The 2025 Union Budget has brought significant reforms in India’s tax structure, especially with regard to income tax slabs. Finance Minister Nirmala Sitharaman has introduced changes to the new tax regime that are aimed at reducing the tax burden on middle-income earners and promoting economic growth. Let’s take a deep dive into these changes, how they impact taxpayers, and the key differences between the old and new tax regimes.
What is an Income Tax Slab?
An income tax slab refers to the income brackets, where different portions of a taxpayer’s income are taxed at different rates. It’s a progressive tax system, meaning that the more a person earns, the higher percentage of their income will be taxed. The goal is to ensure that people with higher incomes contribute more to public finances while offering relief to those with lower incomes.
Income Tax Slabs for FY 2025-26 (AY 2026-27) Under the New Tax Regime
The new tax regime, which was introduced in FY 2020-21, offers lower tax rates but eliminates most exemptions and deductions. This makes tax calculations simpler but requires taxpayers to forgo deductions like those under Section 80C (investments in PPF, ELSS, etc.).
Income Tax Slabs Under the New Regime for FY 2025-26 (AY 2026-27):
- Up to ₹4 lakh – No tax
- ₹4 lakh to ₹8 lakh – 5% tax
- ₹8 lakh to ₹12 lakh – 10% tax
- ₹12 lakh to ₹16 lakh – 15% tax
- ₹16 lakh to ₹20 lakh – 20% tax
- ₹20 lakh to ₹24 lakh – 25% tax
- Above ₹24 lakh – 30% tax
Key Highlights:
- The basic exemption limit has been raised from ₹7 lakh to ₹12 lakh, meaning individuals earning up to ₹12 lakh per year are now exempt from income tax.
- No deductions like those under Section 80C for investments or HRA (House Rent Allowance) are allowed under this regime.
- The rates are lower for the middle-income brackets, which reduces the overall tax burden for taxpayers in these ranges.
Impact of These Changes:
- More Disposable Income: With an increase in the exemption limit and lower tax rates, individuals in the middle-income group will have more money in hand to spend or invest, helping boost economic activity.
- Simplified Taxation: The absence of numerous exemptions makes it easier for taxpayers to calculate their taxes, and filing tax returns becomes less complicated.
Income Tax Slabs for FY 2024-25 (AY 2025-26) Under the Old Regime
The old tax regime allows taxpayers to claim exemptions and deductions like investments in PPF, EPF, and life insurance premiums, as well as deductions under Section 80C, 80D, and HRA.
Old Tax Regime Slabs for FY 2024-25 (AY 2025-26):
- Up to ₹2.5 lakh – No tax
- ₹2.5 lakh to ₹5 lakh – 5% tax
- ₹5 lakh to ₹10 lakh – 20% tax
- Above ₹10 lakh – 30% tax
Key Highlights:
- Taxable Income Reductions: Individuals can claim deductions for savings, insurance premiums, and interest on home loans.
- Complexity: The old tax regime is more complex due to the availability of various exemptions, requiring taxpayers to keep track of all their eligible deductions.
Old vs New Tax Regime Slabs Comparison for FY 2024-25 (AY 2025-26)
| Income Range | Old Regime |
| Up to ₹2.5 lakh | No tax |
| ₹2.5 lakh to ₹5 lakh | 5% tax |
| ₹5 lakh to ₹10 lakh | 20% tax |
| ₹10 lakh to ₹20 lakh | 30% tax |
| ₹20 lakh and above | 30% tax |
New Tax Regime
| Income Range | New Regime |
| Upto Rs. 300000 | Nil |
| 300001-600000 | 5% |
| 6,00,001 – 9,00,000 | 10% |
| 9,00,001-12,00,000 | 15% |
| 12,00,001- 15,00,000 | 20% |
| Above 15,00,001 | 30% |
Which Regime is Better?
- Old Regime: Best for those who have significant investments or expenses that qualify for deductions (e.g., home loan interest, insurance).
- New Regime: Best for those who don’t have many deductions or want a simpler approach to tax computation.
Income Tax Slab Rate Calculation for AY 2026-27 (FY 2025-26)
Let’s say you are an individual with an income of ₹12 lakh under the new tax regime:
- Income up to ₹4 lakh – No tax
- Income between ₹4 lakh and ₹8 lakh – 5% tax = ₹20,000
- Income between ₹8 lakh and ₹12 lakh – 10% tax = ₹40,000
So, total tax = ₹20,000 + ₹40,000 = ₹60,000 and rebate u/s 87A 60,000, so total tax will be NIL.
