The Indian government’s Union Budget 2025 has ushered in transformative changes to the New Tax Regime, effective from Financial Year (FY) 2025-26 (Assessment Year 2026-27). With the bill now passed, resident individuals earning up to ₹12 lakh are exempt from income tax, while salaried individuals enjoy a tax-free threshold of ₹12.75 lakh due to a ₹75,000 standard deduction. For those earning above ₹12 lakh, revised tax slabs deliver significant savings. This blog provides an in-depth analysis of these amendments and their impact on resident individuals across income brackets.
Overview of the New Tax Regime
Introduced in 2020, the New Tax Regime offers lower tax rates in exchange for forgoing most exemptions and deductions (e.g., Section 80C, HRA). The 2025 amendments, now law, make it the default option, enhancing its appeal with:
- Zero Tax up to ₹12 Lakh: An increased Section 87A rebate fully offsets tax for incomes up to ₹12 lakh.
- Standard Deduction: ₹75,000 for salaried individuals, raising the tax-free limit to ₹12.75 lakh.
- Revised Tax Slabs: Progressive rates from 0% to 30% for incomes above ₹12 lakh.
- Marginal Relief: Caps tax for incomes slightly above ₹12 lakh to avoid steep jumps.
Let’s dive into these changes.
Tax Slabs Under the New Regime
The tax slabs for FY 2025-26 are:
| Income Slab | Tax Rate |
| Upto ₹4,00,000 | NIL |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
A 4% Health and Education Cess applies, with surcharges for incomes above ₹50 lakh (10% to 25%).
Marginal Relief under section 87A available up to the taxable income of around ₹12.70 Lakh.
Impact on Resident Individuals Earning Up to ₹12 Lakh
1. Zero Tax Liability
The ₹60,000 rebate under Section 87A eliminates tax for incomes up to ₹12 lakh:
Illustrations:
Table: Income ₹12,00,000 (Non -Salaried)
| Description | Calculation | |
| Taxable Income | ₹12,00,000 | |
| Tax Rate | ₹0 – ₹4,00,000 | 0% = ₹0 |
| ₹4,00,001 – ₹8,00,000 | 5% of ₹4,00,000 = ₹20,000 | |
| ₹8,00,001 – ₹10,00,000 | 10% of ₹2,00,000 = ₹20,000 | |
| Total Tax Before Rebate | ₹60,000 | |
| Section 87A Rebate | ₹60,000 | |
| Final Tax Liability | ₹0 |
Even without the deduction, ₹12 lakh incurs ₹60,000 tax, fully offset by the rebate.
2. Salaried Individuals: ₹12.75 Lakh Tax-Free
The ₹75,000 standard deduction raises the tax-free limit to ₹12.75 lakh:
Table: Income ₹12,75,000 (Salaried)
| Description | Calculation | |
| Income – Salary | ₹12,75,000 | |
| Less: Standard Deduction | ₹75,000 | |
| Taxable Income | ₹12,00,000 | |
| Tax Rate | ₹0 – ₹4,00,000 | 0% = ₹0 |
| ₹4,00,001 – ₹8,00,000 | 5% of ₹4,00,000 = ₹20,000 | |
| ₹8,00,001 – ₹12,00,000 | 10% of ₹4,00,000 = ₹40,000 | |
| Total Tax Before Rebate | ₹60,000 | |
| Section 87A Rebate | ₹60,000 | |
| Final Tax Liability | ₹0 |
This benefits around one crore taxpayers, saving them ₹20,000-₹80,000 annually.
3. Who Benefits Most?
– Middle-Class Taxpayers: Those with minimal deductions see significant relief.
– Young Professionals: Early-career individuals retain more earnings.
Impact on Resident Individuals Earning Above ₹12 Lakh
1. Marginal Relief for Incomes Slightly Above ₹12 Lakh
Marginal relief caps tax at the excess over ₹12 lakh up to around ₹12.70 lakh:
Table: Income ₹12,10,000 (non-salaried)
| Description | Calculation | |
| Taxable Income | ₹12,10,000 | |
| Tax Calculation (Slabs) | ₹0 – ₹4,00,000 | 0% = ₹0 |
| ₹4,00,001 – ₹8,00,000 | 5% of ₹4,00,000 = ₹20,000 | |
| ₹8,00,001 – ₹12,00,000 | 10% of ₹4,00,000 = ₹40,000 | |
| ₹12,00,001 – ₹12,10,000 | 15% of ₹10,000 = ₹1,500 | |
| Total Tax Before Relief | ₹61,500 | |
| Excess Over ₹12,00,000 | ₹10,000 | |
| Tax After Marginal Relief | ₹10,000 | |
| Cess (4%) | ₹400 | |
| Final Tax Liability | ₹10,400 | |
| Savings | ₹51,100 |
For salaried individuals, marginal relief caps tax at the excess over ₹12.75 lakh up to around ₹13.45 lakh (approx.):
Table: Income ₹13,10,000 (Salaried)
| Description | Calculation | |
| Income- Salary | ₹13,10,000 | |
| Less: Standard Deduction | ₹75,000 | |
| Taxable Income | ₹ 12,35,000 | |
| Tax Calculation (Slabs) | ₹0 – ₹4,00,000 | 0% = ₹0 |
| ₹4,00,001 – ₹8,00,000 | 5% of ₹4,00,000 = ₹20,000 | |
| ₹8,00,001 – ₹12,00,000 | 10% of ₹4,00,000 = ₹40,000 | |
| ₹12,00,001 – ₹12,35,000 | 15% of ₹35,000 = ₹5,250 | |
| Total Tax Before Relief | ₹65,250 | |
| Excess Over ₹12,00,000 | ₹35,000 | |
| Tax After Marginal Relief | ₹35,000 | |
| Cess (4%) | ₹1,400 | |
| Final Tax Liability | ₹36,400 | |
| Savings | ₹28,850 |
Relief phases out at taxable income of around ₹12.70 lakh.
