The finance minister Nirmala Sitharaman has introduced significant changes to the income tax slabs under the new tax regime in the Union Budget 2025. These new slabs will come into effect from April 1, 2025, for the financial year 2025-26. The restructuring of tax slabs aims to simplify the tax system and offer relief to taxpayers across different income brackets.
Under the revised income tax regime, effective from the financial year 2025–26, the tax slabs have been updated to provide progressive taxation based on income brackets. Individuals earning up to Rs. 4 lakh will not be taxed. Income between Rs. 4 lakh and Rs. 8 lakh will be taxed at 5%, while income from Rs. 8 lakh to Rs. 12 lakh will be taxed at 10%. For earnings between Rs. 12 lakh and Rs. 16 lakh, the applicable tax rate is 15%. Income falling in the range of Rs. 16 lakh to Rs. 20 lakh will attract a 20% tax. Those earning between Rs. 20 lakh and Rs. 24 lakh will be taxed at 25%, and any income above Rs. 24 lakh will be subject to a 30% tax rate.
The changes are expected to significantly reduce the tax burden on individuals, with potential tax savings of up to Rs 1.14 lakh per annum. Moreover, the new tax regime continues to remain the default tax regime, meaning taxpayers must actively opt for the old regime if they wish to claim deductions and exemptions available under it.
A major highlight of the Budget 2025 tax reforms is the increase in tax rebate under Section 87A. The rebate has been raised to Rs 60,000, ensuring that individuals with a net taxable income of up to Rs 12 lakh pay no income tax. This marks a substantial increase from the previous rebate limit of Rs 25,000, which applied to incomes up to Rs 7 lakh. Consequently, lower and middle-income taxpayers stand to benefit significantly from this reform.
Additionally, the basic exemption limit has been revised upwards from Rs 3 lakh to Rs 4 lakh under the new tax regime. This move aligns with inflationary trends and ensures that individuals in lower-income brackets receive relief. The higher exemption threshold also reduces the number of taxpayers required to file returns, easing compliance burdens.
Despite these changes, deductions under the new tax regime remain unchanged. Salaried individuals can continue to claim a standard deduction of Rs 75,000 from salary income, along with an employer’s contribution of 14% of the basic salary to the NPS Tier-I account. This ensures some level of tax benefit for salaried individuals, even without the traditional deductions allowed under the old regime.
The surcharge rates on income tax liability remain unchanged for FY 2025-26. This stability provides predictability for high-income earners, ensuring no additional tax burden beyond the standard slab rates.
While no significant modifications have been made to the old tax regime, one noteworthy change is the introduction of an additional deduction under Section 80CCD (1B) for parents investing in NPS Vatsalya for their children. This deduction, available over and above the Rs 1.5 lakh limit under Section 80C, allows an additional investment of up to Rs 50,000 in NPS to qualify for tax benefits. Furthermore, the tax rebate of Rs 12,500 remains unchanged for individuals with taxable incomes up to Rs 5 lakh under the old regime.
The primary distinction between the old and new tax regimes continues to be the availability of deductions and exemptions. While the new regime offers lower tax rates, it does not allow popular deductions such as Section 80C (Rs 1.5 lakh for specified investments), Section 80D (Rs 25,000/Rs 50,000 for health insurance premiums), and Section 80TTA (Rs 10,000 deduction for savings account interest). Taxpayers must carefully evaluate which regime is more beneficial based on their financial situation.
Under the old tax regime, the basic exemption limit is determined by age. For individuals below 60 years, it remains at Rs 2.5 lakh. Senior citizens (aged 60-79 years) have an exemption limit of Rs 3 lakh, while super senior citizens (aged 80 and above) benefit from a higher limit of Rs 5 lakh. This age-based slab structure continues to be a distinguishing factor of the old tax regime.
Taxpayers must specifically choose the old regime while filing their income tax returns, as the new regime is the default option. Those without business income can switch between the two regimes annually. However, taxpayers with business income can switch from the old to the new tax regime only once in a lifetime. Once they opt for the new regime, they cannot revert to the old regime in subsequent years.
