New Income Tax Slabs 2025-26: Complete Guide to Union Budget 2025 Changes

What Changed in Budget 2025-26?

Finance Minister Nirmala Sitharaman presented the Union Budget 2025-26 on 1 February 2025, introducing one of the most taxpayer-friendly reforms in recent years. The revised slabs under the new tax regime (Section 115BAC) aim to put more money in the hands of the middle class.

The most significant change is the enhanced rebate under Section 87A. Previously, the rebate was available for income up to Rs 7 lakh. Now, it covers income up to Rs 12 lakh, effectively making this entire amount tax-free under the new regime.

For salaried individuals, when you add the standard deduction of Rs 75,000, the effective tax-free income rises to Rs 12,75,000.

New Tax Regime Slabs: FY 2025-26 (AY 2026-27)

Here are the revised slabs applicable from 1 April 2025:

| Income Slab (Rs) | Tax Rate | |---|---| | 0 - 4,00,000 | Nil | | 4,00,001 - 8,00,000 | 5% | | 8,00,001 - 12,00,000 | 10% | | 12,00,001 - 16,00,000 | 15% | | 16,00,001 - 20,00,000 | 20% | | 20,00,001 - 24,00,000 | 25% | | Above 24,00,000 | 30% |

Section 87A Rebate: If your total income (after standard deduction) does not exceed Rs 12,00,000, you receive a rebate equal to the tax payable. This means zero tax liability.

Old Regime vs New Regime: Side-by-Side Comparison

The old regime slabs (under Section 115BAC opt-out) remain unchanged:

| Income Slab (Rs) | Old Regime Rate | New Regime Rate | |---|---|---| | 0 - 2,50,000 | Nil | Nil | | 2,50,001 - 3,00,000 | 5% | Nil | | 3,00,001 - 4,00,000 | 5% | Nil | | 4,00,001 - 5,00,000 | 5% | 5% | | 5,00,001 - 8,00,000 | 20% | 5% | | 8,00,001 - 10,00,000 | 20% | 10% | | 10,00,001 - 12,00,000 | 30% | 10% | | 12,00,001 - 16,00,000 | 30% | 15% | | Above 16,00,000 | 30% | 20%-30% (graded) |

Key difference: The old regime allows deductions under Chapter VIA (80C, 80D, HRA, etc.) while the new regime offers lower rates but very limited deductions.

Worked Example: Tax Comparison for Rs 15 Lakh Salary

Mr. Sharma earns a gross salary of Rs 15,00,000 per annum.

Under the New Regime

| Particulars | Amount (Rs) | |---|---| | Gross Salary | 15,00,000 | | Less: Standard Deduction (Section 16(ia)) | 75,000 | | Taxable Income | 14,25,000 |

Tax Calculation:

• Rs 0 - 4,00,000: Nil
• Rs 4,00,001 - 8,00,000: 5% = Rs 20,000
• Rs 8,00,001 - 12,00,000: 10% = Rs 40,000
• Rs 12,00,001 - 14,25,000: 15% = Rs 33,750
• Total Tax = Rs 93,750
• Add: Cess @ 4% = Rs 3,750
• Total Payable = Rs 97,500

Under the Old Regime

| Particulars | Amount (Rs) | |---|---| | Gross Salary | 15,00,000 | | Less: Standard Deduction | 50,000 | | Less: Section 80C (PPF, ELSS, LIC) | 1,50,000 | | Less: Section 80D (Health Insurance) | 25,000 | | Less: HRA Exemption (estimated) | 1,80,000 | | Taxable Income | 11,95,000 |

Tax Calculation:

• Rs 0 - 2,50,000: Nil
• Rs 2,50,001 - 5,00,000: 5% = Rs 12,500
• Rs 5,00,001 - 10,00,000: 20% = Rs 1,00,000
• Rs 10,00,001 - 11,95,000: 30% = Rs 58,500
• Total Tax = Rs 1,71,000
• Add: Cess @ 4% = Rs 6,840
• Total Payable = Rs 1,77,840

Verdict for Mr. Sharma

The new regime saves him Rs 80,340 even after accounting for all deductions under the old regime. However, if Mr. Sharma had a home loan interest deduction under Section 24(b) of Rs 2,00,000, the old regime could become more competitive.

How to Choose: Decision Framework

Use this simple rule of thumb:

1. Total deductions less than Rs 3.75 lakh? New regime is almost certainly better.
2. Total deductions between Rs 3.75 lakh and Rs 5 lakh? Calculate both regimes carefully.
3. Total deductions above Rs 5 lakh? Old regime may save you more, but run the numbers.

Remember, the new regime is the default. Salaried individuals can switch between regimes every year. Business/profession taxpayers who opt out of the new regime can return only once.

Deductions NOT Available Under the New Regime

• Section 80C (PPF, ELSS, LIC, tuition fees)
• Section 80D (health insurance)
• Section 24(b) (home loan interest)
• HRA exemption
• LTA exemption
• Professional tax deduction (Section 16(iii))

Deductions Available Under Both Regimes

• Employer contribution to NPS under Section 80CCD(2) (up to 14% of salary)
• Standard deduction of Rs 75,000 (new regime) / Rs 50,000 (old regime)
• Agniveer Corpus Fund under Section 80CCH

Important Deadlines and Action Items

| Action | Deadline | |---|---| | Declare regime choice to employer | Start of FY (April 2025) | | File ITR for AY 2026-27 | 31 July 2026 | | Belated return | 31 December 2026 | | Revised return | 31 December 2026 |

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Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Tax laws are subject to change. Readers are advised to consult a qualified Chartered Accountant before making any tax-related decisions. The examples used are illustrative and may not reflect your individual tax situation.

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