The income tax slab rates in India determine the amount of tax individuals must pay based on their income levels. The Union Budget 2025 introduced significant relaxations in these tax slabs, leading to a notable reduction in tax liabilities. For the financial year 2025-26, under the new tax regime, the slabs are as follows: income up to Rs. 4 lakhs is exempt; 5% for income between Rs. 4 lakhs and Rs. 8 lakhs; 10% for income between Rs. 8 lakhs and Rs. 12 lakhs; 15% for income between Rs. 12 lakhs and Rs. 16 lakhs; 20% for income between Rs. 16 lakhs and Rs. 20 lakhs; 25% for income between Rs. 20 lakhs and Rs. 24 lakhs; and 30% for income above Rs. 24 lakhs. Key changes include an increased rebate of Rs. 60,000, making salaries up to Rs. 12.75 lakhs effectively tax-free. The new tax regime is now the default option, requiring taxpayers to explicitly opt for the old regime if they prefer it. Those with business income must file Form 10-IEA to switch to the old regime. Under the old regime, income up to Rs. 5 lakhs remains tax-free due to rebates.

Income Tax Slabs for FY 2025-26 under the New Tax Regime

The Budget 2025 has significantly revised the tax slabs for the new regime. These rates are effective from April 1, 2025. There have been no changes to the income tax slabs under the old regime. The income tax slabs for FY 2025-26 (AY 2026-27) are presented below:

Important Notes:

• With the rebate increased to Rs. 60,000 under the new regime, the total tax liability for income up to Rs. 12 lakhs becomes zero. This rebate does not apply to income taxable at special rates, such as capital gains, cryptocurrency income, or online gaming income.
• The new regime does not offer concessional slab rates for senior citizens.

Income Tax Slabs for FY 2025-26 under the Old Tax Regime (Unchanged)

The income tax slab rates under the old tax regime remain unaltered. These slabs are categorized by age groups.

1. Income Tax Slabs for Individuals below 60 Years, NRIs, and HUFs

For individuals under 60 years of age, Non-Resident Indians (NRIs), and Hindu Undivided Families (HUFs), the old regime slabs are:

Common Deductions Allowed under the Old Tax Regime:

• Sections like 80C, 80D, 80G, 80TTA
• House Rent Allowance (HRA), Leave Travel Allowance (LTA), and home loan interest (Section 24)
• Education loan interest (Section 80E), among others.

2. Income Tax Slabs for Senior Citizens (60 to 80 Years)

For resident senior citizens aged between 60 and 80 years, the income tax slabs under the old tax regime are:

3. Income Tax Slabs for Super Senior Citizens (above 80 Years)

For resident super senior citizens over 80 years of age, the basic exemption limit is extended to Rs. 5 lakh:

Note: There are no specific slab benefits for senior or super senior citizens under the new tax regime.

Tax-Free Income under New and Old Regimes - FY 2025-26

• For FY 2025-26, salary income up to Rs. 12.75 lakhs can be effectively tax-free under the new regime due to the combined effect of rebate and standard deduction.
• Specifically, income up to Rs. 12 lakhs can be tax-free under the new regime due to the increased rebate.
• This rebate does not apply to income taxed at special rates, such as capital gains or online gaming income.
• Under the old regime, income up to Rs. 5 lakhs can be effectively tax-free.

New Tax Regime vs. Old Tax Regime - Which is Better?

1. Comparison of Tax Slabs

A detailed comparison of tax slabs, rates, and surcharge for both the old and new tax regimes for FY 2025-26 is provided below.

1.1. For Individuals Aged Less Than 60 Years and Non-Residents

Conclusion: The new regime is often more beneficial due to its relaxed slab rates.

1.2. For Resident Senior Citizens Aged Between 60 to 80 Years

Conclusion: The new regime generally offers more advantages due to its eased slab rates.

1.3. For Resident Senior Citizens Aged Above 80 Years

Conclusion: The new regime typically offers greater benefits due to its adjusted slab rates.

2. Other Differences

Let's explore additional distinctions between the old and new tax regimes.

