Budget 2025 Income Tax Slabs and Rates Explained

Summary: Budget 2025 introduces significant changes to income tax slabs under the new tax regime for individuals. Key highlights include tax-free income up to ₹4,00,000, and progressive tax rates ranging from 5% to 30% for higher income brackets. Notably, the rebate limit for resident individuals has increased from ₹7,00,000 to ₹12,00,000, allowing tax-free income up to ₹12,75,000 for salaried individuals due to the standard deduction. Marginal relief is applicable for incomes slightly exceeding ₹12,00,000. Despite no changes in corporate, LLP, or partnership firm tax rates, individuals benefit from reduced taxes and simplified calculations. The health and education cess remains unchanged at 4%, and there are no updates to surcharge rates. The old tax regime continues to exist but remains less attractive compared to the new regime, which eliminates deductions in favor of lower rates. This budget emphasizes affordability for the average taxpayer while maintaining stability for higher-income and corporate sectors.

Introduction: In her recent budget presentation, the Honorable Finance Minister, Mrs. Nirmala Sitharaman made a profound statement that resonated deeply with citizens across the country: “Just as living beings live expecting rains, citizens live expecting good governance.” which underscores the significance of good governance in shaping the future of the nation, has struck a chord with the middle class, which views this budget as a potential “jackpot” for their financial well-being.

The briefings of some of the revision made in income tax slab and rates is explained below in the article.

PROPOSED TAX SLAB RATES UNDER NEW REGIME

For Assessment Year 2026-27 (i.e Financial Year 2025-26), substantial relief is proposed under the new tax regime with new slabs and tax rates as under:

These introduction of the proposed tax rates will be benefiting the Individuals with a lessor tax payment on their income which can be explained by way of below mentioned calculations in the table hereunder:

Till now i.e F.Y. 2024-25 Resident Individuals with the total income up to ` 7,00,000/- is not required to pay any tax due to rebate allowed to them under the new tax regime. In today’s budget it is proposed to increase the rebate for the resident individuals under the new tax regime if their total normal income is up to ` 12,00,000/- (other than special rate income such as capital gains).

“To summarize all above in simplified terms, now the individual having total income other than special rate income up to ` 12,00,000/- is not required to pay any income tax to the government. The said limit in case of salaried employees is ` 12,75,000/- due to standard deduction available to salaried employees of ` 75,000/-.  Marginal relief as provided earlier under the new tax regime is also applicable for income marginally higher than ` 12,00,000/-“

PROPOSED TAX SLAB RATES FOR CORPORATE, LLP’S AND PARTNERSHIP FIRMS

In budget 2025, there was no change in the tax slab rates for corporate entities, LLP’s (Limited Liability Partnerships), and partnership firms. It means that the tax framework established in the previous fiscal year will remain unchanged and same tax rates will be continuing for these entities. This could be a bit of a disappointment for corporate sector who were hoping for some tax relief.

 PROPOSED SURCHARGE RATES AND CESS

The recent budget 2025 also didn’t include any changes to the surcharge rates for high-income individuals and corporate entities. That could be seen as a bit of a neutral stance, especially for high-income individuals and corporate entities, as surcharges are often where more significant tax impacts are felt.

Also, apart from the surcharge rates there were no changes to the cess rates in the recent budget, which means the health and education cess (currently set at 4%) remains unchanged.

 NO UPDATE ON THE FUTURE OF THE OLD TAX REGIME

With the introduction of the new tax regime as primary regime of tax since F.Y. 2023-24, which offers lower tax rates and no exemptions or deductions, the government seems to have made the old tax regime less attractive by comparison.

While the old tax regime still technically exists, the new one appears to be a strategic push to simplify the system and encourage more people to switch, especially with the promise of lower rates which can be seen from the recent amendments made by the government through budget 2025, in which there is change in the tax and slab rates in new regime but no such changes has been made in the old tax regime by the government from past couple of years which simply proves that the government might be aiming to indirectly remove the old tax regime.

For many people, though, the decision between the two will come down depending upon their specific financial situation. Those who have significant deductions (like for home loans, insurance premiums, etc.) may still prefer the old regime. But as per our opinion for an average taxpayer who may or may not have any deductions, the new regime is still likely to become the better choice which can be illustrated by the given below table as under:

*Deduction considered 80C ` 1,50,000/-, NPS ` 50,000/- Mediclaim Self and Parents ` 50,000/- and Housing Loan Interest ` 2,00,000/-

OUR OPINION

The new tax regime seems to be a positive development for the middle class, offering both immediate relief and long-term financial benefits. By simplifying the tax structure and reducing rates, the government is making it easier for middle-income individuals to manage their finances. This demonstrates a commitment to supporting the backbone of the economy.

However, the lack of changes to corporate tax rates may be due to the already competitive tax rates in place for companies. That said, there could have been some adjustment for LLPs and partnership firms, which have faced unchanged tax rates for a long time. These entities could benefit from a reduction, as they play a key role in economic growth.

Additionally, by maintaining the same surcharge rates, the government has indirectly provided benefits to high-net-worth individuals and corporations, helping them maintain their financial positions without additional burden.

Overall, while the government has taken steps to ease the tax burden on the middle class, there is room for adjustments in the corporate and partnership firm sectors.