New Tax Regime 2025
Introduction
The Indian government has introduced changes to the tax system for the financial year 2025-26. The new tax regime offers lower tax rates but removes many deductions and exemptions. This guide will help you understand the new rules, compare them with the old regime, and choose the best option for your financial situation.
Key Updates in Budget 2025
- No tax for income up to Rs. 12 Lakhs: This is due to an increased rebate under the new regime, now set at Rs. 60,000.
- New Tax Slabs: The government has revised the tax slabs for FY 2025-26.
- Direct Tax Code: A new tax code will be presented in Parliament next week.
New Tax Slabs for FY 2025-26
Annual Income (INR) | Tax Rate |
Up to 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% |
What is an Income Tax Slab?
India follows a progressive tax system, meaning higher incomes are taxed at higher rates. Tax slabs are revised periodically, usually in the Union Budget.
Old vs. New Tax Regime (FY 2024-25 & FY 2025-26)
The old tax regime allows deductions and exemptions, whereas the new tax regime provides lower tax rates but no deductions. Below is a comparison:
New Tax Regime for FY 2024-25
Income Range (INR) | Tax Rate |
Up to 3,00,000 | Nil |
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% |
Old Tax Regime for FY 2024-25
Income Range (INR) | Tax Rate (Individuals Below 60 Years) |
Up to 2,50,000 | Nil |
2,50,001 – 3,00,000 | 5% |
3,00,001 – 5,00,000 | 5% |
5,00,001 – 10,00,000 | 20% |
Above 10,00,000 | 30% |
Key Features of the New Tax Regime
- Default Regime: The new tax regime is the default. To opt for the old regime, individuals must file Form 10-IEA.
- Higher Basic Exemption Limit: The exemption limit is Rs. 3 lakhs for all taxpayers, irrespective of age.
- Rebate Under Section 87A: Individuals earning up to Rs. 7 lakhs pay zero tax due to a rebate of Rs. 25,000.
- Lower Surcharge: The highest surcharge rate is now 25%, reduced from 37% in the old regime.
When Can I Opt for Old vs. New Regime?
Choosing between the old and new tax regime depends on your income source and timing:
Income from Salary or Other TDS-Applied Sources
- At the start of the financial year, employees can choose their tax regime and inform their employer.
- If no selection is made, the new tax regime is the default.
- This choice cannot be modified during the financial year.
- However, the regime can be changed when filing the Income Tax Return (ITR).
Income from Business & Profession
- Taxpayers with business or professional income can only switch from the new to the old regime once in a lifetime.
- After opting out of the new regime, they can switch back to it only once in subsequent assessment years.
- The regime selection is made at the time of filing the ITR.
How to Choose Between Old and New Regime?
- Choose the new regime if: You have minimal tax-saving investments and prefer lower tax rates.
- Choose the old regime if: You claim multiple deductions like HRA, 80C, and medical insurance.
- Use a tax calculator: Compare your tax liability under both regimes before filing.
Conclusion
The new tax regime for FY 2025-26 simplifies the tax system with lower rates and fewer deductions. Taxpayers should assess their financial situation and select the most beneficial regime. Consulting a tax expert or using an online tax calculator can help in making the best choice.
Source: Income Tax Slab for FY 2024-25 & AY 2025-26 (New & Old Regime Tax Rates)
