Union Budget 2025 has revised the slab rates of income tax under the new tax regime for FY 2025-26 (AY 2026-27). The slab rates stretch from nil to thirty percent for individual incomes above ₹24 lakh per annum. Tax rebate under Section 87A has been enhanced by ₹60,000 for tax-free incomes below ₹12 lakh. The old tax regime, while keeping a slab structure, offered tax on deductions of home loan interest and insurance premiums.
There are two basic reasons for some common deductions like medical expenses and education loan interest, which do not apply in this new system: the not-so-favourable investment scenario for simple investments or financial profiles may prefer this easy tax way for added clarity. High deductions in well-insured home loans will, however, prefer the old scheme. A close look will identify the best option concerning the lowest tax liability, depending on personal circumstances.
Updated Income Tax Slabs and Rates – FY 2025-26 (AY 2026-27) | FY 2024-25 (AY 2025-26)
Finance Minister Nirmala Sitharaman announced revised income tax slabs under the new framework in the Union Budget 2025. These revised slabs will take effect on April 1, 2025, and apply to the financial year 2025-26. The proposal includes raising the Section 87A tax rebate to Rs 60,000 for taxpayers with incomes up to Rs 12 lakh. This hike grants zero tax liability for those earning up to Rs 12 lakh annually. There is no change in the surcharge on tax liability under the new system for FY 2025-26.
Proposed Income Tax Slabs under New Framework for FY 2025-26 (AY 2026-27)
Below is a quick tax regime Overview showing old system rates for recent years.
| 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 |
Here is the table of 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), depending on 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 |
Old system tax rates for FY 2024-25 (AY 2025-26) through FY 2021-22 (AY 2022-23).
An example below shows how to compute payable income tax under the new system for FY 2024-25. For example, suppose an individual’s gross total income reaches Rs 20 lakh in the financial year 2024-25. He is eligible for a standard deduction of Rs 75,000 in the current financial year. The employer recently deposited Rs 2 lakh in his Tier-I NPS account for retirement benefits. He can claim this deduction under section 80CCD(2) of the Income-tax Act, for example.
| 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 versus New Slab Rates for FY 2024-25 (AY 2025-26)
Individuals with net taxable income up to Rs 5 lakh qualify for a rebate under section 87A in the old system. Their resulting tax liability will be nil under this provision for incomes up to Rs 5 lakh.
| 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 | – | – |
Exemptions and Deductions Excluded from the New System
The list below shows major deductions and exemptions excluded from the new system:
Salary
- Professional tax and entertainment allowance on salaries
- Leave Travel Allowance (LTA)
- House Rent Allowance (HRA)
- Allowances to MPs/MLAs
- Helper allowance
- Children’s 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
- Gifts up to Rs 50000 received in a financial year remain exempt from tax under the Gifts Act.
- Budget 2023 introduced a deduction under Section 57(iiia) for family pension income with a limit of Rs 15000
Chapter VI: A Dedication
- Employer’s contribution to the employee’s NPS account qualifies for deduction under Section 80CCD(2) of the Income Tax Act
- Expenses on additional workers in specified sectors qualify for deduction under Section 80JJA of the Income Tax Act
- Budget 2023 allowed a deduction for sums paid or deposited in the Agniveer Corpus Fund under Section 80 CCH(2)
- Budget 2024 raised the limit on employer contributions to pension schemes from ten percent to fourteen percent under Section 80CCD(2)
Old Tax Regime Vs. New Tax Regime – Analysis of Deductions
- This comparison clarifies which deductions apply under each tax regime for individuals with diverse financial profiles.
| 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 Regime Vs. New Regime – Which Works Best?
- Super senior citizens benefit from a higher basic exemption limit of Rs. 5 lakh under the old regime
- The new tax regime suits taxpayers who make low investments and want a simpler tax plan
Taxpayers with tax-saving investments, medical claims or insurance premiums may enjoy larger deductions under the old tax regime. Home loan EMIs and education loan repayments also reduce taxable income in the old regime. Evaluating these options provides clarity on which tax plan suits the taxpayer’s unique financial profile and goals.