New Delhi: Finance Minister of India Nirmala Sitharaman, in her Union Budget 2025 speech, announced a relief for taxpayers by exempting income up to Rs 12 lakh from taxation. She said that the revised income tax regime will be simpler and more beneficial, particularly for the middle class.
Sitharaman also revealed a restructuring of income tax slabs, ensuring a more progressive taxation system. People earning up to Rs 25 lakh will receive a tax benefit of up to Rs 1.1 lakh, further easing the financial burden on middle-income groups.
Under the new income tax regime for the assessment year 2025-26, income between Rs 8 lakh and Rs 10 lakh will be taxed at 10 percent, while earnings from Rs 12 lakh to Rs 16 lakh will attract a 15 percent tax. Income between Rs 16 lakh and Rs 20 lakh will be taxed at 20 percent, those between Rs 20 lakh and Rs 24 lakh at 25 percent, and income above Rs 24 lakh will be subject to a 30 percent tax rate. Additionally, the finance minister confirmed that taxpayers without business income can choose between the old and new tax regimes every financial year.
The existing income tax slabs under the new tax regime for the assessment year 2024-25 remain unchanged. The tax rates are as follows: income up to Rs 3 lakh is tax-free, while earnings between Rs 3 lakh and Rs 7 lakh are taxed at 5 percent.
Income from Rs 7 lakh to Rs 10 lakh is taxed at 10 percent, Rs 10 lakh to Rs 12 lakh at 15 percent, Rs 12 lakh to Rs 15 lakh at 20 percent, and above Rs 15 lakh at 30 percent. A 4 percent cess will be applied to the total tax amount, with additional surcharges for incomes exceeding Rs 50 lakh. Notably, individuals earning up to Rs 7 lakh will receive a rebate of up to Rs 25,000 under the new tax regime.
The government has made no changes to the old tax regime, which continues to offer different exemption limits based on the taxpayer’s age. For individuals below 60 years, income up to Rs 2.5 lakh remains tax-free, earnings between Rs 2.5 lakh and Rs 5 lakh are taxed at 5 percent, those between Rs 5 lakh and Rs 10 lakh at 20 percent, and income above Rs 10 lakh at 30 percent.
Senior citizens aged 60-80 years enjoy a tax exemption on income up to Rs 3 lakh, with the same progressive tax rates applied beyond this threshold. Super senior citizens above 80 years have an exemption up to Rs 5 lakh, after which the tax rates of 20 percent and 30 percent apply for earnings up to Rs 10 lakh and beyond, respectively.
Taxpayers opting for the old tax regime can continue to avail of deductions under various sections, including Section 80C, which provides up to Rs 1.5 lakh deduction for investments in PPF, ELSS, LIC, and other eligible schemes. Section 80D offers a deduction of up to Rs 25,000 for health insurance premiums, with a higher limit of Rs 50,000 for senior citizens.
Section 80TTA allows a deduction of up to Rs 10,000 on interest earned from savings accounts, while Section 80CCD(1B) provides an additional Rs 50,000 deduction for contributions to the National Pension System (NPS). Exemptions on House Rent Allowance (HRA) and Leave Travel Allowance (LTA) remain applicable.
Citizens with taxable income up to Rs 5 lakh will continue to qualify for a tax rebate under Section 87A, ensuring zero tax liability. With these revisions, the government aims to provide financial relief while promoting a more structured and transparent taxation system.