What is Surcharge?
A surcharge is an additional tax on the income tax for higher-income groups. It is calculated as a percentage of the total tax payable and applies to individuals whose income exceeds certain limits.
- Surcharge rates:
- 10% on income above ₹50 lakh
- 15% on income above ₹1 crore
- 25% on income above ₹2 crore
- 37% on income above ₹5 crore
Exemptions and Deductions Not Claimable Under the New Tax Regime
The new tax regime does not allow several popular exemptions and deductions, including:
- Section 80C (Investments in PPF, ELSS, LIC)
- Section 80D (Health insurance premiums)
- HRA (House Rent Allowance)
- Standard Deduction of ₹50,000
- Interest on Home Loan (Section 24(b))
Exemptions and Deductions Available Under the New Regime
Even though the new tax regime limits exemptions and deductions, there are still a few benefits:
- Rebate under Section 87A: Taxpayers with taxable income up to ₹7 lakh can claim a rebate of up to ₹25,000, effectively making their tax liability zero.
- Standard Deduction of ₹75,000: This deduction is available for salaried individuals and pensioners under the new regime.
How Can I Reduce My Taxes Using Provisions Related to Tax Slabs?
- Opt for the Old Regime if You Have Deductions: If you have substantial tax-saving investments, the old regime could help you lower your taxable income.
- Maximize Deductions: Contribute to tax-saving schemes like PPF, NPS, and ELSS under the old regime.
- Consider the New Regime for Simplicity: If you don’t have significant deductions, the new regime might be easier and result in lower taxes due to its lower rates.
Old Tax Regime vs New Tax Regime: Analysis of Deductions
When it comes to income tax filing, one of the most important factors to consider is whether you should opt for the Old Tax Regime or the New Tax Regime. Both offer different sets of advantages, and the deductions available under each regime play a crucial role in determining which one is more beneficial for you.
In this article, we will compare the Old Tax Regime and New Tax Regime based on the deductions you can claim and how these affect your final tax liability.
What are Deductions in Income Tax?
In the context of income tax, deductions are specific expenses or investments that reduce the taxable income, thereby lowering the amount of tax you need to pay. These deductions are governed under various sections of the Income Tax Act, such as Section 80C, Section 80D, and others. The availability of these deductions can make a significant difference in your tax calculations.
Deductions Under the Old Tax Regime
The Old Tax Regime is characterized by a wide array of exemptions and deductions that allow individuals to reduce their taxable income and thus, their overall tax liability. These deductions encourage people to invest, save, and incur expenses that ultimately contribute to their tax savings.
Here are the major deductions available under the Old Tax Regime:
1. Section 80C (Deductions on Investments)
- Maximum Deduction: ₹1.5 lakh per year.
- Eligible Investments:
- Public Provident Fund (PPF)
- Employees’ Provident Fund (EPF)
- National Savings Certificates (NSC)
- Tax-saving Fixed Deposits
- Life Insurance Premiums
- Unit Linked Insurance Plans (ULIPs)
- National Pension Scheme (NPS)
This is one of the most commonly used deductions, and many taxpayers use it to save on taxes by making investments in instruments like PPF, NPS, or ELSS (Equity Linked Savings Scheme).
2. Section 80D (Health Insurance Premiums)
- Maximum Deduction:
- ₹25,000 for individuals and Hindu Undivided Families (HUF).
- ₹50,000 for senior citizens (aged 60 or above).
- Eligible Expenses:
- Health insurance premiums paid for self, family, and parents.
- Deduction is also available for critical illness insurance.
3. Section 24(b) (Home Loan Interest)
- Maximum Deduction: ₹2 lakh per year on the interest paid on a home loan for the acquisition or construction of a property.
- Eligibility: The deduction applies if the loan is taken for buying or constructing a house. It can be claimed for a self-occupied or rented property.
4. Section 10(14) (House Rent Allowance – HRA)
- Exemption on Rent Paid:
- If you live in a rented house, you can claim an exemption under HRA. The amount of deduction depends on the rent paid, salary, and the location of your residence.
- For salaried individuals, HRA is a common tax-saving strategy to reduce taxable income.
