Revised Income Tax Slabs for FY 2025-26: Key Takeaways and Changes

In a significant update for taxpayers, Finance Minister Nirmala Sitharaman announced the revised income tax slabs for the financial year 2025-26 during her recent Union Budget speech. The most noteworthy change is the introduction of a provision that allows individuals earning up to ₹12 lakh to pay zero tax, marking a substantial shift in the tax landscape for the upcoming financial year.

New Tax Regime Overview

Under the new tax regime, which is now the default regime, individuals will see a revision in income tax slabs, resulting in a lower tax burden for many. The standard deduction of ₹75,000 further raises the effective income level for tax exemption to ₹12.75 lakh for salaried individuals.

Changes in Income Tax Slabs

The revised income tax slabs have been set as follows:

Income up to ₹4 lakh: NIL tax
Income from ₹4 lakh to ₹8 lakh: 5%
Income from ₹8 lakh to ₹12 lakh: 10%
Income from ₹12 lakh to ₹16 lakh: 15%
Income from ₹16 lakh to ₹20 lakh: 20%
Income from ₹20 lakh to ₹24 lakh: 25%
Income above ₹24 lakh: 30%

This structured approach will ensure that taxpayers benefit from lower taxes at all income levels, including those earning more than ₹12 lakh per annum.

Tax Benefits Under the New Regime

The taxation strategy provided by these new slabs translates into substantial benefits for different income groups. For instance, a taxpayer with an income of ₹12 lakh will enjoy a complete tax exemption, which previously would have incurred a tax of ₹80,000. Similarly, taxpayers with higher incomes like ₹18 lakh and ₹25 lakh will see reduced tax liabilities of ₹70,000 and ₹1,10,000 respectively, compared to the old regime.

The Concept of Marginal Relief

To address concerns for individuals earning slightly above ₹12 lakh, a concept known as marginal relief has been introduced. This allows taxpayers just over the ₹12 lakh threshold to pay tax only on the amount exceeding ₹12 lakh, ensuring their total tax payment does not disproportionately increase with a slight rise in income.

For example, an individual earning ₹12,10,000 would have a theoretical tax of ₹61,500 based on previous slabs but, due to marginal relief, would only pay ₹10,000, thus reducing their tax impact.

Frequently Asked Questions (FAQs)

With the introduction of these new tax slabs, many taxpayers may have questions. The Income Tax Department has outlined responses to common queries regarding the new regime:

What is the ‘New Regime’?

The new regime offers concessional tax rates with no deductions allowed (barring specific exemptions such as those in sections 80JJAA, 80M, or the standard deduction).

Who will benefit from the new slabs?

The changes will benefit all individuals, Hindu Undivided Families (HUFs), and other relevant associations above the ₹12 lakh income level.

How does one claim the benefit of zero tax on an income of ₹12 lakh?

Taxpayers need solely to file their income tax returns (ITR) as the new regime applies automatically, ensuring they avail themselves of the rebates.

What is the maximum potential rebate?

The maximum rebate has been set at ₹60,000 for individuals with taxable income of ₹12 lakh, as calculated under the new slab rates.

Is the standard deduction available in the new regime?

Yes, a standard deduction of ₹75,000 is applicable in the new regime.

Conclusion

The revisions to income tax slabs for FY 2025-26 aim to provide relief to the middle-class taxpayer, fostering a more equitable tax system. The goal is to increase disposable income for individuals, encouraging saving and spending, contributing positively to the economy. Taxpayers are encouraged to consult with financial advisors to understand how these changes could affect their specific financial situations and to optimize their tax filings accordingly.