Budget 2025: Income Tax Rebates Steals the Spotlight

The Union Budget for 2025 has brought significant changes to income tax slabs under the new tax regime. Surprisingly, if your income falls within ₹12 lakh, you won’t be liable to pay any taxes! It might sound like a dream come true, but let's delve into the numbers to see how this unfolds

Revised Slabs at a Glance

Income Range (₹)	Tax Rate
0 – 4,00,000	0%
4,00,001 – 8,00,000	5%
8,00,001 – 12,00,000	10%
12,00,001 – 16,00,000	15%
16,00,001 – 20,00,000	20%
20,00,001 – 24,00,000	25%
24,00,001 and above	30%

What does this mean?

If you earn less than ₹12 lakh, the new tax rebates and slab adjustments mean you might end up with zero tax liability. For those earning beyond, the tax rates progressively increase, culminating in a 30% rate for incomes above ₹24 lakh.

What Changed and Why It Matters

The goal behind these changes? Making the new tax regime more attractive compared to the old one. The government has also tweaked a few other aspects:

• Standard Deduction:

  1. Increased from ₹50,000 to ₹75,000 for salaried individuals.
  2. For family pensioners, the standard deduction now stands at ₹25,000 (up from ₹15,000).

• NPS Contribution Deduction:

  The deduction on the employer’s contribution to your NPS account has been raised from 10% to 14% of the basic salary.

• Basic Exemption Limit:

  For the new tax regime, this limit is hiked from ₹3 lakh to ₹4 lakh starting FY 2025-26.

• Tax Rebate (Section 87A):

  Now applies for taxable incomes up to ₹12 lakh (compared to ₹7 lakh earlier).

Is this all sunshine and rainbows?

Well, these changes are designed to benefit individuals who might not be able to squeeze out every deduction available under the old regime. In other words, if you’re not busy maximizing deductions, this new structure could work in your favor!

A Quick Comparison: Old vs. New Tax Regimes for FY 2024-25

Let’s take a moment to compare the tax slabs for FY 2024-25, so you can see the evolving landscape and make an informed decision every financial year.

New Tax Regime (FY 2024-25)

Income Range (₹)	Tax Rate
0 – 3,00,000	0%
3,00,001 – 7,00,000	5%
7,00,001 – 10,00,000	10%
10,00,001 – 12,00,000	15%
12,00,001 – 15,00,000	20%
15,00,001 and above	30%

Old Tax Regime (FY 2024-25)

The old regime gives you room to play with various deductions and exemptions, but the slabs are fixed based on age:

For individuals below 60 years:

Income Range (₹)	Tax Rate
0 – 2,50,000	0%
2,50,001 – 5,00,000	5%
5,00,001 – 10,00,000	20%
10,00,001 and above	30%

For Senior Citizens (60 to 80 years):

Income Range (₹)	Tax Rate
0 – 3,00,000	0%
3,00,001 – 5,00,000	5%
5,00,001 – 10,00,000	20%
10,00,001 and above	30%

For Super Senior Citizens (80+ years):

Income Range (₹)	Tax Rate
0 – 5,00,000	0%
5,00,001 – 10,00,000	20%
10,00,001 and above	30%

So, which regime should you choose? It really boils down to your specific financial situation. If you enjoy claiming various deductions (HRA, Section 80C, etc.), the old regime might still be your best bet. However, if you prefer simplicity and don’t have many deductions in play, the new regime—with its revamped slabs and rebates—could be the way to go.

Crunching the Numbers: How to Calculate Your Tax

Let’s play a quick “what if” scenario to see the new regime in action.

Example Under the New Regime (FY 2024-25)

Imagine your gross income is ₹20 lakh. You get a standard deduction of ₹75,000 and an employer’s NPS contribution of ₹2 lakh. Your taxable income becomes: 20,00,000 - (75,000 + 2,00,000) = 17,25,000

Tax Calculation:

• First ₹3,00,000:

  • No tax.

