India’s income tax system is undergoing one of the biggest changes in recent years, starting April 1, 2025. The government has made many big changes with the Union Budget 2025–26. These changes are meant to make paying taxes easier, encourage people to save more, and boost economic growth. The new tax system has a higher basic exemption limit and redesigned slabs. These changes are meant to give people more money back and make the whole process easier.
These new rules will probably affect your financial decisions, whether you’re a salaried worker, self-employed, or the owner of a small business. That’s why it’s important to stay aware and ready. In her Budget 2025 speech, Finance Minister Nirmala Sitharaman said that income up to Rs 12 lakh will no longer be taxed under the new system. This is meant to give people more money to spend and encourage them to invest it.
Tax Relief Plans for Financial Year 2025–2026
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The government has suggested several tax-friendly measures in the Union Budget for FY 2025–26. The Section 87A refund has been raised from ₹25,000 to ₹60,000, which means that people with incomes up to ₹12 lakh will not have to pay any taxes. You can now get a minimum exemption of ₹4 lakh instead of ₹3 lakh. For salaried people, the standard deduction of ₹75,000 stays the same. However, the employer’s NPS payment deduction under Section 80CCD(2) has gone up from 10% to 14% of basic salary.
Surcharge rates haven’t changed, but the old tax system added a new benefit: parents who put money into the NPS Vatsalya plan for their kids can now get an extra deduction under Section 80CCD(1b), on top of the ₹1.5 lakh limit under Section 80C.
| Tax Benefit / Rule | FY 2024-25 | FY 2025-26 (Proposed) |
|---|---|---|
| Section 87A Rebate Limit | ₹25,000 rebate for incomes up to ₹7 lakh | ₹60,000 rebate extended to incomes up to ₹12 lakh |
| Tax-Free Income Threshold (New Regime) | No tax payable up to ₹7 lakh (post rebate) | No tax payable up to ₹12 lakh (post rebate) |
| Minimum Taxable Income Exemption (New Regime) | Income below ₹3 lakh is tax-exempt | Income below ₹4 lakh is tax-exempt |
| Standard Deduction for Salaried Employees | ₹75,000 deduction from salary income | ₹75,000 deduction (unchanged) |
| Employer’s NPS Deduction – Section 80CCD(2) | 10% of basic salary eligible for tax benefit | Increased to 14% of basic salary |
| Surcharge on Taxable Income | Applicable as per existing slabs | No revision proposed |
| New Benefit in Old Regime | Not applicable | Deduction allowed under Section 80CCD(1b) for NPS Vatsalya |
New Income Tax Slabs for FY 2025–26 (AY 2026-27) – New Tax System
Beginning with 0% tax on income up to ₹4 lakh, the new tax system has increasing slab rates for FY 2025–26. If your income is between ₹4 lakh and ₹8 lakh, you pay 5% tax. If your income is between ₹8 lakh and 12 lakh, you pay 10% tax, then 15% tax, then 20% tax on ₹12 lakh to 16 lakh, 25% tax on ₹16 lakh to 20 lakh, and 30% tax on ₹20 lakh and 24 lakh. The goal of these changes is to help middle-income workers more and make it easier to figure out their taxes.
| Annual Income Bracket (₹) | Applicable Tax Rate |
|---|---|
| ₹0 to ₹4,00,000 | No tax (0%) |
| ₹4,00,001 to ₹8,00,000 | Taxed at 5% |
| ₹8,00,001 to ₹12,00,000 | Taxed at 10% |
| ₹12,00,001 to ₹16,00,000 | Taxed at 15% |
| ₹16,00,001 to ₹20,00,000 | Taxed at 20% |
| ₹20,00,001 to ₹24,00,000 | Taxed at 25% |
| Above ₹24,00,000 | The highest rate of 30% applies |
Important: If your net taxable income is ₹12 lakh or less, you’ll pay zero income tax thanks to the enhanced Section 87A rebate of ₹60,000.
