Summary: The Union Budget 2025 introduced changes to the income tax slabs for the new tax regime effective from FY 2025-26 (AY 2026-27). The tax slabs are structured in a progressive manner, with rates ranging from 0% to 30% for incomes exceeding ₹24 lakh. Additionally, the tax rebate under Section 87A has been raised to ₹60,000, which will ensure zero tax liability for those earning up to ₹12 lakh. In comparison, the old tax regime continues with its existing slabs, offering exemptions and deductions on various expenses, such as HRA, home loan interest, and insurance premiums. However, many of these deductions are unavailable under the new regime. Taxpayers can benefit from the new regime if they have minimal investments or prefer a simplified tax structure, while those with significant deductions, such as those related to insurance or home loans, may find the old regime more beneficial. A detailed analysis should be done to evaluate which regime will yield the lowest tax liability based on individual financial circumstances.
Latest Income Tax Slab and Rates – FY 2025-26 (AY 2026-27) | FY 2024-25 (AY 2025-26)
The finance minister Nirmala Sitharaman has made changes in the income tax slabs under the new tax regime in Union Budget 2025. The new income tax slabs under the new tax regime will come into effect from April 1, 2025 for the upcoming financial year 2025-26.
Apart from making income tax changes, the tax rebate under Section 87A has been proposed to be hiked to Rs 60,000. The proposed hike in tax rebate under Section 87A will ensure that there is zero tax payable on incomes up to Rs 12 lakh.
There is no change in the surcharge levied on the income tax liability under the new tax regime for FY 2025-26.
Here are the proposed income tax slabs under new tax regime for FY 2025-26 (AY 2026-27)
| Income tax slabs (Rs) | Income tax rate (%) |
| From 0 to 4,00,000 | 0 |
| From 4,00,001 to 8,00,000 | 5 |
| From 8,00,001 to 12,00,000 | 10 |
| From 12,00,001 to 16,00,000 | 15 |
| From 16,00,001 to 20,00,000 | 20 |
| From 20,00,001 to 24,00,000 | 25 |
| From 24,00,001 and above | 30 |
Given below are the income tax rates for FY 2024-25 (AY 2025-26), FY 2023-24 (AY 2024-25), FY 2022-23 (AY 2023-24) and FY 2021-22 (AY 2022-23) under the old tax regime.
| Income tax slabs for individuals under old tax regime | |
| Income tax slabs (Rs) | Income tax rates (%) |
| From 0 to 2,50,000 | 0 |
| From 2,50,001 to 5,00,000 | 5 |
| From 5,00,001 to 10,00,000 | 20 |
| From 10,00,001 and above | 30 |
Here is an example of how to calculate income tax payable under the new tax regime.
Suppose an individual’s gross total income is Rs 20 lakh in FY 2024-25. He/she is eligible for standard deduction of Rs 75,000 in the current financial year and employer has deposited Rs 2 lakh in his/her Tier-I NPS account. This makes him eligible to claim deduction under section 80CCD (2) of the Income-tax Act.
| Particulars | Amount (In Rs) |
| Gross total income | 20,00,000 |
| Standard deduction from salary/pension | (75,000) |
| Deduction under section 80CCD (2) | (2,00,000) |
| Net taxable income | 17,25,000 |
Old vs New Tax Regime Slabs Comparison for FY 2024-25 (AY 2025-26)
| Old Regime | |||||
| For Normal Tax Payers | For Residents Aged 60-80 Years | For Residents Aged Greater Than 80 Years | |||
| Income Slabs | Income Tax Rates | Income Slabs | Income Tax Rates | Income Slabs | Income Tax Rates |
| Up to Rs.2.5 lakh | Nil | Upto Rs.3 lakh | NIL | Upto Rs.5 lakh | NIL |
| Rs.2.5 lakh – Rs.5 lakh | 5% on income which exceeds Rs.2.5 lakh | Rs.3 lakh – Rs.5 lakh | 5% on income which exceeds Rs.3 lakh | Rs.5 lakh – Rs.10 lakh | 20% on income which exceeds Rs.5 lakh |
| Rs.5 lakh – Rs.10 lakh | Rs.12,500 + 20% on income more than Rs.5 lakh | Rs.5 lakh – Rs.10 lakh | Rs.10,000 + 20% on income more than Rs.5 lakh | Rs.10 lakh and above | Rs.1,00,000 + 30% on income more than Rs.10 lakh |
| Rs.10 lakh and above | Rs.1,12,500 + 30% on income more than Rs.10 lakh | Rs.10 lakh and above | Rs.1,10,000 + 30% on income more than Rs.10 lakh | – | – |
Individuals with net taxable income less than or equal to Rs.5 lakh will be eligible for tax rebate u/s 87A under the old tax regime, i.e. tax liability will be NIL.
