The finance minister Mrs. Nirmala Sitaraman has introduced significant changes in Income Tax Slabs under new tax regime constituted in Union Budget 2025-26. The main aim for reconstructing the tax slabs was to provide relief and stimulate economic growth by increasing the disposable income of taxpayers in each income bracket. The tax slabs for the FY 2025-26 are as follows:
| New Income Range | New Income 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 ₹ 24,00,001 | 30% |
Features of New Tax Regime
- More Income Without Tax: You don’t have to pay any tax if your income is up to ₹4,00,000. Earlier, this basic exemption limit was ₹3,00,000.
- Lower Tax Rates for All: The government has made tax rates lower, so you pay less tax even if you earn more.
- Choice is Yours: You can choose between the new system (less tax, no deductions) or the old system (more tax, but with deductions like 80C, HRA, etc.), whichever saves you more money.
It’s important to note that while the new tax regime offers lower tax rates, it does not allow certain exemptions and deductions available under the old regime, such as those for House Rent Allowance (HRA), Leave Travel Concession (LTC), and deductions under Section 80C. Taxpayers should carefully evaluate both regimes to determine which is more beneficial based on their income and eligible deductions.
Rebate Under Section 87A
This is one of the most taxpayer-friendly changes in the budget. If your net income after deductions is up to ₹12 lakhs, you pay zero income tax under the new regime. That’s a big jump from the old ₹7 lakh threshold.
• The tax rebate under Section 87A has been increased to ₹60,000 (up from ₹25,000).
• This move especially helps middle-income and lower-income earners, more money in hand, less tax stress.
Few Things to Remember
• The new tax regime is now the default, so if you prefer the old one, you’ll have to manually opt for it while filing your return.
• Salaried individuals can switch between regimes every year.
• Business owners or professionals can switch only once, and once you move to the new regime, there’s no going back.
The updated tax framework is designed to simplify adherence, lower tax burdens, and motivate more people to adopt the new tax regime. By offering increased rebates and reduced tax rates, the government aims to make the new regime the preferred choice for most taxpayers.
Key Deductions
Unlike the old tax regime, which allowed numerous exemptions and deductions, the new one offers limited deductions but lower tax rates.
Standard Deduction of ₹50,000 [Section 16(ia)]
Under the new tax system, salaried individuals or pensioners can reduce their taxable income by ₹50,000. This benefit is called the standard deduction. It was not allowed earlier but was added back in the 2023 budget, and is now available under Section 115BAC. For example, if your yearly salary is ₹10,00,000, you will only have to pay tax on ₹9,50,000 after using this deduction.
Employer’s Contribution to NPS [Section 80CCD(2)]
Under the new tax regime, you can still get a tax benefit for the employer’s contribution to the National Pension System (NPS) under Section 80CCD(2). For the employees working under private sector, can contribute up to 10% of their salaries (Basic + Dearness Allowance), and up to 14% for central government employees. It’s important to note that this benefit is only for employer contributions, not employee contributions (which fall under Section 80CCD(1) and are not allowed in the new regime).
Transport Allowance for Differently-Abled Employees [Section 10(14) and Rule 2BB]
Under the new tax system, differently-abled employees can get a tax-free transport allowance of ₹3,200 per month (which adds up to ₹38,400 in a year). This is allowed under Section 10(14) and Rule 2BB of the Income Tax Rules. It is meant to help cover travel expenses and is still available under the new tax regime, giving significant tax relief to taxpayers with disabilities.
Conveyance Allowance for Official Duties [Section 10(14)]
Employees who receive a conveyance allowance for official duties, such as travel required for work purposes, are still eligible to claim an exemption under Section 10(14). This means the money received for work-related travel won’t be taxed, but only up to the actual amount spent. To get this benefit, the employee must keep proof of the expenses, like bills or travel records. This helps people who travel often for work save on taxes.
Other Allowances: Tour, Daily, Helper, and Uniform Allowance [Section 10(14) and Rule 2BB]
Under the new tax system, some work-related allowances are still tax-free as per Section 10(14) and Rule 2BB. These include money given to employees for official tours or transfers, daily expenses while traveling for work, hiring a helper for office tasks, and buying or maintaining a work uniform. These allowances are not taxed as long as they are actually spent for the purpose they were given and supported with proper records or bills.
Deductions Not Allowed Under the New Regime
To avoid confusion, it’s important to know which deductions are not allowed under the new tax system. These include:
- Section 80C for things like PPF, ELSS, and life insurance premiums
- Section 80D for health insurance payments
- Section 24(b) for interest on home loans (for self-owned homes)
- HRA and LTA money received for house rent and travel within India
- Section 80G for donations to charities
- Section 80E for interest paid on education loans
Conclusion
The new tax regime provides lower tax rates but limits most common deductions. It benefits individuals with fewer investments or tax-saving expenses. However, deductions like standard deduction and employer NPS contributions are still allowed. Taxpayers should compare both regimes to choose the one that offers the most savings based on their income and plans.
Disclaimer: The content provided on this blog is for information purposes only and does not constitute professional tax advice. We strongly recommend that you consult with a qualified tax professional, tax advisor, or auditor before making any tax filings. Your financial situation is unique, and professional guidance is essential to making informed decisions.
