🚀 Union Budget 2025: Game-Changing Relief for Middle-Income Earners
In a move aimed at boosting disposable incomes and simplifying compliance, the Union Budget 2025 has raised the zero-tax threshold to ₹12 lakh under the new tax regime for FY 2025-26 (AY 2026-27).
Thanks to an enhanced Section 87A rebate of ₹60,000, taxable incomes up to ₹12 lakh will attract zero tax under the new regime (Economic Times, BankBazaar).
For salaried individuals, the increased standard deduction of ₹75,000 further increases the effective tax-free threshold to ₹12.75 lakh (PIB, IndiaFilings).
📊 New Income Tax Slabs Under the New Regime (FY 2025-26)
Here’s a clear table for your quick reference:
| Taxable Income | Tax Rate |
|---|---|
| ₹0 – ₹4 lakh | 0% |
| ₹4 – ₹8 lakh | 5% |
| ₹8 – ₹12 lakh | 10% |
| ₹12 – ₹16 lakh | 15% |
| ₹16 – ₹20 lakh | 20% |
| ₹20 – ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
(Reuters, Bajaj Finserv, PIB)
✅ What This Means for You
1️⃣ Zero Tax on Incomes Up to ₹12 Lakh:
Under the new regime, you pay zero tax on net taxable income up to ₹12 lakh.
2️⃣ Salaried Individuals’ Benefit:
With a standard deduction of ₹75,000, salaried individuals enjoy a tax-free threshold of ₹12.75 lakh (Wikipedia).
3️⃣ Increased Basic Exemption Limit:
The basic exemption limit under the new regime has been raised from ₹3 lakh to ₹4 lakh (ClearTax).
💡 Why This Matters
The tweak in slabs simplifies tax planning and offers a no-fuss structure for middle-income earners who do not wish to navigate complex deductions or exemptions while filing returns.
It:
✅ Increases disposable income for consumption and savings.
✅ Eases compliance for taxpayers, especially the salaried class.
✅ Encourages honest voluntary compliance with simplified slabs.
🛍️ Economic Impact of the New Tax Slabs
This move is projected to forgo ~₹1 lakh crore in tax revenue to the government, indicating a strong push to boost consumption and revive economic momentum.
Consumer-focused sectors like FMCG, auto, and real estate have reacted positively, with stocks rising post-announcement (Reuters).
🧭 Choosing Between New vs. Old Regime: What’s Best for You?
✅ Opt for the New Regime If:
✅ Your net taxable income (after standard deduction) is up to ₹12-12.75 lakh.
✅ You do not claim major deductions under 80C (PF, ELSS), HRA, home loan interest, or other exemptions.
✅ You prefer simplicity and lower compliance burden.
✅ Consider the Old Regime If:
✅ Your income exceeds ₹12-13 lakh, and you can claim significant deductions like:
- Section 80C (up to ₹1.5 lakh)
- 80D (Health insurance)
- HRA (House Rent Allowance)
- Home loan interest under Section 24(b)
- NPS contributions
✅ You want to optimize your taxable income using these deductions.
🪐 Example Scenarios
👤 Example 1: Salaried Individual Earning ₹12 Lakh
- Standard deduction: ₹75,000
- Net taxable income: ₹11.25 lakh
- Tax under the new regime: ₹0 (due to Section 87A enhanced rebate)
Best Option: New regime
👤 Example 2: Individual Earning ₹18 Lakh with ₹3 Lakh Deductions
- Gross income: ₹18 lakh
- Deductions (80C, 80D, HRA): ₹3 lakh
- Net taxable income under old regime: ₹15 lakh
Tax under old regime vs new regime should be compared to determine optimal savings.
🔍 Why This Regime Benefits Middle-Income Earners
✅ Zero tax for incomes up to ₹12 lakh makes it ideal for most middle-income earners without heavy deductions.
✅ Simplifies filing for freelancers, salaried individuals, and small business owners under presumptive taxation.
✅ Eases cash flow and increases post-tax income, aiding investments or essential consumption.
🗂️ Comparison: New vs. Old Regime (FY 2025-26)
| Aspect | New Regime | Old Regime |
|---|---|---|
| Zero tax limit | ₹12 lakh (₹12.75 lakh for salaried) | Up to ₹2.5 lakh (₹3 lakh for seniors) |
| Standard deduction | ₹75,000 | ₹75,000 |
| Deductions (80C, HRA, etc.) | ❌ Not allowed | ✅ Allowed |
| Ease of filing | High | Moderate |
| Ideal for | Those without major deductions | Those with significant deductions |
🛠️ Action Plan for You
✅ Assess your income and potential deductions.
✅ Compare tax liability under both regimes using online calculators.
✅ If you’re a salaried employee, consider submitting Form 10-IEA to opt for your chosen regime at the start of the year.
✅ Use the Income Tax Calculator on the IT portal for precise comparisons.
💬 FAQs
Q: Is the new zero-tax limit applicable under the old regime?
No, it is only applicable under the new tax regime.
Q: Do I still get the standard deduction under the new regime?
Yes, you get the enhanced standard deduction of ₹75,000 under the new regime.
Q: Can I switch regimes next year?
Yes, salaried taxpayers can switch between the new and old regimes each financial year.
Q: Is the Section 87A rebate available under the old regime?
Yes, but it is limited and tied to lower income thresholds under the old slabs.
🚀 Final Takeaway
✅ The Union Budget 2025’s zero-tax slab up to ₹12 lakh (₹12.75 lakh for salaried) under the new tax regime is a significant relief for taxpayers.
✅ It simplifies filing, reduces tax outgo, and leaves more cash in your hand.
✅ For those with higher incomes and large deductions, it’s wise to compare both regimes to decide the best path for FY 2025-26.
📌 Call to Action
Want personalized tax planning to choose the best regime for FY 2025-26?
✅ Book a Free Tax Consultation
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