2. Tax Savings for Higher Incomes
Revised slabs reduce tax compared to the previous regime:
Table: Income ₹18,00,000
| Description | Calculation | |
| Taxable Income | ₹18,00,000 | |
| Tax Calculation (Slabs) | ₹0 – ₹4,00,000 | 0% = ₹0 |
| ₹4,00,001 – ₹8,00,000 | 5% of ₹4,00,000 = ₹20,000 | |
| ₹8,00,001 – ₹12,00,000 | 10% of ₹4,00,000 = ₹40,000 | |
| ₹12,00,001 – ₹16,00,000 | 15% of ₹4,00,000 = ₹60,000 | |
| ₹16,00,001 – ₹18,00,000 | 20% of ₹2,00,000 = ₹40,000 | |
| Total Tax | ₹1,60,000 | |
| Cess (4%) | ₹6,400 | |
| Final Tax Liability | ₹1,66,400 | |
| Previous Regime Tax | ₹2,39,200 | |
| Savings | ₹72,800 |
Table: Income ₹25,00,000
| Description | Calculation | |
| Taxable Income | ₹25,00,000 | |
| Tax Calculation | ₹0 – ₹4,00,000 | 0% = ₹0 |
| ₹4,00,001 – ₹8,00,000 | 5% of ₹4,00,000 = ₹20,000 | |
| ₹8,00,001 – ₹12,00,000 | 10% of ₹4,00,000 = ₹40,000 | |
| ₹12,00,001 – ₹16,00,000 | 15% of ₹4,00,000 = ₹60,000 | |
| ₹16,00,001 – ₹20,00,000 | 20% of ₹4,00,000 = ₹80,000 | |
| ₹20,00,001 – ₹24,00,000 | 25% of ₹4,00,000 = ₹1,00,000 | |
| ₹24,00,001 – ₹25,00,000 | 30% of ₹1,00,000 = ₹30,000 | |
| Total Tax | ₹3,30,000 | |
| Cess (4%) | ₹13,200 | |
| Final Tax Liability | ₹3,43,200 | |
| Previous Regime Tax | ₹4,57,600 | |
| Savings | ₹1,14,400 |
3. Considerations for High Deduction Claimants
Taxpayers claiming large deductions under the Old Regime (like 80C, 80D, HRA, home loan interest, etc.) often hesitate to switch. But does the math still support staying?
Table: Income ₹15 Lakh with Deductions of ₹5.75 Lakh
Breakdown of Deductions (Old Regime):
| 80C (LIC, PF, ELSS, etc.) | ₹1,50,000 |
| 80D (Medical Insurance) | ₹25,000 |
| Interest on Home Loan (Sec 24) | ₹2,00,000 |
| HRA Exemption | ₹1,50,000 |
| Standard Deduction | ₹50,000 |
| Total | ₹5,75,000 |
| Particulars | Old Regime (₹) | New Regime (₹) |
| Gross Income | 15,00,000 | 15,00,000 |
| Less: Deductions | 5,75,000 | 75,000 |
| Taxable Income | 9,25,000 | 14,25,000 |
| Total Tax | 97,500 | 93,750 |
| Add: Cess@ 4% | 3,900 | 3,750 |
| Final Tax Liability | 1,01,400 | 97,500 |
Even with ₹5.75 lakh in deductions, the New Regime still results in slightly lower tax liability. This is due to the significantly reduced slab rates and expanded basic exemption in the revised structure.
However, if the deductions cross ₹5.95 lakh – ₹6 lakh, then the Old Regime might again become favourable.
Broader Implications
1. Economic Boost
Increased disposable income is expected to drive consumption in sectors like real estate and retail.
2. Simplification vs. Choice
The New Regime simplifies taxation but lacks flexibility for deduction-heavy taxpayers.
3. Revenue Trade-Off
The government anticipates a ₹1 lakh crore revenue loss, prioritizing taxpayer relief.
Conclusion
The New Tax Regime, now in effect, offers substantial benefits: zero tax up to ₹12.75 lakh for salaried individuals and savings for higher earners. Middle-class and young taxpayers gain the most, though deduction-reliant individuals may opt for the Old Regime. Assess your finances to choose the best option for FY 2025-26.
What’s your experience with the New Regime? Have you switched, or are you sticking with the Old?
CA RIDHI KARAN AGGARWAL
FOUNDER
CA RANJANA
SR.MANAGER- RIDHI KARAN & ASSOCIATES
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