25% slab introduced for high earners and tax relief up to 30.8% for middle-income group

New income tax slabs, rates in new tax regime for FY2025-26: How much tax is saved at different income levels Read this table to see how much tax you can save at different income levels ranging from Rs 9 lakh to Rs 2.4 crore

The budget has offered a bonanza to taxpayers who opt for the new tax regime by offering full tax exemption to those earning up to ₹12 lakh a year, raising the basic exemption limit to ₹4 lakh and widening the tax slabs. It has also introduced an additional 25% tax slab for incomes ranging between ₹20 lakh and ₹24 lakh. The proposed changes could substantially increase the disposable income available to both middle-class and high-income earners.

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The benefit will be more pronounced at the bottom of the income pyramid. With no tax liability up to ₹12 lakh, households will have more room to manage expenses such as education, healthcare, and home loan EMIs. Middle-class taxpayers earning ₹24-30 lakh a year will see their annual tax liability dip by about ₹1.1 lakh, while upper middle-class taxpayers earning ₹60-70 lakh will pay ₹1.25 lakh less tax in a year.
In the case of salaried individuals, who are allowed a standard deduction of ₹75,000, there will not be any tax on annual income up to ₹12.75 lakh.

Also read | Income Tax Calculator FY 2025-26

Raising the basic exemption limit to ₹4 lakh reduces the tax burden on all taxpayers, especially those in lower income brackets. The introduction of a 25% tax slab for incomes between ₹20 lakh and ₹24 lakh will benefit high-income earners more.

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New & Nifty I-T Slabs Will Make Taxpayers Splurge and Indulge

But these changes apply only to the new tax regime. There is no change in the old tax regime, except that the NPS Vatsalya scheme for children will now fetch a tax deduction under Section 80CCD(1b) for the parent or guardian. The budget proposals align with the government's goal of making the new tax regime more beneficial, encouraging taxpayers to move from the old system.

The finance minister clarified that the tax relief available for taxpayers with a total income of up to ₹12 lakh will not be applicable against income taxed at special rates. "This means taxpayers will continue to pay taxes on capital gains irrespective of the increased limit," said Amit Maheshwari, partner, tax, AKM Global.

Check here | New Income tax slabs FY 2025-26

Despite the changes in the new tax regime, the old system still means lower taxes for those who claim tax deductions and exemptions. In the old regime, many emoluments such as house rent allowance, reimbursements for travel, fuel and phone expenses, and leave travel allowance are tax free under certain conditions. Home loan interest, tax-saving investments and medical insurance premiums are also tax deductible. An individual earning ₹24 lakh a year and claiming deductions and exemptions of ₹8.5 lakh will be better off under the old regime.

Even so, the budget proposals are a major relief for the middle class because it frees up a significant portion of their earnings for savings, investments, and consumption. Analysts say this boost in disposable income is expected to drive greater consumer spending, which in turn will bolster the slowing economy.

The budget has also eased tax compliance by extending the time limit for filing updated returns from two years to four years. However, the penal tax payable on the additional income declared has been raised from 25% to 60% if the returns are filed more than two years after the end of the relevant assessment year.

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