Tax Savings for the Middle Class: A Closer Look at the New Income Tax Slabs & Regime
4 February, 2025
Synopsis
- Individuals with an annual income of up to ₹12 lakh will have zero tax liability under the new tax regime.
- A standard deduction of ₹75,000 has been factored into calculations, extending nil tax up to ₹12.75 lakh for salaried taxpayers.
The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman, proposes notable changes to India’s income tax regime. The new regime focuses on increasing disposable income and simplifying tax compliance, and the latest tax slabs provide significant relief to taxpayers, particularly in the middle-income segment.
Here's everything you need to know about the new income tax regime, its benefits, and how it compares with the existing structure.
Revised Income Tax Slabs for FY 2025-26 (New Regime)
Under the new tax regime, the revised slabs are as follows:
Annual Income | 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% |
These rates apply to regular income sources such as salaries, pensions, and bank deposits. Capital gains are taxed separately and do not fall under this structure.
This is a significant departure from the earlier structure:
Income Range | Tax Rate |
₹0 - ₹3 lakh | Nil |
₹3 - ₹7 lakh | 5% |
₹7 - ₹10 lakh | 10% |
₹10 - ₹12 lakh | 15% |
₹12 - ₹15 lakh | 20% |
Above ₹15 lakh | 30% |
Comparison of Tax Savings: New vs. Old Regime
The new regime offers considerable savings for taxpayers across different income levels. Here's a detailed comparison based on analysis by EY India, assuming only the standard deduction of ₹75,000 is claimed:
Total Income (After Standard Deduction) | Tax Under Proposed Regime | Tax Under Existing Regime | Savings |
₹5 lakh | - | - | - |
₹10 lakh | - | ₹50,000 | ₹50,000 |
₹12 lakh | - | ₹80,000 | ₹80,000 |
₹15 lakh | ₹1.05 lakh | ₹1.4 lakh | ₹35,000 |
₹20 lakh | ₹2 lakh | ₹2.9 lakh | ₹90,000 |
₹24 lakh | ₹3 lakh | ₹4.1 lakh | ₹1.1 lakh |
₹30 lakh | ₹4.8 lakh | ₹5.9 lakh | ₹1.1 lakh |
₹40 lakh | ₹7.8 lakh | ₹8.9 lakh | ₹1.1 lakh |
For example:
A salaried individual earning ₹12 lakh will save ₹80,000 under the new regime.
Higher-income earners, such as those with a gross income of ₹24 lakh, stand to save as much as ₹1.1 lakh.
Important Notes for Taxpayers
Standard Deduction: The proposal includes a standard deduction of ₹75,000 for salaried individuals.
Senior Citizen Benefits: Enhanced tax deduction limits for senior citizens, doubling from ₹50,000 to ₹1 lakh.
Default Option: The new tax regime continues to be the default option, though taxpayers can still opt for the old regime if it proves more beneficial.
Meanwhile, the revised tax slabs under the new regime provide significant savings, especially for the middle class. With the government promoting this simplified structure as the default option, taxpayers can look forward to reduced tax burdens and increased disposable income.
For salaried individuals and pensioners, the changes are particularly beneficial, encouraging wider adoption of the new regime. Whether you are in the middle-income group or the highest tax bracket, these updates ensure more money in your pocket to spend, save, or invest.
As the financial year 2025-26 approaches, it’s time to take full advantage of these changes and start your invest journey.
*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.