Overall, the revised tax structure aims to simplify compliance, reduce tax liability, and encourage more individuals to transition to the new regime. With enhanced rebates and lower tax rates, the government seeks to make the new tax regime the preferred choice for a majority of taxpayers.
Budget 2025 has introduced new income tax slabs, bringing tax relief to many taxpayers. Under the proposed income tax slabs under the new tax regime for FY 2025-26 (AY 2026-27), incomes up to Rs. 4 lakh are now exempt from tax. These income tax slabs for FY 2025-26 (AY 2026-27) aim to simplify tax compliance while ensuring lower rates. The new regime remains the default option, encouraging wider adoption among taxpayers.
| New Income Tax Slabs for FY 2025-26 (AY 2026-27) | New Income Tax Rate for FY 2025-26 (AY 2026-27) |
| Up to Rs. 4,00,000 | NIL |
| From Rs. 4,00,001 to Rs. 8,00,000 | 5% |
| From Rs. 8,00,001 to Rs. 12,00,000 | 10% |
| From Rs. 12,00,001 to Rs. 16,00,000 | 15% |
| From Rs. 16,00,001 to Rs. 20,00,000 | 20% |
| From Rs. 20,00,001 to Rs. 24,00,000 | 25% |
| Above Rs. 24,00,001 | 30% |
The income tax rebate has been increased from Rs. 25,000 to Rs. 60,000 under the new tax regime. As a result of this enhanced rebate, individuals with an annual income of up to Rs. 12 lakh will have no tax liability. Additionally, salaried taxpayers can benefit from a standard deduction of Rs. 75,000, which means those earning up to Rs. 12.75 lakh annually will not be required to pay any income tax under the revised structure.
Additionally, the tax deduction limit for senior citizens has been doubled from Rs. 50,000 to Rs. 1 lakh, providing further relief to elderly taxpayers.
The government has introduced a new slab system under the new tax regime, making incomes up to Rs. 12 lakh completely tax-exempt. This change benefits a large section of taxpayers, reducing the overall tax burden and increasing disposable income. For salaried individuals, the tax-free limit is extended to Rs. 12.75 lakh, factoring in the Rs. 75,000 standard deduction.
However, once an individual\'s taxable income exceeds Rs. 12 lakh, tax applies to the entire taxable income based on the following revised rates:
| Taxable Income (Rs.) | Tax Rate (%) |
| 0 - 12,00,000 | Nil |
| 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% |
This marks a significant shift from the previous tax regime, where any income above Rs. 15 lakh was taxed at a flat 30% rate. With the revised brackets, individuals earning between Rs. 12 lakh and Rs. 24 lakh will see substantial tax savings, making the new tax regime more appealing for middle- and high-income earners. The changes aim to simplify tax compliance and offer financial relief to a broader section of taxpayers.
| Income Bracket | Tax Savings |
| Rs. 3 lakh to Rs. 7 lakh | Rs. 20,000 |
| Rs. 7 lakh to Rs. 10 lakh | Rs. 30,000 |
| Rs. 10 lakh to Rs. 12 lakh | Rs. 30,000 |
| Rs. 12 lakh to Rs. 15 lakh | Rs. 60,000 |
| Total Tax | Rs. 1,40,000 |
| Income Bracket | Tax Savings |
| Rs. 4 lakh to Rs. 8 lakh | Rs. 20,000 |
| Rs. 8 lakh to Rs. 12 lakh | Rs. 40,000 |
| Rs. 12 lakh to Rs. 15 lakh | Rs. 45,000 |
| Total Tax | Rs. 1,05,000 |
Net Tax Savings: Rs. 35,000 for those earning Rs. 15 lakh annually, even without the Section 87A rebate.
The Union Budget 2025 introduced significant amendments to the Indian income tax framework, aiming to simplify compliance, enhance transparency, and provide relief to taxpayers. These changes, effective from 1st April 2025, impact individual taxpayers, businesses, and investors. Below is a comprehensive overview:
The rebate under Section 87A for the new tax regime has been increased from Rs. 25,000 to Rs. 60,000. This enhancement means that individuals with taxable income up to Rs. 12 lakh will have no tax liability under the new regime. The rebate for the old tax regime remains unchanged at Rs. 12,500.