• Next ₹4,00,000 (₹3,00,001 to ₹7,00,000) @ 5%:

  • Tax = ₹20,000.

• Next ₹3,00,000 (₹7,00,001 to ₹10,00,000) @ 10%:

  • Tax = ₹30,000.

• Next ₹2,00,000 (₹10,00,001 to ₹12,00,000) @ 15%:

  • Tax = ₹30,000.

• Next ₹3,00,000 (₹12,00,001 to ₹15,00,000) @ 20%:

  • Tax = ₹60,000.

• Remaining ₹2,25,000 (above ₹15,00,000) @ 30%:

  • Tax = ₹67,000.

Total Tax = ₹20,000 + ₹30,000 + ₹30,000 + ₹60,000 + ₹67,500 = ₹2,07,500

Add a 4% cess on the total tax, and you’re looking at a final liability of roughly ₹2,15,800.

Example Under the Old Regime

Suppose you’re below 60 years old, with a gross income of ₹17 lakh and deductions as follows:

• Section 80C: ₹1.5 lakh

• NPS (Section 80CCD(1b)): ₹50,000

• Medical Insurance (Section 80D): ₹25,000

• Savings Account Interest (Section 80TTA): ₹10,000

Your taxable income becomes: 17,00,000 - (1,50,000 + 50,000 + 25,000 + 10,000) = 14,65,000

Tax Calculation:

• First ₹2,50,000:

  • No tax.

• Next ₹2,50,000 (₹2,50,001 to ₹5,00,000) @ 5%:

  • Tax = ₹12,500.

• Next ₹5,00,000 (₹5,00,001 to ₹10,00,000) @ 20%:

  • Tax = ₹1,00,000.

• Remaining ₹4,65,000 (above ₹10,00,000) @ 30%:

  • Tax = ₹1,39,500.

Total Tax = ₹12,500 + ₹1,00,000 + ₹1,39,500 = ₹2,52,000

Again, add a 4% cess to round off the final liability to about ₹2,62,080.

Surcharge: The Not-So-Secret Ingredient

Both regimes have a surcharge if your net taxable income exceeds ₹50 lakh. Under the new tax regime, the rates (effective from April 1, 2023) are:

Income Range (₹)	Tax Rate
Up to 50 lakh	Nil
More than 50 lakh but up to 1 crore	10%
More than 1 crore but up to 2 crore	15%
More than 2 crore	15

In contrast, the old regime may even go up to a 37% surcharge for very high incomes. And don’t forget—if your income includes capital gains from equities or dividend income, the surcharge is capped at 15%, regardless of how high you go. A quick tip: Always calculate your tax liability with and without the surcharge (and check if marginal relief applies) before making your final decision to pay tax.

Wrapping It Up

In a nutshell, the new tax regime is pushing for simplicity with attractive rebates for lower-income earners while still keeping the scales balanced for high earners. The revised slabs mean that if you’re earning up to ₹12 lakh, you might just be in the “no tax zone”—a welcome relief in these times. Choosing between the old and new regimes is a bit like picking your favourite ice cream flavour: it depends on your personal taste (or, in this case, your financial situation). If you love chasing deductions, the old regime is your jam. But if you’re all about streamlined simplicity, the new regime might be your best bet. Remember, the tax landscape is as dynamic as the stock market, so keep an eye on future budgets and tweaks. And while tax can be a head-scratcher, a little forward-thinking (and perhaps a dash of humor) can make all the difference when planning your finances. Stay curious, keep questioning, and may your calculations always add up in your favour!

In contrast, the old regime may even go up to a 37% surcharge for very high incomes. And don’t forget—if your income includes capital gains from equities or dividend income, the surcharge is capped at 15%, regardless of how high you go. A quick tip: Always calculate your tax liability with and without the surcharge (and check if marginal relief applies) before making your final decision to pay tax.