New Income Tax Slabs for 2025: Old vs New Regime – Key Questions Answered

In the 2025 Budget, Finance Minister Nirmala Sitharaman introduced significant revisions to the income tax slabs under the new tax regime. These changes aim to ease the financial burden on middle-class taxpayers and promote economic consumption. However, many individuals are still unsure about how these revisions impact them, especially when considering whether to opt for the old tax regime or switch to the new one. In this blog, we address the most common questions surrounding the revised tax slabs and help you make an informed decision.

What Are the New Tax Slabs in 2025?

The revised income tax slabs in the new tax regime, as announced in the 2025 Budget, have been designed to make taxation simpler and more taxpayer-friendly. Here are the updated income tax brackets:

• • Income up to Rs 4 lakh: No tax

• Income from Rs 4 lakh to Rs 8 lakh: 5% tax
• Income from Rs 8 lakh to Rs 12 lakh: 10% tax
• Income from Rs 12 lakh to Rs 16 lakh: 15% tax
• Income from Rs 16 lakh to Rs 20 lakh: 20% tax
• Income from Rs 20 lakh to Rs 24 lakh: 25% tax
• Income above Rs 24 lakh: 30% tax

This structure simplifies the tax system, offering relief to middle-income earners and reducing the complexity of the previous tax slabs.

How Have the Slabs Changed in the New Regime?

The new tax regime brings several adjustments to the income tax slabs:

• Zero Tax Ceiling: The tax-free income ceiling has been increased from Rs 3 lakh to Rs 4 lakh.
• Modified Slab Brackets: The previous Rs 3 lakh to Rs 7 lakh slab has been revised to Rs 4 lakh to Rs 8 lakh, and the Rs 7 lakh to Rs 10 lakh bracket has been changed to Rs 8 lakh to Rs 12 lakh.
• Split of the 30% Tax Bracket: The earlier 30% tax rate on income above Rs 15 lakh has been broken down into three segments: 20% for income between Rs 16 lakh to Rs 20 lakh, 25% for income between Rs 20 lakh to Rs 24 lakh, and the highest 30% tax rate for income above Rs 24 lakh.

These changes aim to offer relief to taxpayers across different income groups, especially in the middle-income bracket.

How Will Income Up to Rs 12 Lakh Be Tax-Free?

The Budget also provides additional relief by allowing rebates for those earning up to Rs 12 lakh. With the inclusion of a standard deduction of Rs 75,000, the effective taxable income for a salaried individual can be up to Rs 12.75 lakh before any taxes are levied. For example:

• Income up to Rs 8 lakh: Tax-free
• Income from Rs 8 lakh to Rs 12 lakh: The tax liability will be reduced by a rebate ranging from Rs 10,000 to Rs 80,000, depending on the individual’s exact income.

This benefit helps reduce the financial strain on salaried individuals and encourages spending, which can boost consumption within the economy.

How Will Tax Be Calculated for an Income of Rs 16 Lakh?

Let’s break down how the new tax regime affects someone earning Rs 16 lakh annually:

• Up to Rs 4 lakh: No tax
• Rs 4 lakh to Rs 8 lakh: 5% tax, which equals Rs 20,000
• Rs 8 lakh to Rs 12 lakh: 10% tax, which equals Rs 40,000
• Rs 12 lakh to Rs 16 lakh: 15% tax, which equals Rs 60,000

The total tax payable would be Rs 1,20,000. This is Rs 50,000 less than what you would pay under the old tax regime, making the new regime a more attractive option for individuals in this income range.

What About High-Salary Earners?

For individuals with higher incomes, such as those earning Rs 50 lakh annually, the revised slabs offer considerable savings. Under the new regime, an individual earning Rs 50 lakh will pay Rs 10,80,000 in taxes, which is Rs 1,10,000 less than what they would pay under the old structure. The changes provide substantial benefits to those in the middle and upper-middle-income brackets by reducing their overall tax liability.

What is the Old Tax Regime and How Does It Compare?

The old tax regime, which remains unchanged in the 2025 Budget, allows taxpayers to claim various exemptions such as House Rent Allowance (HRA), deductions under Section 80C (like for life insurance premiums and retirement savings), and interest on home loans.

In contrast, the new tax regime simplifies the process by eliminating exemptions but offers lower tax rates. The government is encouraging taxpayers to shift to the new tax regime to streamline the tax process.

Should You Switch from the Old to the New Tax Regime?

The decision to switch from the old regime to the new regime depends on your financial situation, especially how many exemptions you typically claim. For example, if your income is Rs 16 lakh and you claim Rs 4 lakh in exemptions under the old regime, your taxable income would drop to Rs 12 lakh, resulting in a tax liability of Rs 1,77,500. Under the new regime, however, the tax liability is only Rs 1,20,000, offering a significant saving of Rs 57,500.

If you claim fewer exemptions, the new tax regime will likely benefit you more due to its lower tax rates. However, if you have substantial exemptions, you may want to stick with the old regime.

Conclusion

The new income tax slabs announced in the 2025 Budget offer a significant relief to taxpayers, especially middle-income individuals. With lower tax rates, rebates, and a simpler structure, the new regime is a compelling option for many. However, whether to switch from the old regime depends on your specific financial profile, and taxpayers should weigh their exemptions carefully before making a decision.

FAQs

1. How do I know which tax regime is better for me?

The best tax regime for you depends on the exemptions and deductions you typically claim. If you claim significant exemptions, the old regime may work better. For others, the new regime with its lower tax rates could be more beneficial.

2. Is the new tax regime applicable to everyone?

The new tax regime is optional. You can choose between the old and new tax regimes depending on which one offers you the most savings.

3. Will the tax slab changes impact my refund?

Tax refunds may be affected based on the amount of tax deducted at source (TDS) and your overall tax liability. Under the new tax regime, with its lower rates, you may receive a larger refund if you have overpaid taxes through TDS.