The threshold limits for Tax Deducted at Source (TDS) have been revised to reduce the compliance burden:
| Nature of Payment | Previous Threshold | Revised Threshold |
| Interest on deposits for senior citizens | Rs. 50,000 | Rs. 1,00,000 |
| Rent payments | Rs. 2.4 lakh | Rs. 6 lakh |
These changes aim to ease the tax compliance process for taxpayers.
| Total Income | Tax Calculation as per Existing Rates (Finance (No.2) Act, 2024) | Tax Calculation as per Proposed Rates | Benefit from Revised Tax Rates/Slabs | Rebate Advantage (Based on Proposed Rates) | Overall Benefit (Compared to Current Slab Rates) | Tax Payable Under the New Regime |
| Column: 1 | Column: 2 | Column: 3 | Column 4 = Column 3 – Column 2 | Column: 5 | Column 6 = Column 4 + Column 5 | Column: 7 |
| 8 lakh | 30,000 | 20,000 | 10,000 | 20,000 | 30,000 | 0 |
| 9 lakh | 40,000 | 30,000 | 10,000 | 30,000 | 40,000 | 0 |
| 10 lakh | 50,000 | 40,000 | 10,000 | 40,000 | 50,000 | 0 |
| 11 lakh | 65,000 | 50,000 | 15,000 | 50,000 | 65,000 | 0 |
| 12 lakh | 80,000 | 60,000 | 20,000 | 60,000 | 80,000 | 0 |
| 13 lakh | 1,00,000 | 75,000 | 25,000 | 0 | 25,000 | 75,000 |
| 14 lakh | 1,20,000 | 90,000 | 30,000 | 0 | 30,000 | 90,000 |
| 15 lakh | 1,40,000 | 1,05,000 | 35,000 | 0 | 35,000 | 1,05,000 |
| 16 lakh | 1,70,000 | 1,20,000 | 50,000 | 0 | 50,000 | 1,20,000 |
| 17 lakh | 2,00,000 | 1,40,000 | 60,000 | 0 | 60,000 | 1,40,000 |
| 18 lakh | 2,30,000 | 1,60,000 | 70,000 | 0 | 70,000 | 1,60,000 |
| 19 lakh | 2,60,000 | 1,80,000 | 80,000 | 0 | 80,000 | 1,80,000 |
| 20 lakh | 2,90,000 | 2,00,000 | 90,000 | 0 | 90,000 | 2,00,000 |
| 21 lakh | 3,20,000 | 2,25,000 | 95,000 | 0 | 95,000 | 2,25,000 |
| 22 lakh | 3,50,000 | 2,50,000 | 1,00,000 | 0 | 1,00,000 | 2,50,000 |
| 23 lakh | 3,80,000 | 2,75,000 | 1,05,000 | 0 | 1,05,000 | 2,75,000 |
| 24 lakh | 4,10,000 | 3,00,000 | 1,10,000 | 0 | 1,10,000 | 3,00,000 |
| 25 lakh | 4,40,000 | 3,30,000 | 1,10,000 | 0 | 1,10,000 | 3,30,000 |
| 50 lakh | 11,90,000 | 10,80,000 | 1,10,000 | 0 | 1,10,000 | 10,80,000 |
The taxation rules for Mutual Funds (MF), Portfolio Management Services (PMS), and Specialized Investment Funds (SIF) in India for the Financial Year (FY) 2025-26 are based on the Income Tax Act, 1961, as amended by the Finance Act, 2024 and any subsequent clarifications.
Disclaimer: Tax laws are complex and subject to change. This information is for general guidance only. You should consult a qualified tax professional for advice specific to your situation.