New Tax Regime Slabs for FY 2024-25 (AY 2025-26)
Under the new income tax regime for FY 2024-25, individuals are taxed as per simplified slab rates. Income up to ₹3 lakh is fully exempt. The next slabs progressively increase, starting at 5% for income above ₹3 lakh and going up to 30% for income exceeding ₹15 lakh. This regime applies by default unless the taxpayer opts for the old regime while filing their ITR.
| Income Bracket (₹) | Tax Rate Applied |
|---|---|
| ₹0 – ₹3,00,000 | 0% (No tax) |
| ₹3,00,001 – ₹7,00,000 | 5% |
| ₹7,00,001 – ₹10,00,000 | 10% |
| ₹10,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% (Highest slab rate) |
Note: This structure is part of the default tax regime introduced to ease compliance, unless a taxpayer specifically opts for the old regime.
Old Tax Regime Slabs for FY 2025-26 (Unchanged)
The income tax slabs under the old regime remain the same for FY 2025-26. These slabs vary based on the age of the individual taxpayer, offering higher basic exemption limits for senior and super senior citizens.
Individuals Below 60 Years of Age
For taxpayers under the age of 60, the first ₹2.5 lakh of income is exempt from tax. Earnings from ₹2.5 lakh to ₹5 lakh are taxed at 5%, income between ₹5 lakh and ₹10 lakh is taxed at 20%, and any amount exceeding ₹10 lakh is taxed at 30%. Those under 60 years of age are taxed as follows:
| Taxable Income (₹) | Applicable Rate |
|---|---|
| Up to ₹2,50,000 | Nil (0%) |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Senior Citizens (Aged 60 to Below 80 Years)
Individuals aged between 60 and 80 years, classified as senior citizens, benefit from an increased tax exemption limit of ₹3 lakh. Income from ₹3 lakh to ₹5 lakh is taxed at 5%, earnings between ₹5 lakh and ₹10 lakh are taxed at 20%, and any income above ₹10 lakh is taxed at 30%. Taxpayers aged between 60 and 80 years enjoy a slightly higher tax exemption:
| Taxable Income (₹) | Applicable Rate |
|---|---|
| Up to ₹3,00,000 | Nil (0%) |
| ₹3,00,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Super Senior Citizens (Aged 80 Years and Above)
Super senior citizens, who are 80 years or older, are entitled to a complete tax exemption on income up to ₹5 lakh. Income between ₹5 lakh and ₹10 lakh is taxed at 20%, while any income exceeding ₹10 lakh is subject to a 30% tax rate. Those aged 80 and above benefit from the highest basic exemption:
| Taxable Income (₹) | Applicable Rate |
|---|---|
| Up to ₹5,00,000 | Nil (0%) |
| ₹5,00,001 – ₹10,00,000 | 20% |
| Above ₹10,00,000 | 30% |
Standard and Other Deductions Under the New Tax Regime
Under the new tax regime, salaried employees are eligible for a standard deduction of ₹75,000, while individuals receiving a family pension can claim a deduction of ₹25,000. In addition, employees can also avail a deduction of up to 14% of their basic salary for the employer’s contribution to the National Pension System (NPS) under Section 80CCD(2).
| Type of Deduction | Amount / Limit |
|---|---|
| Standard Deduction (Salaried) | ₹75,000 |
| Standard Deduction (Family Pensioners) | ₹25,000 |
| Employer’s NPS Contribution (80CCD(2)) | Up to 14% of basic salary |
Note: These rates are part of the old tax regime, which allows for multiple deductions and exemptions such as under Sections 80C, 80D, HRA, LTA, and more. Taxpayers must opt in for this regime while filing their returns.
Section 87A Rebate: Old vs New Tax Regime
Starting FY 2025-26, the Section 87A rebate has been significantly enhanced under the new tax regime. Taxpayers with income up to ₹12 lakh will be eligible for a rebate of ₹60,000, effectively making their tax liability zero.
