In the Union Budget for 2025-26, Finance Minister Nirmala Sitharaman announced a major change in the income tax slabs, providing significant relief to taxpayers. This blog post will explain the changes in detail, focusing on how the new tax slabs impact individuals and how income tax will now be calculated under these new provisions.
Overview of the Key Changes in the Income Tax Slabs
Previously, individuals earning up to ₹7 lakh annually were exempted from paying income tax. However, in the Budget 2025, this limit has been increased to ₹12 lakh. This means that if your total income is ₹12 lakh or less, you will not be required to pay any income tax.
However, there are some nuances to this change that many people find confusing, especially regarding the tax slabs between ₹4 lakh to ₹12 lakh. Let’s break this down further to clear all doubts.
How Income Tax Will Be Calculated
Income tax calculation is done based on tax slabs, and not simply a flat percentage across your entire income. So, the fact that your income is ₹15 lakh doesn’t mean you’ll pay 15% tax on the whole amount. Let’s dive into the new calculation method.
The New Tax Slabs
Here’s a breakdown of the new tax structure for annual incomes:
- ₹0 to ₹4 lakh – No tax
- ₹4 lakh to ₹8 lakh – 5% tax
- ₹8 lakh to ₹12 lakh – 10% tax
- ₹12 lakh and above – 15% tax
If your income is ₹15 lakh, you don’t pay 15% tax on the entire amount. Instead, the tax is calculated for each slab based on the income falling under that slab.
Example Calculation
Let’s consider an example where an individual earns ₹15 lakh annually. Here’s how the tax calculation would be done step by step:
- ₹0 to ₹4 lakh – No tax
- ₹4 lakh to ₹8 lakh – ₹4 lakh at 5% = ₹20,000
- ₹8 lakh to ₹12 lakh – ₹4 lakh at 10% = ₹40,000
- ₹12 lakh to ₹15 lakh – ₹3 lakh at 15% = ₹45,000
Total tax liability = ₹20,000 + ₹40,000 + ₹45,000 = ₹1,05,000
Thus, the total tax payable is ₹1,05,000.
Standard Deduction for Salary Class
For salaried individuals, there’s also a provision called Standard Deduction. This deduction reduces the taxable income for salaried employees. If you have a salary of ₹12,75,000, for example, you won’t have to pay tax on the additional ₹75,000, due to the standard deduction.
This deduction is aimed at easing the tax burden for salaried individuals, as many of them incur work-related expenses such as travel, home loan interest, and more.
Tax Rebate Under Section 87A
Another important concept that has been introduced is the Tax Rebate under Section 87A. This rebate means that if your income is ₹12 lakh or below, you may be eligible for a rebate that reduces your tax liability.
For instance, if your calculated tax liability is ₹20,000, you can avail of a rebate of ₹20,000, reducing your tax to zero. This effectively means that no one earning up to ₹12 lakh annually will have to pay income tax.
Saving on Tax – What Does This Mean for You?
Let’s compare the savings between the old and new tax slabs for someone earning ₹12 lakh:
- Old Tax Slabs (Before Budget 2025):
- ₹0 to ₹3 lakh – No tax
- ₹3 lakh to ₹7 lakh – 5% tax on ₹4 lakh = ₹20,000
- ₹7 lakh to ₹10 lakh – 10% tax on ₹3 lakh = ₹30,000
- ₹10 lakh to ₹12 lakh – 15% tax on ₹2 lakh = ₹30,000
- Total Tax Payable = ₹80,000
- Savings will be ₹80,000 as individual will get rebate.
- New Tax Slabs (Post Budget 2025):
- ₹0 to ₹4 lakh – No tax
- ₹4 lakh to ₹8 lakh – 5% tax on ₹4 lakh = ₹20,000
- ₹8 lakh to ₹12 lakh – 10% tax on ₹4 lakh = ₹40,000
- Total Tax Payable = ₹60,000
- Savings will be ₹60,000 as individual will get rebate.
Additional Savings for Higher Income
If your income exceeds ₹12 lakh, you will still benefit from the new tax regime. For example, if you earn ₹20 lakh, here’s how your savings would look:
- Old Tax Slabs (Before Budget 2025):
- ₹0 to ₹3 lakh – No tax
- ₹3 lakh to ₹7 lakh – 5% tax on ₹4 lakh = ₹20,000
- ₹7 lakh to ₹10 lakh – 10% tax on ₹3 lakh = ₹30,000
- ₹10 lakh to ₹12 lakh – 15% tax on ₹2 lakh = ₹30,000
- ₹12 lakh to ₹20 lakh – 15% tax on ₹8 lakh = ₹1,20,000
- Total Tax Payable = ₹1,80,000
- New Tax Slabs (Post Budget 2025):
- ₹0 to ₹4 lakh – No tax
- ₹4 lakh to ₹8 lakh – 5% tax on ₹4 lakh = ₹20,000
- ₹8 lakh to ₹12 lakh – 10% tax on ₹4 lakh = ₹40,000
- ₹12 lakh to ₹20 lakh – 15% tax on ₹8 lakh = ₹1,20,000
- Total Tax Payable = ₹1,80,000
The savings will depend on how much your income exceeds ₹12 lakh and where it falls in the slabs.
Conclusion
The changes in the income tax slabs introduced in Budget 2025 provide significant relief, especially for those earning up to ₹12 lakh. The new tax regime, along with the standard deduction and tax rebates, makes it more beneficial for salaried individuals and middle-income earners. While those earning above ₹12 lakh will not experience drastic changes, they will still benefit from some relief.
For detailed tax calculations and professional advice tailored to your specific situation, it’s always advisable to consult a tax expert.
Disclaimer: This article provides a general overview of the new income tax slabs as announced in Budget 2025. For accurate and personalized tax advice, please consult with a tax consultant.
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