Here is a summary of the likely tax treatment for capital gains (CG) and dividends:
I. Mutual Fund (MF) Taxation (FY 2025-26)
MF taxation primarily depends on whether the fund is Equity-Oriented or Other-Than-Equity-Oriented.
| Fund Type | Holding Period | Nature of Gain | Tax Rate (Individual) (Plus Surcharge & Cess) |
|---|---|---|---|
| Equity-Oriented MF (Invests in domestic listed equity) | months | Short-Term Capital Gain (STCG) (Section 111A, effective from July 23, 2024) | months |
| months | Long-Term Capital Gain (LTCG) on gains exceeding lakh in a FY (Section 112A, effective from July 23, 2024) | ||
| Other-Than-Equity-Oriented MF (Debt, Gold, International Funds, etc.)* | Any period | Capital Gain (CG) | Taxed at your applicable income tax slab rate. |
Key Points for Mutual Funds:
LTCG Exemption: The first lakh of LTCG from equity shares and equity-oriented mutual funds is tax-free in a financial year (under Section 112A).
Debt Funds (Acquired on/after April 1, 2023): Gains are treated as Short-Term Capital Gains and taxed at the individual's slab rate, regardless of the holding period (no LTCG benefit or indexation).
Dividends: Dividends received from all mutual funds are fully taxable in the investor's hands at their applicable income tax slab rate. A Tax Deducted at Source (TDS) of is applicable if the total dividend distributed by a fund house to an investor exceeds in a financial year.
II. Portfolio Management Services (PMS) Taxation (FY 2025-26)
PMS investments are generally taxed similarly to direct investment in the underlying securities, as the securities are held directly in the investor's Demat account. The tax treatment often depends on whether the activity is classified as a capital asset transfer or business income.
| Nature of Income | Tax Treatment (Generally) |
|---|---|
| Capital Gains (Shares, Equity MFs, Units of Business Trust) | Same as direct equity: STCG (for months) is (Sec 111A). LTCG (for months) is on gains over lakh in a FY (Sec 112A). |
| Capital Gains (Other assets like unlisted shares, debt securities, etc.) | Taxed as per the holding period and asset type (e.g., with indexation benefit for LTCG, or slab rate for STCG). |
| Business Income | If the PMS activity is deemed a 'business,' the entire profit is taxed at your applicable income tax slab rate. This is common for high-frequency or high-volume trading strategies. |
| Dividends/Interest | Fully taxable at your applicable income tax slab rate. |
Key Points for PMS:
Investor-level Tax: The investor is responsible for calculating and paying the tax on gains and income. The portfolio manager typically provides a consolidated statement for tax filing.
Distinction from MF: PMS often retains the favorable LTCG rate (above lakh) for listed equity, unlike the newer rate for equity-oriented MFs (above lakh) effective from July 23, 2024.
Business Classification: The biggest variable is whether the IT Department classifies the activity as an investment or a business.
III. Specialized Investment Fund (SIF) Taxation (FY 2025-26)
Specialized Investment Funds (SIFs) are a new category introduced by SEBI, aiming to bridge the gap between MFs and Alternative Investment Funds (AIFs)/PMS. SIFs are typically taxed like mutual funds at the investor's level.
| Strategy Type | Holding Period | Nature of Gain | Tax Rate (Individual) (Plus Surcharge & Cess) |
|---|---|---|---|
| Equity-Oriented SIFs (Invest in equity) | months | Short-Term Capital Gain (STCG) (Sec 111A) | months |
| months | Long-Term Capital Gain (LTCG) on gains exceeding lakh in a FY (Sec 112A) | ||
| Debt/Other SIFs | months | Long-Term Capital Gain (LTCG) (No indexation benefit) | months |
| months | Short-Term Capital Gain (STCG) | Taxed at your applicable income tax slab rate. |
Key Points for SIFs:
MF-like Tax Treatment: The primary advantage of SIFs over AIFs or PMS is that they are designed to receive mutual fund-like taxation, which is generally simpler and more beneficial than the AIF or business income treatment.
No Indexation: The LTCG rate for non-equity assets (Debt/Other SIFs) is without indexation, which impacts the post-tax return.
Note: The tax rates mentioned above are the base rates and do not include the applicable surcharge (which varies based on the total income) and Health & Education Cess of
