With the new financial year 2025-26, there have been major changes in India’s tax system which affect planning for taxpayers. The Income Tax Amendment Bill 2025, along with the Finance Bill 2024, has proposed measures to improve ease of doing business while increasing the available income for spending. The tax slabs for individuals along with available deductions have been enhanced, which is beneficial for taxpayers, senior citizens and businesses. The article here talks about the changes to income tax slabs and other rules effective from April 1, 2025, so that you can plan ahead.
New Tax Regime Is The Default
The new tax regime under Section 115BAC has been set as the default option for individuals and HUFs, as well as other eligible taxpayers. While the deductions are lower compared to the old regime, the new regime provides lower tax rates. Taxpayers can opt-out annually for non-business income with the old regime by opting in for the new tax regime in their ITR. For those with business income, opting out requires filing Form-10-IEA, but there is a one-time switch in the old regime allowed.
New Tax Slabs Announced For FY 2025 2026
To ease the tax burden on individual taxpayers, the new tax regime introduces progressive slabs. The new regime sets the tax-free limit at ₹4 lakh, with further increments to 5% at ₹4-8 lakh, 10% at ₹8-12 lakh, 15% at ₹12-16 lakh, 20% at ₹16-20 lakh, 25% at ₹20-24 lakh and a steep 30% for anything above ₹24 lakh. For middle-class and salary-class individual taxpayers, the 25% slab on ₹20-24 lakh is very appealing. The old regime is at a comparative disadvantage as it applies harsher rates for earnings above ₹5.5 lakh with 20% tax and 30% tax for earnings above ₹16 lakh while accommodating deductions such as HRA and 80C.
| Income Range (₹) | New Regime Rate (%) | Old Regime Rate (%) |
|---|---|---|
| Up to 4,00,000 | 0 | 0 |
| 4,00,001–8,00,000 | 5 | 5 |
| 8,00,001–12,00,000 | 10 | 20 |
| 12,00,001–16,00,000 | 15 | 20 |
| 16,00,001–20,00,000 | 20 | 30 |
| 20,00,001–24,00,000 | 25 | 30 |
| Above 24,00,000 | 30 | 30 |
Increased Rebates And Deduction On Tax
As for the new regime, the rebate under section 87A has now been increased to ₹60,000, effectively offering zero tax liability for incomes up to ₹12 lakh. Salary class individuals will now enjoy increased standard deductions of up to ₹75,000 which in turn reduces the taxable income. The old regime also benefits individual taxpayers with significant investments due to the deductions which include ₹2 lakh on housing loan interest under section 24(b).
Easing Compliance Burdens
Under the new Income Tax Bill 2025, replacing the 1961 Act, there is a reduction of sections from 819 to 536, which simplifies enforcement. Tax deductors’ burdens are alleviated with the elimination of sections 206AB and 206CCA where there need not be verification of return submission by the recipients. There is an extension on the deadline for updated ITRs to 48 months which is incentivising the disclosure of unreported income.
Benefits For Senior Citizens
Elderly citizens above 75 years of age, with only a pension and interest income from specified banks, do not need to lodge under section 194P. There is still a deduction of ₹50,000 on income interest under section 80TTB which does not incur TDS if below this threshold. Also, resident senior citizens with no business income are freed from the obligation of advance tax.
Additional Important Amendments
Starting from April 2025, buyback proceeds of shares will be taxed at slab rates for the shareholders instead of the former 20% DDT. Also, there will be TCS on purchases of luxury goods above ₹10 lakh, and interest on RBI Floating Rate Bonds exceeding ₹10,000 a month will incur TDS. These all aim to increase compliance and boost transparency.
Start Preparing For 2025
2025 brings a simplification of the tax rules while also providing relief to the taxpayers. Making the most of these changes requires decisions to be made on the individual’s part. Whether one opts for the new regime offering reduced rates, or the old one with more deductions, the decision requires a well thought out approach for maximal benefit.
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