According to the new tax regime, the changes in the income tax slabs in India have been drastically changed in the Union Budget of FY 2025-26 (AY 2026-27). This year the government has been keen on ensuring that the tax structure is made easier, that the tax liabilities are minimized, and that the disposable income of middle-class taxpayers is increased.

The most notable one is that the amount of income taxable up to 12 lakh will now be tax-free under the new regime owing to a higher rebate of 60,000. Also, the basic exemption limit has been increased to 4 lakh, and this has been a great relief to the salaried taxpayers and small taxpayers.

We will have a closer look at the new income tax slabs in the FY 2025-26, differences between the old and the new tax regimes, and which one may be more favorable to you.

Some of the main highlights of Budget 2025 changes on income tax

•  The basic exemption limit was raised to 4 lakh in the new regime in lieu of 3 lakh.

• Increased Rebate Limit: Income up to 12 lakh is tax-free since there is a rebate of 60,000.

•  30 percent Tax Slab Shifted: This is currently applicable on income exceeding 24 lakh, as opposed to 15 lakh previously.

•  Increased TDS thresholds and rationalized rates to facilitate tax compliance.

•  The same old regime and the new regime persist, enabling taxpayers to make a selection depending on deductions and benefits.

Income Tax Slabs 2025-26 (AY 2026-27)—New Tax Regime.

The new regime of taxation (u/s 115BAC) gives reduced tax rates, although the deductions are less. This structure is advantageous to the individuals that do not take multiple exemptions, such as HRA, 80C, 80D, or home loan interest.

Income Range (Rs)              Tax rate (New Regime)

Up to ₹400,000                               Nil

₹400,001 – ₹800,000                        5%

₹800,001 – ₹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%

Above ₹24,00,000                               30%

Rebate under the New Regime

One of the incentives this year is a rebate of 60000 under 87A.

This means that all income up to ₹12 lakh is exempt from tax, making it zero-tax income.

Nevertheless, it should be remembered that this rebate does not pertain to special income like

• Capital gains—short term or long term.

• Income on cryptocurrency or digital assets.

• Speculative income and online gaming.

Old Tax Regime: Income Tax Slabs for FY 2025-26 (AY 2026-27).

The former regime still provides deductions and exemptions, including those provided by:

• Section 80C (Investments up to 150000),

• Subdivision 80D (Health insurance premium),

• HRA, LTA, and interest on home loans.

Household income (₹)           Tax rate (Old regime)

Up to ₹250,000                                         Nil

₹2,50,001 – ₹5,00,000                             5%

₹500,001 – ₹1,000,000                             20%

Above ₹10,00,000                                    30%

Section 87A rebate is also available on income up to 5 lakh in the old regime, and it is therefore tax-free.

Which is better, the New Tax Regime or the Old Tax Regime?

1. Comparison of Slabs

• Old Regime: It is higher with deductions and exemptions.

• New Regime: Reduced rates, but no significant deductions (except standard deduction and NPS employer contribution).

2. Other Differences

Verdict

The old regime might still be helpful in the case of a claim of more deductions (investments, mortgage loan, and insurance).

Nevertheless, in the case of salaried people, who have fewer deductions, there is a high tax savings and ease under the new regime.

Tax Calculation Example (FY 2025-26)

Example 1: Income ₹10 lakh

• Under New Regime:

•   ₹4 lakh exempt, next ₹4 lakh taxed at 5% = ₹20,000

•    ₹2 lakh taxed at 10% = ₹20,000

•    Total tax = ₹40,000 (before rebate)

•     Rebate [income < 12 lakh] = No tax payable.

Example 2: Income ₹20 lakh

• Under New Regime:

•   Tax = ₹20,000 (5%) + ₹40,000 (10%) + ₹60,000 (15%) + ₹80,000 (20%) = ₹200,000

•    Effective tax = ₹2 lakh + cess

How to Save Tax Under the New Regime (FY 2025-26)?

In spite of the fact that the majority of deductions are eliminated, you can still save tax with:

1. Contribution of employer to NPS (u/s 80CCD(2)) -10% of salary.

2. Standard Deduction—75,000 on salaried employees.

3. Perquisites and Benefits: Company meal coupons tax-free, company transport, etc.

These still give room to minimize taxable income using the simplified structure.

Changes in Income Tax Effective 1 April 2025

1. Slab Rate Relaxation: New and more generous exemption limits.

2. Rebate Relaxation: Complete tax rebate on amounts up to 12 lakh.

3. TDS Threshold Relaxation: Increased professional fee, rent, etc.

4. Fewer Deductions: Makes compliance easy and minimizes paperwork.

Conclusion

The proposed taxation regime of FY 2025-26 aims to streamline the tax system and increase the income of middle classes by providing increased exemptions and rebates. Although the old regime still suits those who deduct heavily, the new regime guarantees zero taxes on incomes below 12 lakh, thus a good option for most people.

Before filing their returns, taxpayers should compare the two regimes using a tax calculator to make sure that they would save the most