In a significant step to reduce the tax burden on middle-class taxpayers, Finance Minister Nirmala Sitharaman on Saturday introduced new tax rebates and revised slabs under the New Tax Regime as part of the Union Budget 2025-26.
Providing much-needed relief, Sitharaman increased the tax rebate limit in the new regime from Rs 7 lakh to Rs 12 lakh.
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This rebate is designed to benefit individuals earning a regular income of up to Rs 12 lakh per year, with salaried taxpayers enjoying an exemption limit of Rs 12.75 lakh (including standard deductions).
Besides, the Finance Minister introduced modifications to tax slabs, meaning that taxpayers earning beyond Rs 12-12.75 lakh annually will now fall under the revised structure.
It is important to note that only the rebate limit has been raised from Rs 7 lakh to Rs 12 lakh. So beyond Rs 12 Lakh, look to slabs for tax calculation – the message is clear.
Consider, an individual earning more than Rs 12 lakh per year will have his/her taxes calculated based on the newly announced slabs for the assessment year.
Since taxable income up to Rs 12 lakh qualifies for a full rebate, the effective tax liability becomes zero – it is not due to exemption, but due to the rebate itself. However, for those earning beyond Rs 12 lakh, the applicable tax slabs will determine the tax amount, according to an Agartala-based Chartered Accountant.
Notably, capital gains income will not qualify for this rebate and will continue to be taxed under separate provisions.
However, for taxpayers earning above Rs 12 lakh annually, tax will calculated on entire income under the new tax slabs and there will be no tax on income up to Rs 4 lakh.
Example: For an individual with an annual income of Rs 16 lakh, the rebate will not apply, and their tax will be calculated based on the entire amount according to the new slabs.
Under the new tax regime:
- There will be nil tax for income up to Rs 4 lakh
- Income between Rs 4 lakh and Rs 8 lakh will be taxed at 5%
- Income from Rs 8 lakh to Rs 12 lakh will be taxed at 10%
- Earnings between Rs 12 lakh and Rs 16 lakh will attract a 15% tax rate
- Income from Rs 16 lakh to Rs 20 lakh will be taxed at 20%
- Income between Rs 20 lakh and Rs 24 lakh will be taxed at 25%
- Any amount exceeding Rs 24 lakh will be taxed at 30%
The new tax structure will take effect from April 1, 2025, for the financial year 2025-26, subject to parliamentary approval.
Currently, under the existing tax system, individuals earning up to Rs 3 lakh do not pay any tax, with rates increasing incrementally for higher income brackets.
Under the old tax regime, the basic exemption limit was Rs 2.5 lakh, with taxpayers eligible for multiple deductions.
- Income between Rs 2.5 lakh and Rs 5 lakh was taxed at 5%
- Income from Rs 5 lakh to Rs 10 lakh was taxed at 20%
- Earnings exceeding Rs 10 lakh were taxed at 30% (Edited)