What are the Exemptions and Deductions Not Available Under the New Regime?
The following are some of the major deductions and exemptions that are not available under the new tax regime:
Salary
- Professional tax and entertainment allowance on salaries
- Leave Travel Allowance (LTA)
- House Rent Allowance (HRA)
- Allowances to MPs/MLAs
- Helper allowance
- Children education allowance
- Other special allowances [Section 10(14)]
House Property
- Interest on housing loan on the self-occupied property or vacant property (Section 24)
Other Sources
- Minor child income allowance
Business or Profession
- Additional depreciation under section 32(1)(iia)
- Deductions under section 32AD, 33AB, 33ABA
- Various deductions for donation for or expenditure on scientific research contained in section 35(2AA) or 35(1)(ii) or (iia) or (iii)
- Deduction under section 35AD or section 35CCC
- Exemption under section 10AA for SEZ units
Chapter VI A Deductions
- The deduction under Section 80TTA/80TTB
- Section 80C, 80D, 80E and so on, except Section 80CCD(2) and Section 80JJAA
- Exemption or deduction for any other perquisites or allowances including food allowance of Rs.50/meal subject to 2 meals a day
- Employee’s (own) contribution to NPS
- Donation to Political party/trust, etc
What are the Exemptions and Deductions Available Under the New Regime?
The following are deductions and exemptions that are available under the new tax regime:
Salary
- Transport allowances in case of a specially-abled person.
- Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
- Any compensation received to meet the cost of travel on tour or transfer.
- Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty.
- Perquisites for official purposes
- Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA)
- Budget 2023 introduced a standard deduction of Rs.50,000 under New Tax Regime applicable from FY 2023-24. This has been increased to Rs.75,000 in Budget 2024 applicable from FY 2024-25
House Property
- Interest on Home Loan on let-out property (Section 24)
Other Sources
- Gifts up to Rs. 50,000
- Budget 2023 also introduced deduction under Section 57(iia) of family pension income. In Budget 2024 Limit of maximum Deduction under Family Pension has been increased from Rs.15,000 to Rs.25,000.
Chapter VI A Deductions
- Deduction for employer’s contribution to NPS account [Section 80CCD(2)]
- Deduction for additional employee cost (Section 80JJA)
- Budget 2023 further introduced deduction of amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2)
- The deduction on employers contribution to pension Scheme as per Section 80CCD (2) has been increased from 10% of salary to the 14% of salary in Budget 2024.