5. Section 80E (Interest on Education Loan)
- Deduction: Deduction on the interest paid on loans for higher education. There is no cap on the amount that can be claimed under this section, but it only applies to interest paid, not the principal.
6. Section 80G (Charitable Donations)
- Maximum Deduction: Depends on the type of donation.
- 100% deduction for donations to certain specified charitable organizations.
- 50% deduction for donations to other recognized organizations.
- You can claim deductions for contributions made to charitable trusts, organizations, and even certain political parties.
7. Section 80TTA/80TTB (Interest on Savings/Fixed Deposits)
- Section 80TTA: Deduction of ₹10,000 for interest earned on savings accounts in banks and post offices.
- Section 80TTB: For senior citizens (aged 60 or above), the deduction on interest earned on deposits is ₹50,000.
Deductions Under the New Tax Regime
The New Tax Regime was introduced in FY 2020-21 with the aim of simplifying the tax system. Under this regime, the government offers lower tax rates, but removes the majority of exemptions and deductions available under the old regime.
Here’s what you need to know about deductions under the New Tax Regime:
1. No Deductions for Section 80C, 80D, etc.
- No eligibility for:
- Deductions under Section 80C for PPF, EPF, insurance premiums, etc.
- Section 80D for health insurance premiums.
- Section 24(b) for home loan interest.
- HRA (House Rent Allowance).
- Section 80E (education loan interest).
- Section 80G (charitable donations).
- Rationale: The government has simplified the tax calculation by removing these deductions. Taxpayers now need to pay taxes on their gross income without the ability to subtract the amounts for these various deductions.
2. Standard Deduction of ₹75,000 for Salaried Individuals and Pensioners
- Even though many other deductions are removed, there is a standard deduction of ₹75,000 for salaried employees and pensioners. This deduction is automatically applied, lowering your taxable income.
3. Rebate Under Section 87A
- Section 87A offers a rebate of up to ₹12,500 for individuals whose taxable income is less than ₹5 lakh. This means that if your income is below ₹5 lakh, you can effectively pay zero tax under the new regime.
4. Tax Simplification with Lower Tax Rates
- The new tax regime comes with lower tax rates in most income slabs. The absence of deductions makes the process of tax calculation much simpler for individuals who don’t have significant tax-saving investments or expenses.
Old Tax Regime vs New Tax Regime: Key Differences in Deductions
| Feature | Old Tax Regime | New Tax Regime |
| Available Deductions | Extensive deductions like 80C, 80D, HRA | No deductions except for standard deduction and rebates |
| Section 80C (Investments) | ₹1.5 lakh available for various investments | Not applicable |
| Section 80D (Health Insurance) | Available, up to ₹25,000 for individuals, ₹50,000 for senior citizens | Not applicable |
| HRA (House Rent Allowance) | Available if you live in a rented property | Not applicable |
| Home Loan Interest (Section 24(b)) | Deduction of ₹2 lakh per year for home loan interest | Not applicable |
| Standard Deduction | ₹50,000 for salaried individuals | ₹75,000 for salaried individuals and pensioners |
| Rebate Under Section 87A | Available for income up to ₹5 lakh | Available for income up to ₹5 lakh (₹12,500 rebate) |
| Tax Rates | Higher tax rates, but with deductions | Lower tax rates, but no deductions |
Which Tax Regime is Better for You?
The decision between the old and new tax regimes depends on your individual financial situation, particularly regarding your ability to claim deductions. Here’s a quick guide:
- Choose the Old Tax Regime if:
- You have significant deductions (e.g., investments in PPF, NPS, or insurance premiums).
- You receive HRA or have home loan interest deductions.
- You prefer to optimize tax savings through investments and expenses.
- Choose the New Tax Regime if:
- You prefer a simpler tax filing process without tracking multiple deductions.
- You don’t have large investments or expenses that qualify for deductions.
- You’re looking for lower tax rates across the income slabs.
When Can I Opt for Old vs New Regime?
- At the time of filing your income tax return (ITR): You can choose between the old and new tax regimes each financial year.
- Salaried individuals: You can choose the tax regime at the beginning of the financial year or when filing your ITR.
Income Tax Rate for Domestic Companies
For domestic companies:
- 25% for companies with annual turnover up to ₹400 crore.
- 30% for companies with turnover above ₹400 crore.
- Surcharge and cess may apply depending on the income levels.
