Budget Update 2025
No Income Tax on Annual Income Up to ₹12.75 Lakh!
Union Budget 2025-26 proposes new direct tax slabs and rates under the new income tax regime, ensuring that no income tax is needed to be paid for total income up to ₹12 Lakh per annum (i.e., average income of ₹1 Lakh per month), other than special rate income such as Capital Gains.
With the Section 87A rebate limit increased from ₹7 lakh to ₹12 lakh, the middle class will experience major tax relief. Additionally, salaried individuals can claim a ₹75,000 standard deduction, keeping more of their income tax-free.
New Slab Structure under new tax regime:
| ₹0 – ₹4 lakh |
No Tax |
| ₹4 lakh – ₹8 lakh |
5% |
| ₹8 lakh – ₹12 lakh |
10% |
| ₹12 lakh – ₹16 lakh |
15% |
| ₹16 lakh – ₹20 lakh |
20% |
| ₹20 lakh – ₹24 lakh |
25% |
| ₹24 lakh & above |
30% |
Extended time for filing updated returns (ITR-U):
Taxpayers now get 4 years (instead of 2) to update their Income Tax Returns.
What is Old Tax Regime?
The Old Tax Regime is the traditional income tax system in India, which allows taxpayers to claim various deductions and exemptions to reduce their taxable income. These include popular benefits such as:
Key Features of the Old Tax Regime
-
Deductions:
- Section 80C: Investments in PPF, ELSS, NSC, etc. (up to ₹1.5 lakh).
- Section 80D: Premiums paid for health insurance.
- Section 24(b): Deduction on home loan interest (up to ₹2 lakh).
-
Exemptions:
- House Rent Allowance (HRA).
- Leave Travel Allowance (LTA).
- Standard Deduction: ₹50,000 for salaried individuals.
- Tax Slabs (Applicable for FY 2024-25):
| Income |
Tax Rate |
| ₹0 - ₹2.5 lakh |
Nil |
| ₹2.5 - ₹5 lakh |
5% |
| ₹5 - ₹10 lakh |
20% |
| Above ₹10 lakh |
30% |
Benefits of the Old Tax Regime
- Ideal for taxpayers who avail multiple deductions and exemptions.
- Encourages savings and investments through tax-saving instruments.
What is New Tax Regime?
A new tax slab was introduced in Budget 2020 that became effective from 1 April 2020.
This new income tax slab offered lower tax rates, but deductions and exemptions will not
be available under the new regime except deductions u/s 80CCD(2). It allows you to lower
your tax liability subject to certain conditions and is optional.
Budget 2023 announced several amendments to make the new tax regime more lucrative; the
following key changes were introduced:-
Default Regime:- The new tax regime is set as a default regime, meaning if you
haven’t informed your employer about which regime to choose from, the TDS calculation
will be based only on the new tax regime.
Tax Rate:- The basic exemption limit was raised to Rs 3 lakh from Rs 2.5 lakh to
make the new tax regime more attractive. Also, the highest tax rate of 30% will be
levied above Rs 15 lakh income.
Tax Slabs:- The revised tax structure as per the new tax regime is:-
New Regime (FY 2024-25)
| Range of Income (Rs.) |
Tax Rate |
| Up to 3,00,000 |
NIL |
| 3,00,000-7,00,000 |
5% |
| 7,00,000-10,00,000 |
10% |
| 10,00,000-12,00,000 |
15% |
| 12,00,000-15,00,000 |
20% |
| Above 15,00,000 |
30% |
Rebate Limit:- The rebate under section 87A has been hiked to Rs 7 lakh from Rs 5 lakh under the new tax regime. The rebate benefit will be up to Rs 25000, provided income does not exceed the limit of 7 lakhs.
Standard Deduction:- Individuals having salary income can claim a standard deduction of Rs. 75,000 from their gross salary income. Family pensioners opting for the new tax regime can claim a standard deduction of Rs 25,000 from their pension income.
Slashed the surcharge limit:- Reduction in the surcharge on annual income above 5
crores from 37% to 25% under the new regime. The highest tax rate is 42.74%, which would
slash the maximum tax rate to 39% after this reduction.
Leave encashment exemption:- The limit of Rs. 3 lakh for tax exemption on leave encashment on non-government salaried employees has been
raised to Rs. 25 lakh.
Insurance plans:- As per the announcement in the Budget 2023-24, income from
traditional insurance policies where the premium is more than Rs 5 lakh will not be
tax-free.
Which are
the exemptions/deductions unavailable under the new tax regime?
With the introduction of the new regime, 70 out of 100 deductions were disallowed under
the new regime. The following exemptions and deductions are some of the most important
ones which would not be available if the new tax slab is chosen for tax calculation –
- House Rent Allowance under Section 10 (13A)
- Leave Travel Allowance under Section 10(5)
- Allowances under Section 10(14)
- Food coupons and other tax-free allowances and perquisites
- Deductions under Chapter VI A of the Income Tax Act like Section 80C, 80D, 80TTA,
etc.