Choosing the Most Beneficial Tax Regime for FY 2025-26

• For taxpayers with substantial tax-saving deductions, often amounting to several lakhs, the old regime is typically more advantageous.
• Conversely, for individuals with minimal tax-saving deductions and middle-class income levels, the new regime tends to be more beneficial.
• The following table illustrates the break-even deduction amounts for various income levels. If a taxpayer's deductions exceed these break-even figures, the old regime will be more favorable; otherwise, the new regime is preferable.

• It is advisable for taxpayers to select their most beneficial regime at the start of the financial year.
• Taxpayers can estimate their total income, consolidate all their tax-saving deductions, and calculate their taxable income and total tax payable under both regimes to make an informed decision.
• The table below indicates the most beneficial regime for a hypothetical deduction amount of Rs. 4.5 lakhs.

Shifting Regime - Form 10-IEA Requirements

• If you determine that the old regime is more beneficial, you must switch your tax regime choice.
• Failing to make this choice means the new regime will be applied by default, potentially leading to higher tax payments.
• Form 10-IEA is relevant for individuals with business income who wish to file taxes under the old regime.
• This form must be filed both when opting into and opting out of the old tax regime.

Tax Calculation Examples under the New Regime FY 2025-26 (AY 2026-27)

Example 1

Consider Mr. Ramu, who has a salary income of Rs. 12 lakhs. He invested Rs. 1.5 lakh in PPF and paid Rs. 30,000 for health insurance for himself, his spouse, and children. For FY 2025-26, Mr. Ramu would have zero tax liability under the new regime because his income is below Rs. 12 lakh and he qualifies for a rebate under Section 87A. For the same income and deduction combination, the tax liability under the old regime would be Rs. 1,10,760.

Conclusion: Income up to Rs. 12 lakhs will generally be tax-free under the new regime for FY 2025-26, whereas the same income level would incur taxes in FY 2024-25.

Example 2

Mr. Anban's salary income for FY 2025-26 was Rs. 25 lakhs. He lives in rented accommodation, paying Rs. 45,000 per month in rent, and claimed Rs. 4 lakh in HRA exemption. He also has a house property in his village with EMI payments. Additionally, he claimed deductions of Rs. 1.5 lakh under Section 80C, Rs. 50,000 under Section 80D, and Rs. 50,000 under Section 80CCD(1B). For FY 2025-26 (AY 2026-27), his tax liability would be:

• New Tax Regime: Rs. 3,19,800
• Old Tax Regime: Rs. 3,04,200

Since the tax liability was lower under the old tax regime, Mr. Anban chose to file his Income Tax Return (ITR) under the old regime, saving Rs. 15,600 in taxes. This was possible due to the substantial deductions of Rs. 9 lakh that Mr. Anban was eligible to claim. Without these deductions, the new regime would have been more advantageous for him.

Conclusion: The old regime can be more beneficial if you have sufficient tax-saving deductions. The new tax regime is suitable for taxpayers with few or no deductions to claim, a principle that applies to both FY 2024-25 and FY 2025-26.

Example 3

Mr. K's income for FY 2025-26 includes:

• Salary income: Rs. 20 lakhs
• Interest income on FDs: Rs. 20,000

He has no other income or tax-saving deductions. The tax calculations for both regimes are:

• Tax payable under the old regime (including cess) = Rs. 4,19,640
• Tax payable under the new regime (including cess) = Rs. 1,96,560

In this scenario, since the taxpayer lacks tax-saving deductions, the new regime is the most beneficial choice for FY 2025-26.

Conclusion: For middle-income earners, the new regime is often the most beneficial because most taxpayers do not have lakhs of tax-saving deductions.

How to Save Taxes under the New Regime FY 2025-26?

Although options to save taxes under the new regime are limited, it can still be highly beneficial with effective tax planning strategies. Here are some methods to save taxes under the new regime:

1. Employer’s Contribution to NPS u/s 80CCD(2)

The employer’s contribution to the National Pension System (NPS) can be claimed as a deduction under this section. Up to 14% of basic pay is eligible for deduction. When you opt for NPS, both the employer and employee contribute to the pension scheme.

2. Standard Deduction

Irrespective of whether you make other tax-saving deductions, you can claim a standard deduction of Rs. 75,000 against your salary income under the new regime. This standard deduction of Rs. 75,000 is available for salaried individuals under the new regime.