In comparison, for FY 2024-25, the rebate under the new regime was ₹25,000, applicable only to incomes up to ₹7 lakh.
Under the old tax regime, the rebate remains unchanged at ₹12,500, available to individuals whose taxable income does not exceed ₹5 lakh.
| Tax Regime | Income Limit for Rebate | Maximum Rebate Amount |
|---|---|---|
| New Regime (FY 2025-26) | Up to ₹12,00,000 | ₹60,000 |
| New Regime (FY 2024-25) | Up to ₹7,00,000 | ₹25,000 |
| Old Regime (All Years) | Up to ₹5,00,000 | ₹12,500 |
Surcharge Rates for High-Income Individuals
A surcharge is an additional tax levied on individuals with higher income levels and applies over and above the regular income tax liability. The surcharge varies depending on total taxable income and the tax regime chosen.
For both the old and new tax regimes, no surcharge is applicable if the total income is up to ₹50 lakh. Income between ₹50 lakh and ₹1 crore attracts a 10% surcharge, while income from ₹1 crore to ₹2 crore is subject to a 15% surcharge. For incomes between ₹2 crore and ₹5 crore, the surcharge increases to 25%.
However, for income above ₹5 crore, the surcharge rate differs:
- Under the new tax regime, it remains 25%
- Under the old tax regime, it is higher at 37%
Note: For certain types of income like capital gains and dividends, the surcharge is capped at 15% across both regimes.
| Total Income (₹) | Surcharge Rate |
|---|---|
| Up to ₹50 lakh | No surcharge (0%) |
| ₹50 lakh – ₹1 crore | 10% |
| ₹1 crore – ₹2 crore | 15% |
| ₹2 crore – ₹5 crore | 25% |
| Above ₹5 crore | 25% (New Regime), 37% (Old Regime) |
Frequently Asked Questions
What are the major income tax changes effective from April 1, 2025?
Starting April 1, 2025, the Indian government is implementing major tax reforms through the Union Budget 2025–26. Key highlights include a higher basic exemption limit, revamped tax slabs, and zero tax on income up to ₹12 lakh under the new regime. These changes aim to simplify tax filing, boost savings, and increase disposable income for all types of taxpayers—salaried, self-employed, and small business owners.
What are the key tax updates in Budget FY 2025–26?
The Section 87A rebate is raised to ₹60,000, making income up to ₹12 lakh tax-free. The basic exemption limit is now ₹4 lakh. Standard deduction stays at ₹75,000, and employer NPS contribution deduction under Section 80CCD(2) is increased to 14%. The old regime now allows an extra deduction under Section 80CCD(1b) for NPS Vatsalya investments. Surcharge rates remain unchanged.
What are the new income tax slab rates for FY 2025–26?
For FY 2025–26, the new tax regime starts with 0% tax up to ₹4 lakh, then applies 5% on ₹4–8 lakh, 10% on ₹8–12 lakh, 15% on ₹12–16 lakh, 20% on ₹16–20 lakh, 25% on ₹20–24 lakh, and 30% on income above ₹24 lakh. These revised slabs aim to offer more relief to middle-income taxpayers and simplify tax calculation.
What are the income tax slabs under the old regime for FY 2025–26?
For FY 2025–26, the old tax regime slabs remain unchanged and vary by age:
- Below 60 years: ₹2.5 lakh exempt, 5% on ₹2.5–5L, 20% on ₹5–10L, 30% above ₹10L
- Senior Citizens (60–80 years): ₹3 lakh exempt, then 5%, 20%, and 30% as above
- Super Senior Citizens (80+ years): ₹5 lakh exempt, 20% on ₹5–10L, 30% above ₹10L
What deductions are allowed under the new tax regime for FY 2025–26?
Under the new regime, salaried individuals get a standard deduction of ₹75,000, family pensioners can claim ₹25,000, and employees can claim up to 14% of basic salary as a deduction for the employer’s NPS contribution under Section 80CCD(2).