- Deduction for home loan interest paid for self-owned house property under Sections
24 (b) and Section 80EEA.
For more details please check here. #
Which Exemptions and deductions are still available under the new tax regime?
The following deductions and exemptions are still available under the new tax regime –
Standard deduction of INR 75,000 from salary income under Section 16. (Earlier, this
deduction was only Rs. 50,000; however, after budget 2024, this limit was increased to
Rs. 75,000).
- Employer’s contribution to the NPS for up to 10% of employee’s salary under Section
80CCD (2) [ 14% in case of Govt employee]
- Standard deduction of 30% from net rental income if house property is let out.
- Home loan interest paid can be deducted from the rental income of a house property.
However, loss from the House Property head can not be removed from any other income
head.
- Transport allowance exemption will be available to divyang employees to meet the
day-to-day travel expenses from the workplace to home.
- Conveyance allowance will be allowed to meet the expenditure on the conveyance for
the purpose of performing the official duty.
- Allowances granted will be allowed to meet the cost of traveling on tour or on
transfer to the employees.
- Daily allowance granted for day-to-day ordinary expenses in case of absence from his
/ her normal place of duty.
Comparison Of Old v/s New Tax Regime
Slab Rates
|
Old Tax Regime (FY 2022-23, FY 2023-24 and FY 2024-25) |
New Tax Regime |
| Income Slabs |
Age < 60 years & NRIs |
Age of 60 Years to 80 years |
Age above 80 Years |
FY 2022-23 |
FY 2023-24 |
FY 2024-25 |
| Up to ₹2,50,000 |
NIL |
NIL |
NIL |
NIL |
NIL |
NIL |
| ₹2,50,001 - ₹3,00,000 |
5% |
NIL |
NIL |
5% |
NIL |
NIL |
| ₹3,00,001 - ₹5,00,000 |
5% |
5% |
NIL |
5% |
5% |
5% |
| ₹5,00,001 - ₹6,00,000 |
20% |
20% |
20% |
10% |
5% |
5% |
| ₹6,00,001 - ₹7,00,000 |
20% |
20% |
20% |
10% |
10% |
5% |
| ₹7,00,001 - ₹7,50,000 |
20% |
20% |
20% |
10% |
10% |
10% |
| ₹7,50,001 - ₹9,00,000 |
20% |
20% |
20% |
15% |
10% |
10% |
| ₹9,00,001 - ₹10,00,000 |
20% |
20% |
20% |
15% |
15% |
10% |
| ₹10,00,001 - ₹12,00,000 |
30% |
30% |
30% |
20% |
15% |
15% |
| ₹12,00,001 - ₹12,50,000 |
30% |
30% |
30% |
20% |
20% |
20% |
| ₹12,50,001 - ₹15,00,000 |
30% |
30% |
30% |
25% |
20% |
20% |
| ₹15,00,000 and above |
30% |
30% |
30% |
30% |
30% |
30% |
Old vs New Regime : Which Tax Slab is
Better?
Ever since the new tax regime was proposed, many are debating as to which tax regime is better, the old one with deductions
or the new one without them? The answer is relative. One tax regime cannot be
universally beneficial for all. Your income, its type, available deductions, and
exemptions determine which tax regime would give you better tax benefits. You should
calculate your tax liability using both regimes, and the regime that gives you the
lowest tax liability should be chosen depending on your requirements.
Here are some calculations showing you the tax liability under both tax slabs for
different types of incomes –
Salary Income of INR 12 lakhs for a salaried employee
| Particulars |
FY 2023-24 |
FY 2024-25 |
| Old Regime |
New Regime |
Old Regime |
New Regime |
| Gross Salary |
12,00,000 |
12,00,000 |
12,00,000 |
12,00,000 |
| Less: HRA exemption |
2,00,000 |
NA |
2,00,000 |
NA |
| Less: LTA exemption |
50,000 |
NA |
50,000 |
NA |
| Less: Standard deduction |
50,000 |
50,000 |
50,000 |
75,000 |
| Less: Section 80C deductions |
1,50,000 |
NA |
1,50,000 |
NA |
| Less: Section 80D deductions for self |
25,000 |
NA |
25,000 |
NA |
| Less: Section 80D deduction for senior citizen parents |
50,000 |
NA |
50,000 |
NA |
| Less: Other deductions |
10,000 |
NA |
10,000 |
NA |
| Taxable Income |
6,65,000 |
11,50,000 |
6,65,000 |
11,25,000 |
| Tax Payable including cess (considering age is less than 60) |
47,320 |
85,800 |
47,320 |
71,500 |
| Remark |
Old regime is beneficial |
Old regime is beneficial |
Let us understand with another example :
| Particulars |
FY 2023-24 |
FY 2024-25 |
| Old Regime |
New Regime |
Old Regime |
New Regime |
| Gross Salary |
12,00,000 |
12,00,000 |
12,00,000 |
12,00,000 |
| Less: Standard deduction |
50,000 |
NA |
50,000 |
75,000 |
| Less: 80C deductions |
50,000 |
50,000 |
50,000 |
NA |
| Taxable Income |
11,00,000 |
11,50,000 |
11,00,000 |
11,25,000 |
| Tax Payable including cess(considering age is less than 60) |
1,48,200 |
85,600 |
1,48,200 |
71,500 |
So, a salaried employee can benefit from the old tax regime by claiming exemptions/
deductions. In case the taxpayer wants to claim more exemptions/ deductions, then he
should opt for the old tax regime subject to other conditions. You can read
more here.