Income Tax Rate for Partnership Firms or LLP as per Old/New Regime
Both partnership firms and LLPs are taxed at 30% under both the old and new regimes. However, surcharges may apply based on the income.
Income Tax Slab for FY 2024-25 for Domestic Companies
The
tax slab for domestic companies remains similar to previous years, with the base tax rate at 25% for companies with turnover up to ₹400 crore and 30% for those exceeding that limit.
Income Tax Slab Rates for FY 2019-20 to FY 2022-23
The income tax slabs for earlier years were slightly higher and had more exemptions. For example, the maximum exemption limit for FY 2019-20 was ₹2.5 lakh, and the highest tax rate of 30% applied for incomes above ₹10 lakh.
FAQs: Understanding Income Tax Slabs for FY 2025-26 (AY 2026-27)
1. What is the new income tax slab for FY 2025-26 (AY 2026-27)?
Answer: Under the new tax regime for FY 2024-25, the income tax slabs are as follows:
- Up to ₹4 lakh: No tax
- ₹4 lakh to ₹8 lakh: 5% tax
- ₹8 lakh to ₹12 lakh: 10% tax
- ₹12 lakh to ₹16 lakh: 15% tax
- ₹16 lakh to ₹20 lakh: 20% tax
- ₹20 lakh to ₹24 lakh: 25% tax
- Above ₹24 lakh: 30% tax
2. How does the new tax regime benefit me?
Answer: The new tax regime offers lower tax rates and a higher basic exemption limit (₹12 lakh). It simplifies tax calculations as it removes most exemptions and deductions, making it ideal for taxpayers who do not claim many deductions. This can result in more disposable income for middle-income groups.
3. Can I claim deductions under the new tax regime?
Answer: Under the new tax regime, most exemptions and deductions (like PPF, ELSS, HRA) are not available. However, you can still claim a standard deduction of ₹75,000 for salaried individuals and pensioners.
4. What is the difference between the old and new tax regimes?
Answer:
- Old Regime: Allows exemptions and deductions (like PPF, HRA, home loan interest, etc.) but has higher tax rates.
- New Regime: Offers lower tax rates but eliminates most deductions and exemptions to simplify the tax process.
5. Which tax regime should I choose?
Answer:
- If you have substantial deductions (e.g., investments, home loan interest, insurance premiums), the old regime might be better for you.
- If you don’t claim many deductions and prefer a simpler, more streamlined tax process, the new regime could be more advantageous.
6. Can I switch between the old and new tax regimes?
Answer: Yes, you can switch between the old and new tax regimes each year while filing your income tax return (ITR). However, once you choose a regime, it applies for that year’s tax filing.
7. What is a surcharge, and how does it affect me?
Answer: A surcharge is an additional tax imposed on incomes above certain thresholds:
- 10% surcharge for incomes above ₹50 lakh
- 15% surcharge for incomes above ₹1 crore
- 25% surcharge for incomes above ₹2 crore
- 37% surcharge for incomes above ₹5 crore
8. What if my income is below ₹12 lakh?
Answer: If your income is up to ₹12 lakh, you are exempt from tax under the new tax regime (₹12 lakh being the new basic exemption limit). This change brings relief to middle-class taxpayers.
9. How is income tax calculated under the new regime?
Answer: Income tax is calculated in slabs. For example, if you earn ₹10 lakh:
- ₹4 lakh is tax-free
- ₹4 lakh to ₹8 lakh is taxed at 5%
- ₹8 lakh to ₹10 lakh is taxed at 10%
Thus, your total tax liability will be calculated based on how much income falls into each slab.
10. What is the standard deduction under the new tax regime?
Answer: Under the new regime, salaried individuals and pensioners can claim a standard deduction of ₹75,000, which reduces their taxable income and thus their overall tax liability.
11. Will I pay less tax if I choose the new tax regime?
Answer: Not necessarily. Whether you pay less tax depends on your specific situation, including income level and deductions. The new tax regime offers lower tax rates but removes deductions. If you have significant tax-saving investments, the old regime may be more beneficial.
12. Is there any way to reduce my taxes using the new tax regime?
Answer: The best way to reduce taxes under the new tax regime is to:
- Take advantage of the ₹75,000 standard deduction available for salaried individuals.
- Use the ₹12,500 rebate under Section 87A if your taxable income is below ₹5 lakh. (old regime)
