Budget 2025 – Analysis of changes in Tax rates for Individuals: Budget 2025 proposes a major overhaul of individual income tax rates under the default tax regime (section 115BAC), applicable from Assessment Year 2026–27. The new slab offers nil tax on income up to ₹4 lakh, with progressive rates up to 30% beyond ₹24 lakh. Most notably, a full tax rebate under section 87A is now available for total income up to ₹12 lakh (excluding income taxed at special rates), with the rebate limit increased to ₹60,000. This means resident individuals opting for the default regime will effectively pay zero tax on normal income up to ₹12 lakh (after standard deduction). Marginal relief is also extended up to income of ₹12,70,588 to ensure tax does not exceed the incremental income. These changes aim to make the default regime more attractive. There is no change in tax slabs under the old regime.
The tax rates under default regime under section 115BAC has been proposed to be amended for Assessment Year 2026-2027 as follows:
Individual, HUF, Association of persons (other than Co-operative society), Body of individuals, Artificial juridical person:
| Sl. No. | Total income | Rate of tax |
| 1. | Upto Rs. 4,00,000 | Nil |
| 2. | From Rs. 4,00,001 to Rs. 8,00,000 | 5% |
| 3. | From Rs. 8,00,001 to Rs. 12,00,000 | 10% |
| 4. | From Rs. 12,00,001 to Rs. 16,00,000 | 15% |
| 5. | From Rs. 16,00,001 to Rs. 20,00,000 | 20% |
| 6. | From Rs. 20,00,001 to Rs. 24,00,000 | 25% |
| 7. | Above Rs. 24,00,000 | 30% |
From Assessment Year 2026-27 onwards, for an assessee, being an individual resident in India whose income is chargeable to tax under the section 115BAC(1A), it is proposed to,–
- Enhance the limit of total income for rebate from Rs. 7,00,000/- to Rs. 12,00,000/- and the limit of rebate in clause (a) of first proviso to section 87A from Rs. 25,000/- to Rs. 60,000/-.
- Marginal relief as provided earlier under section 115BAC is also applicable for income marginally higher than Rs.12,00,000/-.
- Further, such rebate of income-tax is not available on tax on incomes chargeable at special rates (Eg: Capital gains u/s 111A, 112, 112A etc.).
Analysis:
- There is no change in tax rates for the assessee opting for old regime.
- The updated tax slab rates are applicable only for the default tax regime i.e. section 115BAC.
- The new tax rates are resulting in no tax liability for the Individual, HUF, APO, BOI, Artificial Juridical Person (AJP) upto the income of Rs.12,00,000/- (after standard deduction, as applicable) if the assessee opts to pay tax under default regime. Special rated income is not included in the limit of Rs.12,00,000/-.
- In order to give effect to these amended rates, the limit of rebate has also been amended so as to result in no tax liability upto income of Rs.12,00,000 (after standard deduction, as applicable).
- The assessee can continue to claim the marginal relief for income slightly higher than Rs.12,00,000 (after standard deduction).
- The following table will explain the provisions with example.
| Total Income | 12,00,000 | 12,70,500 | 12,70,588 | 12,75,000 |
| Tax as per new slab | ||||
| 0 – Rs.4 L – Nil | 0 | 0 | 0 | 0 |
| Rs.4 L – Rs.8 L – 5% | 20,000 | 20,000 | 20,000 | 20,000 |
| Rs.8 L – Rs.12 L – 10% | 40,000 | 40,000 | 40,000 | 40,000 |
| Rs.12 L – Rs.16 L – 15% | 0 | 10,575 | 10,588 | 11,250 |
| Total tax | 60,000 | 70,575 | 70,588 | 71,250 |
| Rebate 87A
Lower of 100% or Rs. 60,000 |
60,000 | 0 | 0 | 0 |
| Tax amount | 0 | 70,575 | 70,588 | 71,250 |
| Limit of Marginal relief | ||||
| Tax on Rs. 12 L + (Net taxable Income – Rs. 12 L) | 0 | 70,500 | 70,588 | 75,000 |
| Restricted to | 0 | 70,500 | 70,588 | 71,250 |
| Marginal relief | 0 | 75 | 0 | 0 |
Thus, assessee who is earning normal income (excluding special rated income) upto Rs.12,00,000 (after standard deduction) can claim marginal relief upto the income of Rs.12,70,588 (after standard deduction) and maximum tax in this case will not exceed the increase in income.
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