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As of April 1, 2025, India's income tax landscape is set to undergo significant transformations, marking a major shift towards simplifying the tax structure and offering relief to taxpayers across various income brackets. The new financial year, FY 2025-26, brings with it revised income tax slabs under the new tax regime, designed to provide substantial benefits to middle-income earners and enhance taxpayer compliance.
The new tax regime, now the default for taxpayers, features revised income tax slabs that aim to reduce the tax burden on individuals. Here's a breakdown of the new slabs:
One of the most significant advantages of these changes is the increased tax rebate under Section 87A. The rebate has been hiked to Rs 60,000, meaning individuals with a net taxable income of up to Rs 12 lakh will have no tax liability under the new regime. This marks a substantial increase from the previous rebate limit of Rs 25,000 applicable to incomes up to Rs 7 lakh [2][5].
Moreover, the basic exemption limit has been revised upwards to Rs 4 lakh from Rs 3 lakh under the new tax regime. This adjustment aligns with inflationary trends and ensures that individuals in lower-income brackets receive greater relief. Additionally, it reduces the number of taxpayers required to file returns, easing compliance burdens [1][5].
While the new tax regime offers simplified tax rates, it does not allow popular deductions available under the old regime. These include deductions under Section 80C (investments), Section 80D (health insurance premiums), and Section 80TTA (savings account interest). However, salaried individuals can claim a standard deduction of Rs 75,000 from salary income and an employer’s contribution of 14% to the NPS Tier-I account in the new regime [1][2].
The primary distinction between the old and new tax regimes is the availability of deductions and exemptions. While the new regime offers lower tax rates, it is essential for taxpayers to evaluate which regime is more beneficial based on their individual financial situations.
Old Tax Regime:
The Finance Bill 2025 introduces several other significant changes effective from April 1, 2025:
TDS Thresholds: Increased to reduce immediate tax liabilities:
Deemed Let-out Property: Relaxed conditions allow individuals to claim up to two house properties as self-occupied without any specific conditions [2].
Equalisation Levy: Abolished as of April 1, 2025, to streamline digital transactions and reduce regulatory complexity [5].
When deciding between the two regimes, taxpayers must consider their financial situation and available deductions:
Taxpayers without business income can switch between regimes annually, but those with business income can opt for the new regime only once.
The revised tax structure is designed to simplify compliance, reduce tax liabilities, and encourage more individuals to transition to the new regime. With enhanced rebates and lower tax rates, the government aims to make the new tax regime the preferred choice for a majority of taxpayers.
The financial year 2025-26 brings about significant reforms in India's income tax system, designed to simplify tax calculations and provide relief to middle-income earners. By understanding the new tax slabs, enhanced rebates, and other financial reforms, taxpayers can navigate these changes effectively and maximize their tax savings. As always, evaluating which tax regime is more beneficial based on individual circumstances remains crucial.