3. Choice of Perquisites

• Consider opting for a car leasing scheme if offered by your employer, which can lead to significant tax savings.
• Additionally, allowances such as transport allowance, conveyance allowance, and daily allowance are exempt under the new regime.
• Various perquisites, including mobile reimbursement and transport facilities provided by railways or airways, remain exempt under both the old and new regimes. Structure your Cost to Company (CTC) appropriately to maximize your tax advantage!

Income Tax Changes from April 1, 2025 (FY 2025-26)

The following changes took effect from April 1, 2025:

1. Slab Rate Relaxation

As previously mentioned, the income tax slabs and rates under the new regime have been relaxed for FY 2025-26. The income threshold for the maximum tax rate (30%) has been increased from Rs. 15 lakhs to Rs. 24 lakhs. The basic exemption limit has also been raised from Rs. 3 lakhs to Rs. 4 lakhs.

2. Rebate Relaxation

Previously, the new regime allowed a rebate of Rs. 25,000, effectively making income up to Rs. 7 lakhs tax-free. From FY 2025-26, a rebate of Rs. 60,000 is allowed for income up to Rs. 12 lakhs under the new regime, making income up to Rs. 12 lakhs tax-free.

3. Relaxation of TDS Threshold Limits

The threshold limits for Tax Deducted at Source (TDS) have been eased from FY 2025-26. If a payment amount does not exceed a certain limit during the financial year, no TDS needs to be deducted. This relaxation means higher value transactions may not be subject to TDS, thereby simplifying compliance.

4. Deductions and Exemptions

Significant changes regarding deductions and exemptions this year include:

• All tax benefits associated with the NPS account have been extended to the NPS Vatsalya account.
• All withdrawals from NPS are exempt from August 29, 2025.
• Tax benefits available to eligible start-ups under Section 80-IAC have been extended until 2030.

Income Tax Slabs for FY 2024-25 (AY 2025-26) under New Tax Regime

The existing new tax regime slabs for FY 2024-25 are:

A rebate under Section 87A is available for income up to Rs. 7 lakh, meaning taxpayers with a total income not exceeding Rs. 7 lakh have zero tax liability.

Tax Savings from New Income Tax Slabs - FY 2024-25 vs. FY 2025-26

The following table illustrates the tax savings under the new regime for FY 2025-26 compared to FY 2024-25. The income in the first column represents the taxable income after accounting for all eligible deductions and exemptions under the new regime. The other column shows the tax savings for FY 2025-26 versus FY 2024-25, which is solely due to the relaxation of slab rates.

Surcharge

Surcharge is essentially a tax on tax, levied as a percentage of the income tax payable. It becomes applicable when an individual's taxable income exceeds Rs. 50 lakhs. The surcharge rates for different income groups are detailed below:

For dividends and capital gains income under sections 111A, 112A, and 112, the maximum surcharge amount is capped at 15%, even if such income surpasses the Rs. 2 crore threshold.

Cess

In addition to income tax and surcharge, a health and education cess of 4% is applied in all instances where income tax is payable.

Rebate

• A rebate can reduce the tax liability to zero if your total taxable income falls within a specific threshold.
• The amount of rebate allowed varies depending on the chosen tax regime and the financial year.
• The new regime offers marginal relief on rebate, a feature not available under the old regime.
• Effective from FY 2025-26, the rebate is not applicable to income taxed at special rates, such as capital gains or online gaming income. The table below outlines rebate applicability for FY 2024-25 and FY 2025-26 under both the new and old regimes.

In all the scenarios mentioned above, the rebate successfully brings the total tax liability to zero.

Conclusion

The Indian taxation system, including its slabs, rates, and deduction options, has evolved significantly over time, adapting to economic shifts, governmental policies, and technological advancements. Therefore, staying informed about current tax laws is crucial for taxpayers to ensure compliance and leverage various benefits. The revised income tax slabs for FY 2025-26 (AY 2026-27) aim to boost savings among taxpayers and simplify their compliance by lowering tax burdens. This reduces the need for complex tax planning strategies and minimizes compliance requirements. However, the old regime may still prove advantageous for individuals with higher incomes and substantial deductions. It is essential to carefully evaluate your income and investment patterns before making a choice.