Budget 2025: Changes in Tax Slabs

Budget 2025 introduces new tax slabs offering significant relief to the middle class, with lower taxes and additional deductions, particularly for incomes up to ?12 lakh.

On February 1, 2025, Union Finance Minister Nirmala Sitharaman presented her 8th budget, with a focus on providing tax relief to India’s middle class. One of the most significant changes introduced was the overhaul of the income tax slabs, which aims to reduce the tax burden, particularly for those earning up to ?12 lakh.

New Tax Slabs: A Relief for the Middle Class

The revamped tax structure offers substantial benefits, especially for middle-income earners:

  • Old Slabs: Tax rates ranged from 5% for incomes over ?2.5 lakh, up to 30% for incomes above ?10 lakh.

  • New Slabs: Under the new regime, income up to ?4 lakh is tax-free, and the highest tax rate (30%) applies only to earnings above ?24 lakh. Other key changes include:

    • ?4 lakh to ?8 lakh → 5% tax

    • ?8 lakh to ?12 lakh → 10% tax

    • ?12 lakh to ?16 lakh → 15% tax

    • ?16 lakh to ?20 lakh → 20% tax

    • ?20 lakh to ?24 lakh → 25% tax

This shift significantly lowers taxes for those earning up to ?12 lakh.

Example: How the New Tax Regime Helps

Consider someone with an income of ?12 lakh:

  • Old Regime Tax Calculation:

    • ?1,72,500 plus 4% education cess.

  • New Regime Tax Calculation:

    • ?60,000 (after applying 10% on the ?4 lakh income from ?8 lakh to ?12 lakh).

    • With the Section 87A rebate (?60,000), this results in zero tax for those earning ?12 lakh.

Deductions and Rebates: Further Tax Reductions

Taxpayers with incomes above ?12 lakh need not worry about higher taxes. Several deductions are available to further reduce liabilities:

  • Standard Deduction: ?75,000 for salaried individuals and pensioners.

  • Section 87A Rebate: ?60,000 rebate under the new regime (?12,500 in the old regime).

  • Section 80C: Up to ?1.5 lakh for investments in PPF, LIC, ELSS, etc.

  • Section 80D: Health insurance premiums, ?25,000 for self/family and ?50,000 for senior citizens.

  • Section 80E: Deduction for education loan interest.

  • Section 80G: Donations to charity, eligible for 50-100% deduction.

Choosing Between Regimes

Taxpayers can opt for either the old or new tax regime based on their financial situation and investment choices. It’s advisable to consult a Chartered Accountant (CA) for tailored advice on which tax regime suits individual circumstances best.

Overall, Budget 2025 has provided significant relief for the middle class, lowering tax burdens and offering more options for reducing tax liabilities.

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