In the second example, since the exemptions/ deductions available to him were lower as
compared to the previous example, it was more beneficial for him in opting for the new
tax regime. Further, the decision of a suitable tax regime depends on case to case.
Some more examples showing taxability at different income levels:
Salary Income: Rs.5,00,000 FY 2024-25
| Particulars |
Old Regime |
New Regime |
| Gross Income |
|
500,000 |
500,000 |
| Less: |
Std. Ded. |
50,000 |
75,000 |
|
80C,80D, etc. |
Zero |
- |
|
HRA |
Zero |
- |
|
LTA |
Zero |
- |
| Net Taxable Income |
|
450,000 |
4,25,000 |
| Tax |
|
- |
- |
Note: There is NO impact on tax payments because of rebate u/s 87A.
Salary Income: Rs.7,00,000 FY 2024-25
| Particulars |
Old Regime |
New Regime |
| Gross Income |
|
700,000 |
700,000 |
| Less : |
Std. Ded. |
50,000 |
75,000 |
|
80C,80D, etc. |
150,000 |
- |
|
HRA |
50,000 |
- |
|
LTA |
Zero |
- |
| Net Taxable Income |
|
450,000 |
6,25,000 |
| Tax |
|
0 |
0 |
| Note: There are no tax payments under the old regime
due to rebate u/s 87A and also under new regime also due to rebate u/s
87A as Introduced by Budget 2023 which says Income upto 7 lac is not
taxable under the new Regime. |
Salary Income: Rs.8,00,000 FY 2024-25
| Particulars |
Old Regime |
New Regime |
| Gross Income |
|
800,000 |
800,000 |
| Less : |
Std. Ded. |
50,000 |
75,000 |
|
80C,80D, etc. |
150,000 |
- |
|
HRA |
50,000 |
- |
|
LTA |
0 |
- |
| Net Taxable Income |
|
550,000 |
7,25,000 |
| Tax |
|
23,400 |
0 |
| New Tax Regime saves more tax. |
Salary Income: Rs.15,00,000 FY 2024-25
| Particulars |
Old Regime |
New Regime |
| Gross Income |
|
1,500,000 |
1,500,000 |
| Less : |
Std. Ded. |
50,000 |
75,000 |
|
80C,80D, etc. |
150,000 |
- |
|
HRA |
75,000 |
- |
|
LTA |
20,000 |
- |
| Net Taxable Income |
|
1,205,000 |
14,25,000 |
| Tax |
|
180,960 |
1,30,000 |
| New Tax Regime saves more tax. |
Salary Income : Rs.20,00,000 FY 2024-25
|
Old Regime |
New Regime |
| Gross Income |
|
2,000,000 |
2,000,000 |
| Less : |
Std. Ded. |
50,000 |
75,000 |
|
80C,80D, etc. |
150,000 |
- |
|
HRA |
75,000 |
- |
|
LTA |
20,000 |
- |
| Net Taxable Income |
|
1,705,000 |
19,25,000 |
| Tax |
|
336,960 |
2,78,200 |
| New Tax Regime saves more tax. |
What are the
benefits or disadvantages of opting for both tax regimes?
The various benefits or disadvantages of the old and new tax regimes include:-
| Benefits |
Disadvantages |
| OLD TAX REGIME |
| Option to avail around 70 exemptions and deductions under
the Income Tax Act |
Investment only in specified options were required to claim the tax
benefit. |
| Practice to submit false disclosures for investment proofs is prevalent
|
| NEW TAX REGIME |
| Tax Rates Reduced |
Not attractive to those who were already investing and have
binding premiums |
| No major tax saving options given, increasing cash flow in hands of
taxpayer |
Legaldev Old vs New Tax Regime Calculator provides you with all the computations and a detailed comparison of how much your taxability will be as per both regimes (old/new) so that you can decide which one is suitable for you. However, filing ITR yourself can be complicated and time-consuming. Moreover, it is common to miss out on some important deductions available to you due to a lack of knowledge. Therefore, the best way to file an ITR is to hire an online CA who can not only help you file your ITR smoothly but also reduce your tax liability. Hire an Online CA Now!