Old Tax Regime Vs New Tax Regime – Analysis of Deductions
A comparative analysis of deductions available in new regime and old regime is given below:
| Deduction | Old Regime | New Regime |
| House Rent Allowance | Exemption up to a certain limit. | NOT AVAILABLE |
| Relocation Allowance | AVAILABLE | NOT AVAILABLE |
| Leave Travel Allowance | Actual travel ticket expenses exempt for two trips in 4 years under 10(5). | NOT AVAILABLE |
| Transport allowances in case of a specially-abled person. | AVAILABLE | AVAILABLE |
| Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment. | AVAILABLE | AVAILABLE |
| Any compensation received to meet the cost of travel on tour or transfer. | AVAILABLE | AVAILABLE |
| Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty. | AVAILABLE | AVAILABLE |
| Perquisites for official purposes | AVAILABLE | AVAILABLE |
| Mobile Reimbursement | Exempt if:
– used predominantly for office purposes – proofs/bills submitted |
NOT AVAILABLE |
| Food Expenses | Rs.50 per meal (max 2 meals a day)Annual=
Rs.26,400 (50*2*22 days*12 months) |
NOT AVAILABLE |
| Children’s Education and Hostel allowance | Rs. 4,800 per child (max 2 children) | NOT AVAILABLE |
| Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA) | AVAILABLE | AVAILABLE |
| Professional Tax Deduction under section 16 | AVAILABLE | NOT AVAILABLE |
| Standard deduction | Rs.50,000 | Rs.75,000 |
| Interest on Home Loan on let-out property (Section 24) | AVAILABLE | AVAILABLE |
| Interest on Home Loan on Self-occupied property (Section 24) | Allowed to the extent of Rs.2,00,000 | NOT AVAILABLE |
| Gifts up to Rs.50,000 | AVAILABLE | AVAILABLE |
| Family Pension u/s 57(iia) | One third of pension amount subject to a maximum limit of Rs.15,000 for FY 2025-2026. | One third of pension amount subject to a maximum limit of Rs.25,000 for Fy 2025-2026. |
| Deduction for additional employee cost (Section 80JJA) | AVAILABLE | AVAILABLE |
| Section 80CCH(2) deduction of amount paid or deposited in the Agniveer Corpus Fund | Available for the entire contribution made by applicants and the Central Government | Available for the entire contribution made by applicants and the Central Government |
| Deduction for employer’s contribution to NPS account [Section 80CCD(2)] | Actual contribution subject to a maximum limit of 10% of the salary | Actual contribution subject to a maximum limit of 14% of the salary |
| Section 80C:Investments made in pension funds, mutual funds, ULIPs, government savings schemes, life insurance premiums, home loan principal amount, education fees, etc. | Rs.1,50,000 | NOT AVAILABLE |
| Section 80CCD: Additional exemption for investment in the National Pension Scheme. | Rs.50,000 | NOT AVAILABLE |
| Section 80D: Tax deduction on health insurance premium payments made towards self or parents. | Self, your spouse, and your dependent children:
Rs.25,000 (Rs.50,000 if aged 60 and above) Parents: Rs.25,000 (Rs.50,000 if aged 60 and above) |
NOT AVAILABLE |
| 80TTA: Deduction on Savings account interest. | Rs.10,000 | NOT AVAILABLE |
| 80TTB: Deduction on interest on Deposits. | Rs.50,000 (Only for Senior Citizens) | NOT AVAILABLE |
| 80G: Donations to charitable organizations | AVAILABLE | NOT AVAILABLE |
| Maturity amount of a Life Insurance
Policy |
Maturity proceeds are tax-exempt if the sum assured is ≤:
– 20%: policies issued before 1 April 2012 – 10%: policies issued after 1 April 2012 – 15%: policies issued after 1 April 2013 for a person with disability or disease. |
Maturity proceeds are tax-exempt if the sum assured is ≤:
– 20%: policies issued before 1 April 2012 – 10%: policies issued after 1 April 2012 – 15%: policies issued after 1 April 2013 for a person with disability or disease. |
Old Tax Regime Vs New Tax Regime – Which is Better?
- Since the Basic Exemption Limit of Rs.5,00,000 is relaxed for super-senior citizens, the old regime is beneficial for them, even if they are middle-class earners.
- The new income tax regime is beneficial for people who make low investments. Therefore, if you invest less in tax-saving schemes, go for the new regime.
That being said, if you already have in place a financial plan for wealth creation by making investments in tax-saving instruments; medical claims and life insurance; making payments of children’s tuition fees; payment of EMIs on education loan; buying a house with a home loan; and so on, the old regime helps you with higher tax deductions and lower tax outgo.
In light of the above and considering the new income tax regime, if taxpayers want to opt for the concessional tax rates, they may evaluate both regimes. Hence, it is advisable to do a comparative evaluation and analysis under both regimes and then choose the most beneficial one, as it may vary from person to person.
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