Income tax slab changes: The new tax regime is the default tax regime

New income tax slabs in Budget 2025: 30% tax now starts at Rs 24 lakh, 25% tax rate introduced for incomes between Rs 20-Rs 24 lakh The highest tax rate of 30% is applicable from net taxable income above Rs 15 lakh. However, the new tax regime offers limited deductions to the taxpayer. Given below are the income tax slabs proposed for the upcoming financial year 2025-26 and the current financial year 2024-25

The new income tax slabs have been announced by Finance Minister Nirmala Sitharaman in the Union Budget 2025. The new income tax slabs under new tax regime are as follows:

Income tax slabs (In Rs)	Income tax rate (%)
Up to 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	24%
Above 24,00,001	30%

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Apart from rejigging the income tax slabs, the government has increased the tax rebate available under Section 87A. Due to this, an individual having net taxable income up to Rs 12 lakh will not be required to pay any tax.

The new income tax laws will be effective from the new FY 2025-26, starting from April 1, 2025, provided the proposals are passed by Parliament as presented.

Latest features of the new tax regime
The new tax regime is the default tax regime. This tax regime offers a basic exemption limit of Rs 3 lakh to all taxpayers, irrespective of their age. This means that no tax is payable if gross income in a financial year does not exceed Rs 3 lakh. However, unlike the old tax regime, the new tax regime offers limited deductions to the taxpayers.

Current income tax slabs under new tax regime

Income tax slabs (In Rs)	Income tax rate (%)
Up to 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%

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The new tax regime offers five income tax slabs to taxpayers. The highest income tax rate of 30% is applicable if the net taxable income exceeds Rs 15 lakh.

The new tax regime offers a tax rebate of Rs 25,000 under Section 87A. The tax rebate is applicable if the net taxable income does not exceed Rs 7 lakh. The new tax regime offers marginal tax relief for small taxpayers whose incomes exceed Rs 7 lakh by a small amount.

Deductions available under new tax regime

The new tax regime was introduced in FY 2020-21 to offer lower tax rates to taxpayers, however, without any common deductions and exemptions. Over the years, to enhance the appeal, the government has introduced and hiked the limits of deductions available under the new tax regime.

Current income tax rules allow a salaried taxpayer to claim the standard deduction and employer contribution to the NPS account Tier-1. The standard deduction of Rs 75,000 can be claimed from the gross salary income. On the other hand, an employer's contribution to the Tier-1 NPS account is available under Section 80CCD (2). A maximum deduction of 14% of the basic salary is allowed as a deduction from gross taxable income.

The new tax regime also offers a lower surcharge of 25% on incomes above Rs 2 crore.

Which tax regime is the default option for taxpayers?

The new tax regime became effective from FY 2020-21 (from April 1, 2020). At the time of the announcement, the new tax regime was optional. A taxpayer was required to specifically opt for it.
Now that the new tax regime has become the default option from April 1, 2023, an individual has to specifically opt for the old tax regime to claim tax exemptions and deductions under the latter.

How to choose between new and old tax regime

A salaried individual (not having any business income) is required to choose between the two tax regimes every financial year. The choice has to be exercised at the time of filing an income tax return.

To pay income tax under the old tax regime, an individual has to select "No for opting under Section 115BAC (new tax regime)" in the ITR form.

However, taxpayers having business income cannot choose between the two regimes every year. Those who want to continue with the old tax regime have to fill out Form 10-IEA. However, they have once in a lifetime opportunity to switch to the new tax regime. Once they choose the new tax regime, they cannot switch back to the old tax regime.

This story originally appeared on: India Times - Author:Faqs of Insurances