The Union Budget 2025 has raised the basic exemption limit to ₹12 lakh under the new tax regime, with a ₹75,000 standard deduction, making income up to ₹12.75 lakh tax-free. The old regime retains its previous slabs but allows deductions. Choosing between them depends on exemptions and total tax liability.
Union Budget 2025: Key Tax Changes and Their Impact
The Union Budget 2025 has introduced significant changes to India’s personal income tax structure, resulting in significant benefits for salaried and self-employed individuals. A major reform is the increase in the basic exemption limit to 12 lakh under the new tax regime, accompanied by a standard deduction of 75,000. Consequently, income up to 12.75 lakh will be tax-free under the new regime.
Key Highlights of Budget 2025
- Higher Exemption in the New Regime: No tax on income up to ₹12.75 lakh for salaried individuals.
- New Income Tax Slabs: Seven revised slabs, with rates starting at 0% for income up to ₹4 lakh and rising to 30% for income above ₹24 lakh.
- Old Regime Unchanged: The traditional system retains its previous slabs, including exemptions and deductions like HRA, LTA, and Section 80C.
- Minimal Deductions in the New Regime: Most tax exemptions are removed, except for the ₹75,000 standard deduction.
Things You Must Keep In Mind Before Opting for a New Tax Slab
Consider these points before choosing the new Income tax slab:
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- If you are an individual or part of a Hindu Undivided Family (HUF) without any business income, the option can be made before the start of each financial year.
- Once you choose the new Income Tax Slab regime, you cannot change it for that financial year. However, if you withdraw your option for the new regime and switch back to the old one, you may opt for the new regime again later in the same financial year.
New vs Old Tax Regimes: Which Is Better?
Choosing between the two depends on your financial situation. The new regime offers lower tax rates, but fewer deductions, while the old regime allows tax-saving exemptions. It is imperative that taxpayers calculate their total deductions under the old system in order to determine which option will reduce their tax liability.
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Did You Know? The new tax regime, introduced in Budget 2020, simplifies taxation by removing most deductions and exemptions. It offers lower tax rates across broader income slabs, making tax filing easier and reducing compliance hassles. This gives taxpayers a clear choice between a simpler system and the deduction-heavy old regime. |
New Tax Regime – Income Tax Slabs (FY 2025–26)
| Income Range (₹) | Tax Rate |
| 0 – 4 lakh | 0% |
| 4 – 8 lakh | 5% |
| 8 – 12 lakh | 10% |
| 12 – 16 lakh | 15% |
| 16 – 20 lakh | 20% |
| 20 – 24 lakh | 25% |
| Above 24 lakh | 30% |
Note: Salaried individuals get an additional ₹75,000 standard deduction, effectively raising their zero-tax threshold to ₹12.75 lakh.
Old Tax Regime – Income Tax Slabs (FY 2025–26)
| Income Range (₹) | Tax Rate |
| 0 – 2.5 lakh | 0% |
| 2.5 – 5 lakh | 5% |
| 5 – 10 lakh | 20% |
| Above 10 lakh | 30% |
Note: The old regime allows deductions under Section 80C, 80D, HRA, and more, while the new regime offers fewer exemptions but broader tax slabs.
New vs Old Tax Regime: Understanding with Examples
Choosing between the two tax regimes depends on income levels and available deductions. Below are corrected examples for better clarity.
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Example 1: Income of ₹10 lakh (Salaried Individual – New Regime)
New Regime Calculation:
- ₹10 lakh taxable income
- Tax rates applied:
- 0% on ₹4 lakh → ₹0
- 5% on ₹4 – 8 lakh (₹4 lakh) → ₹20,000
- 10% on ₹8 – 10 lakh (₹2 lakh) → ₹20,000
- Total Tax: ₹40,000
- Standard Deduction of ₹75,000 reduces taxable income to ₹9.25 lakh
- Final Tax Payable:
- ₹40,000 – (10% of ₹75,000 i.e. ₹7,500) = ₹32,500
Tax Payable: ₹32,500
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Example 2: Income of ₹18 lakh (Salaried Individual – Old Regime)
Old Regime Calculation (Assuming ₹2 lakh deductions under 80C, 80D, HRA, etc.)
