The Union Budget 2025 introduced significant tax relief for individuals, with Finance Minister Nirmala Sitharaman announcing a revised income tax structure that benefits a large segment of taxpayers, particularly the middle class. The key highlight is that income up to ₹12 lakh will now be tax-free, offering considerable financial relief.
This article provides a comprehensive breakdown of the new tax slabs, benefits, and a comparative analysis between the old and new tax regimes. We also explore the deductions available, surcharge rates, and how to choose the most beneficial tax regime.
Key Announcements in Union Budget 2025
1. No Income Tax on Income up to ₹12 Lakh
One of the biggest takeaways from the budget is that individuals earning up to ₹12 lakh annually will not be liable to pay any income tax. This move is expected to benefit a vast portion of salaried employees and middle-class taxpayers.
Additionally, with the inclusion of a standard deduction, the tax-free income limit extends to ₹12.7 lakh.
2. Simplified Tax Slabs for AY 2025-26
The government has introduced a more progressive and straightforward tax regime, ensuring better compliance and reduced financial burden. The revised income tax slabs for Assessment Year (AY) 2025-26 are as follows:
| Income Range (₹ in Lakh) | Tax Rate (%) |
|---|---|
| 0 – 4 lakh | Nil |
| 4 – 8 lakh | 5% |
| 8 – 12 lakh | 10% |
| 12 – 16 lakh | 15% |
| 16 – 20 lakh | 20% |
| 20 – 24 lakh | 25% |
| Above 24 lakh | 30% |
How the New Tax Regime Benefits Taxpayers
1. Higher Tax-Free Limit
Previously, taxpayers earning above ₹7 lakh were taxed under the new regime. However, the 2025 revision raises the tax-free limit to ₹12 lakh, significantly benefiting middle-income earners.
2. Tax Savings for Individuals Earning Up to ₹25 Lakh
Individuals earning up to ₹25 lakh will receive a tax benefit of up to ₹1.1 lakh, providing substantial savings.
3. Simpler Tax Structure
Unlike the old tax regime, which had multiple exemptions and deductions, the new regime is streamlined. It eliminates complexities, making it easier to calculate tax liability.
Comparison: Old Tax Regime vs. New Tax Regime (AY 2024-25)
The new tax regime, which became the default option from April 1, 2023, differs from the old tax regime in many ways. Here’s how they compare:
Old Tax Regime (AY 2024-25)
The old tax regime offers higher tax rates but allows for several deductions and exemptions.
| Income Range (₹) | Tax Rate (%) |
|---|---|
| Up to 2,50,000 | Nil |
| 2,50,001 – 5,00,000 | 5% |
| 5,00,001 – 10,00,000 | 20% |
| Above 10,00,000 | 30% |
New Tax Regime (AY 2024-25)
This regime has lower tax rates but eliminates several deductions.
| Income Range (₹) | Tax Rate (%) |
|---|---|
| Up to 3,00,000 | Nil |
| 3,00,001 – 7,00,000 | 5% |
| 7,00,001 – 10,00,000 | 10% |
| 10,00,001 – 12,00,000 | 15% |
| 12,00,001 – 15,00,000 | 20% |
| Above 15,00,000 | 30% |
Key Differences
- The old tax regime allows deductions under Section 80C, 80D, HRA, and LTA.
- The new tax regime does not allow most deductions but has lower tax rates.
Deductions Available Under the Old Tax Regime
For those opting for the old tax regime, the following deductions and exemptions can be availed:
1. Section 80C – Savings & Investments
Taxpayers can claim deductions up to ₹1.5 lakh for investments in:
- Public Provident Fund (PPF)
- Employee Provident Fund (EPF)
- National Savings Certificates (NSC)
- Life Insurance Premiums (LIC)
- Equity-Linked Savings Scheme (ELSS)
2. Section 80D – Health Insurance
- ₹25,000 deduction for health insurance premiums (self & family)
- ₹50,000 deduction for senior citizens
3. Section 80TTA – Savings Interest
- Deduction up to ₹10,000 on interest from savings accounts.
4. Section 80CCD(1B) – NPS Contributions
- Additional ₹50,000 deduction for investments in the National Pension System (NPS).
Surcharge Rates: Old vs. New Tax Regime
A surcharge is levied on individuals with higher taxable income. Below are the applicable rates:
New Tax Regime
| Income Range (₹) | Surcharge Rate (%) |
|---|---|
| Up to 50 lakh | Nil |
| 50 lakh – 1 crore | 10% |
| 1 crore – 2 crore | 15% |
| Above 2 crore | 25% |
Old Tax Regime
| Income Range (₹) | Surcharge Rate (%) |
|---|---|
| Up to 50 lakh | Nil |
| 50 lakh – 1 crore | 10% |
| 1 crore – 2 crore | 15% |
| 2 crore – 5 crore | 25% |
| Above 5 crore | 37% |
Choosing Between the Old and New Tax Regime
Since April 1, 2023, the new tax regime is the default option, but individuals can opt for the old regime if they find it more beneficial.
Which Tax Regime Should You Choose?
- If you claim multiple deductions (80C, 80D, HRA, LTA), the old tax regime may be more beneficial.
- If you prefer lower tax rates and a simpler tax structure, the new tax regime is the better choice.
Frequently Asked Questions
1. Who benefits the most from the new tax regime?
Middle-class taxpayers earning up to ₹12 lakh benefit the most, as they pay no income tax under the revised slabs.
2. Can I still claim deductions under the new tax regime?
No, the new tax regime does not allow most deductions such as Section 80C, 80D, HRA, and LTA.
3. How do I opt for the old tax regime?
Individuals can opt for the old tax regime while filing their income tax returns (ITR) if they find it more beneficial.
4. Is the new tax regime applicable to businesses?
No, businesses must continue filing taxes under existing corporate tax structures.
The Union Budget 2025 has introduced massive tax relief for individuals, with zero tax up to ₹12 lakh and simplified tax slabs. While the new tax regime is default, taxpayers must evaluate their income, deductions, and overall tax savings before making a decision.
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