2.5–3 lakh annually (e.g., investments, home loan, HRA).
• You have high medical or insurance-related expenses.

📌 Example:

• A taxpayer earning ₹15 lakh with no deductions under the new regime will pay ₹30,000 tax.
• The same individual under the old regime (with ₹3 lakh deductions) will pay ₹60,000 tax.
• Verdict: If deductions exceed ₹3 lakh, the old regime may be beneficial.

Surcharge Rates for High-Income Earners

While most taxpayers benefit from the new slabs, individuals earning above ₹50 lakh annually will continue to pay surcharges as follows:

Surcharge Rates Under the New Tax Regime

🔹 For the highest income group (₹5 crore+), the surcharge remains capped at 25%, down from 37% last year.

Government’s Vision Behind the Tax Changes

📌 1. Boosting Middle-Class Savings: By increasing the tax-free limit, the government aims to provide more liquidity to individuals.

📌 2. Encouraging Shift to the New Regime: The government is phasing out deductions under the old regime and making the new regime more attractive.

📌 3. Simplification of Tax Filing: By reducing the reliance on deductions, tax filing becomes easier for individuals and salaried employees.

📌 4. Economic Growth & Consumption Boost: With more disposable income, taxpayers are likely to spend more, invest more, and contribute to GDP growth.

Final Thoughts: What Should Taxpayers Do?

• If your income is below ₹12 lakh, the new tax regime is clearly the best choice, as you pay zero tax.
• If you earn above ₹12 lakh, compare the tax benefits between the two regimes before making a decision.
• The government is making the new tax regime more attractive, so it may be wise to transition gradually.

What are your thoughts on the new tax slabs? Will you switch to the new regime or stick with the old one? Let us know in the comments!

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.