- ₹16 lakh taxable income after deductions
- Tax rates applied:
- 0% on ₹2.5 lakh → ₹0
- 5% on ₹2.5 – 5 lakh (₹2.5 lakh) → ₹12,500
- 20% on ₹5 – 10 lakh (₹5 lakh) → ₹1,00,000
- 30% on ₹10 – 16 lakh (₹6 lakh) → ₹1,80,000
- Total Tax: ₹2,92,500
- Rebate or Additional Benefits: None in this case
- Final Tax Payable: ₹2,92,500
Tax Payable: ₹2,92,500
For an income of ₹10 lakh, the new regime is better (₹32,500 vs. ₹82,500 under the old regime). For an income of ₹18 lakh, the old regime might be better if deductions exceed ₹4 lakh, otherwise, the new regime is more tax-efficient.
Best Practices for Choosing Between the Old and New Tax RegimeThe following best practices will help you maximize tax savings and reduce liabilities when selecting the right tax regime:
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Conclusion: Old Regime vs New Regime – Which One to Choose?
The choice between the old and new tax regimes depends on your income, deductions, and financial goals. The new regime offers lower tax rates and a higher exemption limit, making it ideal for those who prefer a straightforward, exemption-free system. On the other hand, the old regime benefits individuals who claim deductions under 80C, 80D, HRA, and LTA, reducing their taxable income significantly.
How Vakilsearch Experts Can Help?
Vakilsearch simplifies the tax filing process by offering expert guidance tailored to your financial situation.
- Personalized Tax Planning: Get expert consultation to determine the best tax regime for you.
- Maximizing Deductions: Learn how to optimize tax-saving investments and deductions under the old regime.
- Quick & Error-Free ITR Filing: Ensure hassle-free and accurate income tax return filing.
Income Tax Slab FAQs
Is ITR mandatory if income is less than 5 lakhs?
No, Income up to 5 lakh is not tax-free. Individuals earning up to 2.5 lakh are exempt from paying tax.
How is the Income Tax Slab calculated?
The calculation of income tax slab is based on the taxable income of an individual or entity. The taxable income is calculated by subtracting exemptions, deductions, and rebates from the total income. The resulting amount is then compared to the applicable tax slab rates, which vary based on the individual's residential status and the financial year, to determine the tax owed. The tax slab rates can range from 0% to 30% for individuals and entities, with higher slab rates for those earning higher taxable incomes.
How much Income is Taxable?
The amount of income that is taxable depends on several factors, including the individual's residential status and the exemptions, deductions, and rebates available under tax laws. In general, all sources of income, including salary, business and professional income, capital gains, and rental income, are considered taxable. However, certain types of income may be exempt from tax or eligible for deductions, reducing the amount of taxable income. The exact amount of taxable income will depend on an individual's specific financial situation and is calculated by subtracting the applicable exemptions, deductions, and rebates from the total income.
How can I reduce my Taxable Income?
You can reduce your taxable income by taking advantage of exemptions, deductions, and rebates available under tax laws. Some common ways to reduce taxable income include: Investing in tax-saving instruments such as Public Provident Fund (PPF), Equity-Linked Saving Scheme (ELSS), National Pension Scheme (NPS), etc. Claiming standard deductions and exemptions, such as house rent allowance (HRA), medical expenses, and children's education expenses. Incurring expenses that are eligible for tax deductions, such as tuition fees, home loan interest, insurance premium, etc. Making donations to eligible charitable organizations, which can also result in tax deductions. Opting for the new Income Tax Slab regime, which may result in lower tax liability.
